Former Enron finance chief says Lay lied to investigators

Ken Lay, a former chief executive of Enron, repeatedly lied to investors about the company, portraying it as financially sound even as it spiralled toward bankruptcy in 2001, the company's former finance chief, Andrew Fastow, testified yesterday.

Mr Fastow, the US government's key witness against Enron's two former chief executives, said Mr Lay knew the Houston-based energy trading firm was drowning in debt and piling up undisclosed losses, but assured a financial world made nervous by the sudden resignation of Jeffrey Skilling as Enron's chief executive in August 2001, that all was well.

"It was what Mr Lay was saying, what the company was saying. I was trying to keep up the deception as well," said Mr Fastow in his second day of testimony in the fraud and conspiracy trial of Mr Lay and Mr Skilling.

"It was a lie."

Enron, once the United States' seventh-largest company, and a darling of Wall Street, filed for bankruptcy in December 2001, amid disclosures that it had inflated profits and hidden losses in off the books partnerships directed by Mr Fastow.

The scandal shocked the financial world, partly because Mr Lay had been a prominent corporate leader for years and had close ties to US President George W Bush.

Mr Lay and Mr Skilling face a combined 35 criminal charges, but have denied any wrongdoing and blamed Enron's demise on Mr Fastow, who has admitted he looted the partnerships for millions of dollars.

Mr Skilling's attorney, Daniel Petrocelli, attempted to discredit Mr Fastow in cross-examination by implying through questions that he was saying whatever prosecutors wanted him to say to fulfil the terms of a deal in which he pleaded guilty to two conspiracy counts in exchange for a 10-year sentence.

He also accused Mr Fastow of holding a grudge against Mr Skilling because he believed Mr Skilling's resignation caused Enron's demise.

"The idea that you will sit in jail for 10 years while Mr Skilling is a free man, that doesn't sit well with you, does it?" Mr Petrocelli said.

But Mr Fastow insisted he was only speaking the truth when he accused his two former bosses of massive deception.

A day after Mr Skilling's resignation, Mr Fastow said he met with Mr Lay to discuss problems that ranged from a $1.2 billion (€1 billion) accounting error to a host of problem-plagued business units that were bleeding cash.

But after that meeting, Mr Lay made numerous positive statements in interviews, presentations to analysts and to Enron employees.