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. Last Updated: 07/27/2016

Enron's Lay Refuses to Testify

WASHINGTON -- Former Enron chairman Kenneth Lay on Sunday night abruptly canceled a much anticipated appearance Monday before a U.S. Senate panel in the wake of a scathing report on the management failures and self-dealing that led to his company's spectacular collapse.

Key members of Congress, reacting to the report released this weekend, said Sunday that top officials of the bankrupt energy trader might have engaged in securities fraud in booking $1 billion in non-existent profits over the past 15 months.

"Clearly some things have happened that are going to put some people into real jeopardy and trouble," Senator Byran Dorgan, Democrat-North Dakota, member of the Senate panel that was to question Lay, said in comments on NBC's "Meet the Press."

"This is almost a culture of corporate corruption," he said.

House Energy and Commerce Chairman Billy Tauzin, Democrat-Lousianna, appearing on the same program, agreed, saying "maybe somebody ought to go to the pokey [jail] for this."

Lay's lawyer, Earl Silbert, seized on the comments, telling Congress in a letter Sunday evening that he advised Lay not to testify. Silbert said Lay was prepared to answer critics of his stewardship of Enron, but, he said, "these inflammatory statements show that judgments have been reached and the tenor of the hearing will be prosecutorial."

Dorgan said in an interview Sunday night he believes the report itself "tipped the balance" and led Lay and his legal team to conclude he could place himself in greater legal jeopardy by testifying. "I can't believe he ever thought it would be a walk in the park to testify before Congress," said Dorgan.

The assessments of Lay's leadership and Enron corporate culture were withering Sunday, one day after the release of the report for the Enron board of directors prepared under the direction of William Powers, dean of the University of Texas School of Law. Powers joined the Enron board Oct. 31 after the company reported its third-quarter loss and appointed an investigating committee.

The committee investigated only a handful of the more than 1,000 partnerships Enron established and found that executives manipulated the company's financial condition in several transactions with these partnerships. At the same time, insiders made hundreds of millions of dollars in the sale of Enron stock.

Lay was portrayed in the report as a lax manager who "bears significant responsibility for those flawed decisions" to create off-the-books partnerships and let others run them.

"They were doing almost no business, but they manufacture income from a bank loan," Dorgan said. "That's the kind of thing that went on over and over and over again. We want to know what Ken Lay knew."

The Justice Department is conducting an investigation into Enron's collapse. Witnesses called before Congress amid a criminal investigation are often advised by lawyers not to testify because they may open themselves to charges of perjury or false statements.

Experts in securities law said the findings in the 218-page report suggest former Enron chief financial officer Andrew Fastow, who received $30 million from partnerships he organized, is most vulnerable to criminal charges. They said the legal consequences of Enron's financial machinations are not clear-cut for Lay, former chief executive Jeffrey Skilling and Enron's board of directors.

Lawyers for Skilling and Fastow were unavailable for comment Sunday.

Fastow lawyers have told House investigators he would appear voluntarily before the House Energy and Commerce Committee on Thursday. Michael Kopper, a former Enron managing partner who worked for Fastow, was subpoenaed by the committee, but he has told investigators he would decline to testify citing his Fifth Amendment right against self incrimination.

Skilling, one of the architects of the company's off-the-books partnerships, sold $100 million in Enron stock since 1998. His profit from the sales is not known. He is scheduled to testify Thursday, and his lawyers have told the House panel he intends to appear.

Under criticism for its role in the Enron collapse, accounting firm Arthur Andersen announced Sunday that it would conduct a sweeping review of its business practices under the direction of an outsider, former Federal Reserve board chairman Paul Volcker. Andersen was paid $5.7 million to scrutinize the partnerships, in addition to its fees for auditing Enron's books.