Lay Accused of Deceiving Credit Firms

Former Enron Corp. Chief Executive Kenneth L. Lay lied to credit agencies to prop up the energy trader’s ratings even as its cash dwindled, the company’s former treasurer testified Wednesday.

Former Treasurer Ben Glisan Jr., 40, said Enron forewarned credit-rating company Moody’s Inc. that it would cut the value of some assets by $1 billion in October 2001, but Lay telephoned the firm to tell an analyst there that the company had no other skeletons to hide.

In fact, Glisan said, those asset write-downs should have been at least $3.5 billion, but he and Lay knew revealing such dramatically bad news would send the company into a death spiral.

“I and Mr. Lay provided assurances that there would be no further write-downs,” Glisan said. “We knew there were large embedded losses in several parts of the company.”

Glisan came out of prison to testify in federal court against Lay, 63, and former CEO Jeffrey K. Skilling, 52, who are on trial for conspiracy and fraud linked to the collapse of Enron in 2001. The trial began in late January.

Both men have denied any wrongdoing at Enron. They could face decades in jail if found guilty.

Glisan’s testimony put Lay at the center of the illicit dealings at Enron in its final months when Lay retook his former position as CEO after Skilling abruptly resigned from the job.

Credit-rating firms including Moody’s, Standard & Poor’s and Fitch Ratings had regarded Enron favorably even in October 2001, just weeks before what was once the seventh-largest U.S. company collapsed into bankruptcy.

But credit analysts at those rating companies were growing suspicious about Enron’s finances, and fears that those firms would cut Enron’s credit ratings sparked a panic inside the company.

A credit downgrade could have required Enron to come up with $20 billion to $25 billion just to cover its trading obligations, Glisan said, far more money than the company could raise in October 2001.

Glisan corroborated testimony from other witnesses in the trial that Lay was painting a rosy picture of the company’s finances even though he knew it was near to imploding.

“My conclusion was that bankruptcy was inevitable,” Glisan said, and he took those concerns to Lay.

“Did Mr. Lay seem surprised?” Assistant U.S. Atty. Kathryn Ruemmler asked.

“It’s more accurate to say he was nonresponsive and somewhat resigned,” Glisan answered.

Prosecutors showed that even after that warning, Lay continued to deny that Enron was in trouble, telling employees on Oct. 23, “Our liquidity is fine; in fact, it’s better than fine.”

Glisan is halfway through a five-year prison sentence he received after pleading guilty to a single conspiracy charge in 2003.

Glisan had testified in a 2004 trial that led to the convictions of four former Merrill Lynch bankers and one former Enron executive for the bogus sale of electricity barges that Enron owned in Nigeria.