Ken Lay

Disgraced founder of Enron, convicted on 10 fraud charges
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The Independent Online

When Ken Lay was paraded in handcuffs to a Houston courthouse two years ago this month, to be indicted for presiding over a massive fraud at Enron, the energy company he created, it provided the image that defined a whole era of boardroom excess and malfeasance in America.

Enron's collapse into bankruptcy in 2001 was the most shocking of a string of scandals that came with the end of a long stockmarket boom. And it turned Lay from one of the grandees of US business - a friend of two Presidents and once spoken of as a future energy secretary in the younger Bush's administration - into an icon of corporate greed.

His death came as he awaited sentencing on 10 fraud charges, the result of a Houston jury's deciding in May that Lay had conspired to present a false picture of Enron's financial health. In its pomp it had been the seventh largest in America, and the most admired, but at its heart lay a financial black hole that eventually consumed it.

Lay had argued all along that the collapse of Enron was a monumental tragedy, not the result of fraud. Friends said he had been devastated by the verdict, barely able even to comprehend it. His lawyers had been preparing an appeal, but he was facing the rest of his life behind bars.

Born in 1942, the son of a Missouri Baptist minister, Lay came from a very modest background but always dreamt of becoming rich - a goal he pursued with single-minded determination after graduating in economics from the University of Missouri and, later, gaining a doctorate from the University of Texas. He joined the navy, served his time at the Pentagon, and then served as under-secretary for the Department of the Interior before he returned to business. As an ambitious young executive in the Texas oil industry, he moved to take advantage of deregulation of the energy markets in the Eighties, and created Enron in 1985 through the merger of two small pipeline companies.

Enron was the first company to boast a coast-to-coast network of gas pipelines, and Lay kept it at the forefront of innovation in the industry over the next 15 years. While power plants and pipelines remained the backbone of Enron's assets, by hiring the smartest young executives the company kept inventing new ways to make money. By 2000, it was trading oil, gas and electricity as if they were stocks and shares, and was also starting to trade spare capacity on the nation's broadband internet network. The outside world believed Lay's boasts that Enron was the "Microsoft of the energy markets" and "the world's best company".

Lay relished the power and prestige that Enron's success gave him, using his position to lobby for ever-lighter regulation but also to talk up his adopted Houston as a place to do business, and pouring millions into philanthropic ventures in the city.

He also remained close to the Bush family, as golf partner to George Bush Snr and an informal adviser to George W. Over the years, Enron contributed $600,000 to the latter's political campaigns, and Enron jets helped to ferry the Bush team back and forth from Florida during the contested aftermath of the 2000 election. A grateful President nicknamed him "Kenny Boy".

Lay was famed for an avuncular manner that endeared him to employees, business partners and politicians alike. He was most often described as grandfatherly. It seemed at first that he might be spared the worst of the reputation fall-out from Enron's shockingly swift slide into bankruptcy. Andrew Fastow, the chief financial officer, pleaded guilty to fraud over the labyrinthine financial structures which hid massive off-balance-sheet liabilities. Jeffrey Skilling, the aggressive executive who served as Lay's deputy in Enron's final years, was seen as the architect of Enron's excessively macho corporate culture.

But Lay stood accused of sending fraudulently upbeat messages to Wall Street - and, unforgivably in many eyes, to employees. This despite being warned in the summer of 2001 that Enron was a house of cards. Sherron Watkins, the finance department employee who emerged as the only person with any credit from the whole saga, wrote Lay a memo which predicted Enron could "implode in a wave of accounting scandals". Lay's testy manner on the witness stand, and his claim that executives should be aware of rules "but not be bound by them", convinced the jury that fraud went right to the top and that Lay was turning a blind eye.

Lay's version of events may yet be vindicated on appeal, since Skilling, his co-defendant, will certainly pursue an appeal. The pair argued that Enron's complex financial side deals were not aimed at fraudulently propping up profits but were in fact legitimate business deals. Enron would still be one of America's largest companies today were it not for "a classic run on the bank" triggered by negative articles in the press about Fastow's small frauds. Lay has insisted on his innocence throughout the run-up to the trial on his own personal website and through his wife Linda in her interviews on talk-shows.

Thousands of Enron employees, though, will never forgive Lay and Skilling for their upbeat assessment of the company's health, which led them to pour not just their pensions but also spare savings into the company's shares.

The 10 guilty verdicts for Lay, and 19 for Skilling, were seen as catharsis for the wave of accounting scandals that shook corporate America in the early 2000s. The bankruptcy of WorldCom in 2002 was bigger, executives such as Dennis Kozlowski at Tyco enriched themselves more outrageously, but Enron is the byword for corruption.

The effects of its collapse are still being felt in the draconian Sarbanes-Oxley accounting rules that were imposed by Congress in its wake. Many businessmen fear that America is losing its economic edge as a result. Arthur Andersen, the historic firm which acted as Enron's auditors and signed off on many of its accounting wheezes, was wiped out.

Lay characterised the collapse of Enron as a tragedy, brought on because outsiders lost confidence in the company and stopped trading with it. It was certainly a personal tragedy, shredding a golden business reputation forged over more than 15 years and reducing his $400m-plus fortune to what he described in court as "negative assets". His second wife, his former secretary, Linda Phillips, even opened an antique shop to sell the couple's furniture.

Linda and his first wife, his college sweetheart Judith Ayers, who is the mother of his two children, were both in court to support Lay during his 14-week trial. After the verdicts were read out, and as Skilling and his lawyers were already facing the media, the Lay family had remained in the empty courthouse with their pastor to pray.

"In spite of what has happened, I am still a very blessed man," he subsequently wrote on his personal website:

Most of all, my family and I believe that God is in control and, indeed, He does work all things for good for those who love the Lord. And we love our Lord.

Stephen Foley