Kenneth Lay

• 1. Introduction

  ›

  Kenneth Lay, the founder of Enron, was pronounced dead at 3:11 in the morning at Aspen Valley Hospital in Colorado. Officers from the Pitkin County Sheriff's Department had been called to his house in Snowmass at 1:41 that same morning. It was the 5th of July 2006. A jury had convicted him only weeks earlier. What happened next in the courts was as strange as the collapse of his company. How does a man go from running a company at the center of American energy to being ranked among the worst executives the country ever produced? What did he say in his own defense? And what does a guilty verdict mean when the defendant dies before he can appeal it?

  2126258

• 2. Preacher's Son

  ›

  In the town of Tyrone, in Texas County, Missouri, Kenneth Lee Lay was born on the 15th of April 1942. His parents were Omer and Ruth Lay, and Ruth's maiden name was Rees. Omer was a Baptist preacher. The family ran a general store, but it failed, and Kenneth grew up in poverty.

  Later in his childhood the family moved to Columbia, Missouri. There Lay attended David H. Hickman High School and then the University of Missouri. He studied economics, earning a Bachelor of Arts in 1964 and a Master of Arts in 1965. He also served as president of the Zeta Phi chapter of the Beta Theta Pi fraternity.

  His first job came in 1965, when he became an economist in the Corporate Planning Department at Humble Oil. He stayed until 1968. Then he entered the Navy's Officer Candidate School. Over the next three years he rose to lieutenant and worked as special assistant to the Navy Comptroller. He was also a financial analyst in the office of the Assistant Secretary of the Navy at the Pentagon. In 1970 the University of Houston awarded him a doctorate in economics. By 1971 he was leaving the Navy with a doctorate and years of Pentagon budget experience.

  12131136

• 3. Pipeline Years

  ›

  From 1971 to 1972, Lay served as a technical assistant to a commissioner and vice chairman of the Federal Power Commission, the federal energy regulator. He then became the energy deputy undersecretary at the United States Department of the Interior, a post he held until 1974. That year he returned to private business as an executive at Florida Gas Transmission.

  The moves came quickly after that. Lay was president of Continental Resources from 1981 to 1982. In 1982 he joined Transco Energy Company in Houston, owner of the Transcontinental Pipeline, as president, chief operating officer and director. In 1984 he left to become chairman and chief executive of the Houston Natural Gas Company.

  In 1985, the Omaha-based company InterNorth bought Houston Natural Gas and renamed it Enron. Energy deregulation was reshaping the industry during the 1980s. Lay was already a seasoned energy executive, and he used the new climate to his advantage.

  Outside Enron, he sat on the board of Eli Lilly and Company from 1993 to 2001. He was also a director at Texas Commerce Bank. In 1996 he held talks about replacing Robert E. Allen as chief executive of AT&T, which shows how far his name carried beyond the pipeline business.

  1112131421

• 4. Friends in High Places

  ›

  George H. W. Bush and his wife once flew to Washington aboard an Enron corporate plane, with Lay arranging the trip during Bush's presidency. The friendship ran deep. Lay gave money to Republican causes and led several party committees. He was co-chairman of Bush's 1992 re-election committee.

  In December 2000, Lay's name came up as a possible Secretary of Energy or Secretary of the Treasury under George W. Bush. He was not nominated. The reason given was that the new administration already included too many Texas energy businessmen.

  His connections were not limited to one party. He had friendly relations with Republicans Gerald R. Ford, Dick Cheney and James A. Baker III. He was also on good terms with Democrats Bill Clinton and Ann Richards. During the 2000 Republican presidential primaries, he encouraged John Ashcroft to run, partly so that Ashcroft would act as a spoiler and help Bush win.

  The money followed the relationships. From 1989 to 2002, Lay's political contributions totaled $5.8 million. Republicans received 73% of that and Democrats 27%. In the three years from 1999 to 2001 alone, he gave $365,410 to the Republican Party.

  1615171936

• 5. Pay and Paper Wealth

  ›

  More than $220 million in cash and stock flowed to Lay from Enron between 1998 and 2001. That made him one of the highest-paid chief executives in America. During those years he sold 1.7 million of his Enron shares.

  His own account of his finances, given at his trial in 2006, looked very different. Lay said that Enron stock made up about 90% of his wealth. He also said his net worth at that time stood at negative $250,000. He made that claim in a Houston courtroom, in front of the jury that would decide his fate.

  24231822

• 6. Collapse and Verdict

  ›

  When Enron went bankrupt in 2001, it was the largest bankruptcy in American history up to that point. About 20,000 employees lost their jobs, and many lost their life savings too. Investors lost billions of dollars.

  On the 7th of July 2004, a grand jury in Houston, Texas, indicted Lay. The indictment ran to 65 pages. It charged him with 11 counts covering securities fraud, wire fraud, and making false and misleading statements. His trial alongside Jeffrey Skilling began in Houston on the 30th of January 2006.

  Lay's defense was that Enron had been brought down by a conspiracy. He blamed short sellers, rogue executives and the news media. The jury did not accept it. On the 25th of May 2006, it found him guilty on six counts of conspiracy and fraud. In a separate bench trial, Judge Lake found him guilty of four more counts of fraud and false statements.

  Sentencing was first set for the 11th of September 2006. It was then pushed back to the 23rd of October 2006.

  9207196

• 7. A Verdict Erased

  ›

  The autopsy found that Lay died of a heart attack caused by coronary artery disease. It also found evidence of an earlier heart attack. Four days after his death, about 200 people gathered in Aspen for a private funeral. His body was cremated, and his ashes were buried in the mountains at a location that has never been disclosed.

  A week after his death, a memorial service took place at the First United Methodist Church in Houston. More than 1,000 guests attended, among them George H. W. Bush and James Baker. Meanwhile, conspiracy theories spread, alleging that Lay had faked his own death.

  The legal consequences arrived on the 17th of October 2006. A court overturned the conviction under a doctrine called abatement ab initio. Under it, when a defendant dies during the appeal process, the judgment is vacated. The government had opposed the motions from Lay's attorneys. The Department of Justice said afterward that it remained committed to pursuing every available legal remedy for the victims of the fraud.

  1219215

• 8. Family and Legacy

  ›

  Linda, Lay's second wife, had been married to him since 1982. His first wife, Judith, also stood by him. Both women supported him through the trial and appeared in court. Lay had two children, three stepchildren and twelve grandchildren.

  Public judgment of him was harsher. One assessment described what he left behind as a legacy of shame, marked by mismanagement and dishonesty. In 2009, a list on Portfolio.com ranked him the third-worst American chief executive of all time.

  Yet his actions also drove change. They became the catalyst for later, fundamental corporate reform covering "standards of leadership, governance, and accountability".

  1226252729