Lay’s Silence Draws Wrath From Senators

Former Enron Corp. Chairman Kenneth L. Lay invoked his 5th Amendment right against self-incrimination before Congress on Tuesday, enduring withering criticism and comparisons to a con man for his role in the biggest corporate bankruptcy in U.S. history.

At a separate hearing Tuesday, five former chairmen of the Securities and Exchange Commission agreed that Congress should act to bolster investor confidence in the financial markets and improve the independence of auditors.

In his first Capitol Hill appearance since his company’s collapse, Lay expressed “profound sadness about what has happened to Enron” and said he was invoking the 5th Amendment reluctantly “because it may be perceived by some that I have something to hide.”

His refusal to testify drew the fury of members of the Senate Commerce Committee, who faulted Lay for failing to do more to prevent the company’s collapse.

“Mr. Lay, I’ve concluded that you’re perhaps the most accomplished confidence man since Charles Ponzi,” Sen. Peter Fitzgerald (R-Ill.) lectured him. “I’d say you were a carnival barker, except that wouldn’t be fair to carnival barkers. A carny will at least tell you up front that he’s running a shell game.”

“I find ignorance a difficult defense,” Sen. Jean Carnahan (D-Mo.) added. “You and the top executives at Enron were paid enormous sums of money, presumably because of your financial and management expertise. It was your job to understand what the company was doing.”

Sen. Ernest F. Hollings (D-S.C.), the committee chairman, referred to Lay as “Kenny Boy”--the nickname that President Bush gave him--and said he hoped that the energy trader’s collapse would spur the House to approve a campaign finance reform measure today.

“I hope that this shames us into acting,” he said. “We’ve got to clean up our own act.”

Lay was the sixth witness in Congress’ Enron investigations to invoke the 5th Amendment. Four current or former Enron executives, including former Chief Financial Officer Andrew S. Fastow, declined to testify, as did David B. Duncan, the Andersen partner who headed the Enron audit and was fired for shredding documents.

Jeffrey K. Skilling--who served as Enron chief executive for six months last year--testified for several hours last week under skeptical questioning from lawmakers.

After enduring an hour of blistering criticism on everything from the company’s global ventures to its alleged gouging of Californians during last year’s electricity crisis, Lay raised his right hand to be sworn in. Appearing under a subpoena, Lay, 59, told lawmakers that he wanted to tell his story--but, after much agonizing, bowed to his attorney’s advice and invoked his 5th Amendment right.

“I am deeply troubled about asserting these rights,” Lay said at the packed hearing.

Citing a Supreme Court ruling calling the 5th Amendment a protection for the innocent, Lay--who was forced to resign as chairman and chief executive Jan. 23--asked lawmakers “not to draw a negative inference” because he was asserting his constitutional right.

“His every instinct, his every desire, was to testify,” his attorney, Earl J. Silbert, a former Watergate prosecutor, said after the hearing. “Frankly, it was only on my insistence that he [did] not do so.”

Later, the Senate panel heard from William C. Powers, an Enron board member and dean of the University of Texas Law School, whose internal investigation of the company found that accounting abuses masked more than $1 billion in losses in a one-year period.

The report blamed Enron management, the Andersen accounting firm, company lawyers and Enron’s board for authorizing--and failing to oversee--off-the-books partnerships whose losses helped spark the company’s Chapter 11 bankruptcy protection filing Dec. 2.

Among other points, senators had intended to question Lay about why his signature appears on a June 2000 approval sheet for a deal between Enron and the LJM2 partnership. Lay told the Powers investigating team that he was unaware of the details of the partnerships, but his signature on the approval sheet suggests that he signed off on at least one of the questionable transactions.

Lay told internal investigators he thought the transactions were OK “because Andersen had signed off on them,” Powers told senators Tuesday. Andersen spokesman Patrick Dorton responded, “There is a difference between structuring these transactions and offering accounting advice.”

Lay originally was to appear voluntarily before congressional panels last week, but he abruptly backed out because of what his lawyer called “prosecutorial” comments of lawmakers on talk shows. He also was subpoenaed to appear Thursday before the House Financial Services subcommittee on capital markets, where he plans to assert the 5th Amendment.

The five former SEC chairmen--whose tenures spanned 25 years and five presidents--appeared Tuesday before the Senate Banking Committee. With few exceptions, Arthur Levitt, Richard C. Breeden, David Ruder, Harold M. Williams and Roderick M. Hills endorsed restrictions on auditing firms that also provide consulting services to their clients; faster and fuller disclosure on insider stock sales and special-purpose entities such as the Enron partnerships; mandatory replacement of accounting firms after five to seven years of working for one client; and a new oversight board to regulate accountants.

They also expressed disappointment that the recently released White House budget did not include increased pay for SEC enforcement agents.

“We have had consistent failure of self-regulation in the accounting industry,” Breeden said.

Levitt said he did not believe that a proposal by current SEC Chairman Harvey L. Pitt to create a new oversight board has enough enforcement teeth.

Today, a bipartisan group of senators plans to introduce a bill designed to plug a corporate tax loophole that allows a company to deduct multimillion-dollar pay from their income taxes even though the pay never appears on the company books as an expense.

Also, Rep. John A. Boehner (R-Ohio), chairman of the House Committee on Education and the Workforce, plans to introduce President Bush’s pension reform proposals, which would, among other things, give employees the right to sell company stock and diversify into other investment options after they have participated in a 401(k) plan for three years.

An Education and the Workforce subcommittee on employer-employee relations has scheduled a hearing on retirement security for this afternoon.

Thursday, the House Energy and Commerce Committee is expected to hear the testimony of Enron Vice President Sherron S. Watkins, whose August memos to Lay warned of an impending accounting scandal.