Prosecutors Grill Lay on Enron Short-Selling Prosecutors challenge Enron founder Kenneth Lay's testimony that short-sellers were partly to blame for the company's collapse in 2001. As proof, lawyers showed that Lay's own son bet Enron's stock would drop. Lay has contended that short-sellers mounted a concerted attack on Enron stock.
NPR logo

Prosecutors Grill Lay on Enron Short-Selling

  • Download
  • <iframe src="https://www.npr.org/player/embed/5367132/5367133" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Prosecutors Grill Lay on Enron Short-Selling

Prosecutors Grill Lay on Enron Short-Selling

  • Download
  • <iframe src="https://www.npr.org/player/embed/5367132/5367133" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. In Houston, Kenneth Lay is on the stand for his second day of cross-examination. Lay is the former top executive at Enron, the man who came back from semiretirement and wound up presiding over the company's quick slide into bankruptcy and ruin. Yesterday prosecutors accused Lay of attempted witness tampering. Today, Kenneth Lay discovered that his own son was among those betting against Enron even as he struggled to save it. NPR's Wade Goodwyn joins us now from Houston, and, Wade, Lay and prosecutor John Hueston really went after each other yesterday. More of the same today?

WADE GOODWYN reporting:

Well, I'd say the tension level has been taken down a notch. Ken Lay has made it clear that he has an intense dislike of Assistant U.S. Attorney John Hueston. That's not surprising, since Hueston is trying to send him to prison for the rest of his life. Yesterday Lay let his anger flare out in the open several times, but today I'd say he's retreated into quiet but sometimes pointed hostility.

SIEGEL: I want you to tell us about this, I gather it was a surprise to Kenneth Lay when the prosecutors revealed that Lay's own son was betting against Enron in the stock market.

GOODWYN: It had to do, this all had to do with Lay's explanation for why Enron went bankrupt. Lay says the reasons for Enron going under was not because of the accounting shenanigans or the off balance sheet partnerships or any of that. Lay blames bad press, primarily the Wall Street Journal. He blames Andy Fastow, his former CFO, who stole millions from Enron. And he blames short sellers. A short seller is anyone who makes money by betting a stock will go down. It's a complicated process, and I won't bore you with the excruciating details.

SIEGEL: But are you saying that his own son was selling short on Enron?

GOODWYN: His own son. Anybody who wants to make money, you can bet a stock will go down. And today Hueston revealed that Mark Lay, Ken Lay's son, short sold stock, Enron stock, four times during the last year of the company's existence. And his, Lay's own lawyer has been calling these short sellers vultures. And Hueston kind of tore into Lay, saying, your son wasn't a vulture, wasn't he? He wasn't trying to kill Enron in 2001. And Lay kind of glumly said, I would think not.

I can understand Lay's son would not particularly want to tell his father that he'd been making a bunch of money by short selling Enron stock, but letting Dad find out in federal court wasn't so great, either. You could tell Ken Lay was shocked.

SIEGEL: Well, now, beyond Mark Lay's, that's the son's, investment strategy, the prosecutor also raised Ken Lay, the defendant's, stock transactions today.

GOODWYN: Yeah, in the last year of Enron's life, Lay sold $70 million in Enron stock to cover loan payments that he had coming due. Because he was selling them back to Enron and not on the open market, he didn't have to disclose these sales to the general public until the end of the year, and so, of course, Lay didn't. And Hueston made a big deal today out of the fact that Lay didn't voluntarily disclose these massive stock sales. Because, at the time, Lay was telling the employees and analysts that he was buying stock, which he was, on the open market, but he was selling a lot more back to Enron and keeping that quiet. One problem for Lay is the sheer volume, $70 million in just a few months. It was all legal, but Hueston pounded away at the fact that employees and analysts and the market, had they known about this, it would've had a huge impact on Enron's stock price. Lay fought back. He said it was all legal, he was only doing what his lawyers told him to do. But it was the appearance of this that could hurt him.

SIEGEL: Wade, the cross-examination continues tomorrow. How do you think Ken Lay's holding up through it?

GOODWYN: It'll continue Monday. There's no trial on Friday.

SIEGEL: On Monday.

GOODWYN: But, you know, Lay is a strong personality. He's very smart. He fights back constantly. He argues with Hueston, accuses him of mischaracterizing the facts, of twisting things to make them look bad. But by any measure, this has been a tough cross-examination for the defense. Hueston is steadily trying to undermine Lay's credibility, and Lay has been on the defensive since Hueston started in on him.

SIEGEL: Well, thanks for reporting on it for us.

GOODWYN: It's my pleasure.

SIEGEL: That's NPR's Wade Goodwyn, in Houston.

Copyright © 2006 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.