American CEO, former chairman of Enron, which filed for Chapter 11 bankruptcy on December 2, 2001, the biggest bankruptcy in U.S. history. The Houston, TX corporation was ranked by Fortune as the seventh largest company in the U.S. in 2001. In November 2001, it had been considered a stable risk for investors. Nevertheless, there was an undercurrent of rumors that its much-touted stability was not entirely credible. When the giant collapsed, billions in stockholder equity evaporated, and many people lost their entire life savings and retirement security.
However, unknown to the investor, major shareholders and officers had been quietly selling off millions of dollars of stock for as long as the prior six months. The ensuing shareholder lawsuit named 29 former and current Enron executives as defendants, charging that they made $1.1 BILLION by selling Enron stock between October 1998 and November 2001. If Ken Lay had joined them, he could have received a “golden parachute” in excess of $25 million, but he stayed with the beleaguered company to the end, departing in disgrace in January 2002.
Ken Lay had been one of the founders of Enron in 1985. He became CEO in 1999, making about $200 million a year in salary, stock and other compensations. Lay was a pleasant-looking man of average appearance and moderate height, a bland smile and a receding hairline. The son of a Baptist preacher and some-time tractor salesman, he came from a family so poor that they were not always able to celebrate holidays, eating cold-cuts one Thanksgiving. His dad preached optimism, and Lay always had the credo that “things would work out.” No party-boy, he was president of a dry fraternity at the U. of Missouri where he was a Phi Beta Kappa graduate in economics. Upon graduation, he began his career in 1965 as a corporate economist with Exxon Company. He later earned a PhD in economics from the University of Houston.
After serving as an officer in the U.S. Navy, Lay held the positions of Technical Assistant to the Commissioner of the Federal Energy Regulatory Commission and Deputy Undersecretary of the U.S. Department of Interior. Additionally, while in Washington, he was an assistant professor at George Washington University, teaching graduate courses in micro- and macro-economic theory and government-business relations.
Lay learned favor-trading and influence peddling in the early ‘70s as a federal energy regulator. He was President of Continental Resources Company (formerly Florida Gas Company) and Executive Vice President of the Continental Group, the parent company of Continental Resources Company, before joining Transco Energy Company in May 1981. When energy was deregulated by the Reagan administration, Lay was already on the playing field and he took advantage of the new climate by merging Houston Natural Gas Co. with Nebraska-based Inter-North. His ambitions were to make the sum of the whole much greater than the sum of the parts. He took the two small pipeline companies in July 1985 and began a casino of moving everything around, taking stock positions, hedging and betting. By 2000, Enron had achieved immense growth.
To attract top-level wheelers and dealers, Lay also undertook to fix up Houston. One of his favorite phrases is “world class,” and he set about up-scaling the Houston opera, ballet, symphony and museums and adding a new $250 million ballpark, Enron Field. At the same time he was a champion fund-raiser for local and national charities, astute about spreading good will on politicians and power-brokers. Lay wrote checks; Enron got exempted from various state and local regulations. Between February and October 2001, he used his $7.5 million revolving credit line with the company, repaying his loans back to Enron with Enron stock.
Lay had divorced his first wife in 1982 and married Linda, his former secretary, a month later. They had five kids, David, Mark, Beau, Robyn and Elizabeth. He and Linda were regulars on the Houston social scene, friendly with everyone. Together they enjoyed their rich lifestyle, spending $200,000 on a cruise vacation just a few months before the company collapsed. Lay admitted “We had realized the American dream, and were living a very expensive lifestyle, the type of lifestyle where it is difficult to turn off the spigot.”
By 1998, Enron was plumping its stock with well-padded quarterly reports, as well as creating off-the-books partnerships which made it virtually impossible to trace their financial status. In January 2001, Ken turned over the CEO job to Jeff Skilling, a Harvard MBA described as being as abrasive as Lay is smooth. In August 2001, Skilling abruptly resigned, citing family reasons. The company was beginning to crack and slide. The coming collapse was not a surprise to the insiders. On August 14, 2001, Enron employee Sherron Watkins wrote a seven-page memo that included the statement, “I am incredibly nervous that we will implode in a wave of accounting scandals.” This became the smoking gun in the investigation of alleged financial chicanery at Enron and its accounting firm, Arthur Anderson. Both companies were found to shred documents even after Congress opened what was to become a criminal investigation. The inevitable series of lawsuits and congressional investigations began on February 4, 2002.
Proclaiming his innocence, Kenneth Lay announced on July 7, 2004 that he had been indicted by a Houston grand jury on charges connected to the collapse of Enron. Lay turned himself in to authorities the next day and was charged with 11 criminal counts including bank fraud, share trading fraud and making false statements. The Securities and Exchange Commission separately filed civil charges against Lay for securities fraud resulting in over $90 million in gains from stock sales.
On May 25, 2006, the ex-CEO was convicted of all six conspiracy and fraud charges in the Enron scandal as well as four counts of bank fraud and making false statements to banks. While he was awaiting sentencing, he died on July 5, 2006 of a heart attack. News reports said that an ambulance was summoned at 1:41 AM local time to the Old Snowmass, CO home in which he and his wife were vacationing. He was rushed to Aspen Valley Hospital where at 3:11 AM he was pronounced dead. Lay was 64 years old.
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