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Lay Lauds Enron Prospects in September Employee Meeting
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
www.enronsuit.com
. 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.