Lay Lauds Enron Prospects in September Employee Meeting

January 21, 2001 ( - A slumping stock price, a resigning CEO and a memo from a concerned company vice president were apparently not enough to dissuade Enron Chairman and CEO Kenneth Lay from encouraging workers to buy more stock.

In fact, a transcript of a meeting held via the Enron intranet on September 26, 2001, is “the clearest evidence yet that Mr. Lay broke faith with his employees,” according to Eli Gottesdiener, head of The Gottesdiener Law Firm, which has filed suit against Enron and others involved to recover some $1 billion in Enron workers’ retirement savings.

The September 26 date is important, Gottesdiener explains, because it was more than a month after Enron Vice President Sherron S. Watkins warned Lay, in writing and then in person, that questionable accounting practices could bring about the Company’s downfall and that she was “incredibly nervous that we will implode in a wave of accounting scandals.”

The 10-page transcript of the meeting is the latest salvo in the firm’s electronic information dissemination campaign at . The transcript records statements Lay made “Espeak,” a periodic forum held for employees to provide a way for the staff to communicate with corporate officials in an informal way.
Bargain Bid

According to the transcript of the meeting, Lay characterized the then-current $27-a-share purchase price alternatively as “an incredible bargain,” “an incredibly cheap stock,” and a “great opportunity.”  The stock closed at 52 cents/share Friday, recovering from an all time low of 35 cents/share earlier in the session.

During that same meeting, Lay claimed that “(t)he third quarter is looking great,” “(w)e will hit our numbers,” and “(w)e are continuing to have strong growth in our businesses.” Two weeks later, on October 16, 2001, Enron shocked the markets with a stunning $618 million third quarter loss, its first in many years.

One of Gottesdiener’s clients, a fired Enron manager who is unnamed, specifically questioned Lay during the meeting about the Company’s use of “special purpose vehicles,” the offshore, off-balance sheet partnerships which would later figure prominently in Enron’s collapse. According to the transcript, this employee also specifically questioned Enron’s use of Arthur Andersen for these “SPV” transactions in light of SEC fines Andersen had been forced to pay for its handling of similar matters for Waste Management – and he asked Lay “to reassure us we have no such problems here at Enron.”
‘Totally Appropriate’
According to the transcript, Lay said, “I can assure you that I or the Board of Directors would not approve the use of any SPVs or other types of financial vehicles unless we were convinced both by all of our internal officers as well as our external auditor (Arthur Andersen, fired by Enron last Thursday) and counsel that they were legal and totally appropriate.” Lay made additional reference to “approval” both “internally and externally.”
However, Gottesdiener notes that Ms. Watkins was an “internal officer” who, along with some other Enron officers, did not believe Enron’s use of the SPV’s was legal or appropriate and specifically told Lay so just a few weeks earlier. Additionally, Gottesdiener noted, Lay’s reference to approval by outside counsel was also arguably misleading because the limited review Lay authorized Houston firm Vinson & Elkins to conduct into Ms. Watkins’ contentions was not complete until October 15th. “Knowing what he knew about Enron’s phony accounting and hidden losses,” Gottesdiener asks, “how could Mr. Lay in good conscience repeatedly tell employees, who had their life savings tied up in Enron stock, that everything was on the up-and-up and that they should buy even more Enron stock?”

Enron spokesman Eric Thode confirmed the authenticity of the transcript to Dow Jones, but referred all questions about Lay’s comments to the executive’s personal attorney, who wasn’t immediately available, according to the report.