Jail bound
Lay says he was forced to sell Enron stock, prosecutors disagree
Updated 5/1/2006 2:36 PM ET E-mail | Save | Print | Subscribe to stories like this
By Greg Farrell, USA TODAY
HOUSTON — Former Enron CEO Ken Lay sold tens of millions of dollars of Enron stock in 2001 to finance a lavish lifestyle that included chartered boats and holidays on the French Riviera and in Mexico, a prosecutor said in court here Monday morning.
In testimony last week, Lay described his sales of Enron stock in 2001, which totaled $70 million, as "forced" by banks making margin calls on loans secured by Enron stock. Throughout much of 2001, Enron's stock price fell, precipitating those margin calls, he said.
Under questioning from prosecutor John Hueston, Lay acknowledged that some of his stock sales, which did not have to be immediately disclosed to the investing public, were used to finance his lifestyle. But Lay insisted the sales that occurred after he resumed the CEO title in August 2001, following the resignation of Jeff Skilling, were forced and that he only sold Enron stock because he had no other liquid assets.
The government has accused Lay, 64, and Skilling, 52, of conspiring to hide the true state of Enron's financial condition from the investing public between 1999 and 2001. In particular, Lay is accused of making bullish statements about Enron to investors and employees in the fall of 2001. In September of that year, for example, Lay told employees that Enron's stock was undervalued and that he had recently bought stock.
Prosecutors have demonstrated that even while Lay was buying $4 million in Enron stock, he was unloading more than $20 million through a line-of-credit program at Enron that did not require immediate public disclosure of the stock sales.
Moreover, Lay sold his Enron stock to pay down personal debt even though he had access to more than $10 million in cash and other stocks that could be sold quickly. In addition to his stocks, Lay owned a $10 million luxury apartment in Houston and $20 million in other real estate, mostly from three homes in Aspen, Colo.
Lay and his attorneys have insisted throughout the trial that he sold his Enron stock only as a last resort to fend off bank creditors. As Hueston reminded him over and over again about the choices he made to sell Enron stock instead of liquidating other assets, Lay repeated his response.
"I always thought Enron stock was undervalued," he said. Lay said he thought the value of Enron stock would bounce back quickly and that he wouldn't have to keep selling.