Former Enron Chairman Kenneth Lay, who became a symbol of corporate greed but an elusive target for investigators, was indicted Wednesday by a federal grand jury for his part in allegedly manipulating financial statements to defraud investors.
The Wall Street Journal, citing people familiar with the matter, reported that the criminal indictment is expected to be unsealed Thursday morning. The indictment is likely to include many charges, possibly lying to the public about Enron's financial condition, or hiding losses and creating reported earnings on financial statements. Also expected are additional civil charges related to alleged securities violations.
Lay, who served as chief executive for 15 years, has consistently proclaimed his innocence in the accounting debacle that brought down the once-mighty energy giant, and with it accounting firm Arthur Andersen LLP. Lay has portrayed himself as a big-picture executive, with financial details left to those under him.
Lay continued to say he was blameless Wednesday evening. In a statement, he said, "I have been advised that I have been indicted. I will surrender in the morning. I have done nothing wrong, and the indictment is not justified."
Lay headed Enron when it filed for bankruptcy protection in December 2001. Although considered a corporate success story in the 1990s, Enron came undone by its use of off-balance-sheet entities to hide hundreds of millions of dollars of company losses. Some of those off-balance-sheet entities were run and partly owned by former Chief Financial Officer Andrew Fastow.
The two-year investigation into the Enron scandal has resulted in criminal charges against 30 people and civil charges against 15 individuals and several banks. Most have pleaded not guilty and await trial.
Fastow, however, agreed in January to cooperate with prosecutors in exchange for a 10-year prison sentence. The agreement gave prosecutors access to a top executive who was directly involved in questionable financial maneuvers. Following Fastow's plea deal, prosecutors filed their more than 30-count indictments against former chief accounting officer, Richard Causey, and former president and chief executive, Jeffrey Skilling.
In their investigation of Lay, prosecutors concentrated on his actions during the six months before Enron's bankruptcy, after Skilling left the company. In early 2001, Lay turned over the CEO position to Skilling while keeping the post of chairman. After only six months, Skilling quit unexpectedly and Lay reassumed the CEO post.
In past indictments against Enron executives, the Securities and Exchange Commission has also filed separate civil charges. The SEC is expected to accuse Lay of various securities-law violations, including financial fraud and insider trading, and to seek millions of dollars in civil penalties and disgorgement. If successful, the money would be returned to investors.
The Enron scandal has particularly angered public officials in the West, where market manipulation by Enron traders and others damaged deregulated energy markets. Sen. Dianne Feinstein (D., Calif.) said of the Lay indictment yesterday: "This marks another step forward in holding the leaders of Enron accountable for their many misdeeds, which included taking advantage of Californians by manipulating the energy market for financial gain."