Lay Sold Shares for $100 Million
Lay Sold Shares for $100 Million
FLOYD NORRIS and DAVID BARBOZA . NY Times . 16 february 2002
Kenneth L. Lay sold $100 million in Enron stock last year, the company disclosed yesterday, with a large part of that coming from selling shares back to the company after he was warned by Sherron S. Watkins that the company might collapse "in a wave of accounting scandals."
The sales, disclosed in a report filed by Mr. Lay with the Securities and Exchange Commission, included $20 million of shares sold in the three weeks after Ms. Watkins, an Enron official, sent her warning to Mr. Lay.
It is not clear how much profit Mr. Lay made on his sales, many of which came while he was encouraging Enron employees to buy shares.
In Texas, a federal judge in Houston appointed one of the most aggressive class-action law firms to lead the litigation of shareholder suits against Enron. And in Austin, a trove of correspondence released after an open-records request documented the extensive contacts between Mr. Lay and George W. Bush when the president was governor of Texas. [Page C1.]
Despite the sales, family members said yesterday that Mr. Lay, who is 59, faced serious financial difficulties as he struggled to repay loans taken out to make investments, many of which have lost value.
Mr. Lay, Enron's former chairman and chief executive, had previously disclosed selling $29.9 million in shares in public markets from January through the end of July. The new disclosures showed he took in $70.1 million from selling Enron stock back to the company from February through October.
A spokeswoman for Mr. Lay, Kelly Kimberly, said that Mr. Lay had "remained confident in Enron's stock through late 2001" and said "the vast majority" of the money he got from Enron was used to pay loans that had been secured by his stake in Enron. She said the sales were unrelated to developments at Enron, including the Watkins letter.
Ms. Kimberly added that Mr. Lay and his wife did not expect to have to file for bankruptcy. "While they are experiencing liquidity problems, they believe they will be able to work through them," she said of the Lays.
The family members, who spoke on the condition of anonymity, said no money was being hidden offshore and that Mr. Lay's wife, Linda, was being honest when she said on the NBC "Today" show last month: "It's gone. There's nothing left. Everything we had mostly was in Enron stock."
While corporate executives are required to disclose most stock sales by the 10th day of the month after the sale, shares sold back to the company are not required to be disclosed until the next year. Thus most of Mr. Lay's sales remained unknown as Enron was collapsing last year.
Mr. Lay's sales after meeting with Ms. Watkins came during a period when he was trying to reassure investors and Enron employees that there were no problems at Enron despite a falling share price and the Aug. 14 resignation of Jeffrey K. Skilling, who had been Enron's chief executive for six months.
On Aug. 21, the same day he sold $4 million of stock to the company, Mr. Lay told employees that one of his highest priorities was to restore investor confidence, adding that that "should result in a significantly higher stock price."
On Sept. 26, in an online chat with Enron employees, Mr. Lay said the stock was a good buy and added that he had bought stock within the last two months.
Based on publicly available reports, that appeared to be true, because he had exercised stock options without reporting stock sales. But it is now clear that he had sold many more shares than he had bought during the period.
Ms. Kimberly said yesterday that Mr. Lay continued to hold some shares he had received from exercising options last summer. If so, that means he sold other shares he already owned.
On Aug. 13, the day before Mr. Lay reassumed the title of chief executive, Enron granted 90,873 shares to him, according to the filing released yesterday.
Mr. Lay's sales to the company temporarily halted after Sept. 4 but then resumed in late October after partial disclosures about partnerships run by Andrew S. Fastow, then Enron's chief financial officer, had damaged confidence in the company.
On Oct. 23, the day after Enron disclosed that the S.E.C. had begun an informal inquiry into the company's accounting, Mr. Lay resumed his sales, selling $6 million in stock to Enron over four days. On Oct. 26, the day of his final sale, he called Alan Greenspan, the Federal Reserve chairman, regarding Enron's problems, and over the next several days he called several Bush administration officials.
The Bush administration did not intervene, and on Dec. 2, after an attempted merger with Dynegy (news/quote) fell through, Enron filed for bankruptcy protection.
Mr. Lay's sales to Enron in 2001 began early in the year, with a $4 million sale on Feb. 1, when the share price was $78.79. He sold another $4 million in shares on April 27 and then realized $8 million in May, $24 million in June and $4 million in July. During those months he was also selling stock in the open market.
It is not clear how much money Mr. Lay made from the sales. His S.E.C. filings show that he and a Lay family partnership exercised options in 2001 for 635,334 shares, paying $12.2 million. That would reduce his net profits to $87.8 million on his sales last year, less whatever the other shares had cost him.
From 1998 through 2000, according to previous Enron reports, Mr. Lay made annual profits from exercising options of $13.1 million in 1998, $43.8 million in 1999 and $123.3 million in 2000. His salary and bonus from 1998 to last year totaled $22.5 million.
Enron has since disclosed that its profits were overstated in all of those years, in large part because it improperly concealed losses through the partnerships run by Mr. Fastow.
All told last year, he and the family partnership sold 2,267,371 shares of Enron stock, realizing $100,027,544.87, according to his S.E.C. filings.
Mr. Lay was still left with a large holding in Enron stock when the company collapsed. His filing with the S.E.C. yesterday stated that at the end of December he owned 1,012,223 shares of Enron stock in his own account; 100,000 shares in a family partnership; 20,337 shares in his 401(k) plan; and 121 shares in an employee stock ownership plan. Enron's stock closed yesterday at 26.5 cents.
Ms. Kimberly said that Mr. Lay's sales of stock to Enron were made under a revolving credit arrangement with the company under which he was able to borrow $4 million. That appears to have been something of a formality, because he borrowed the $4 million and then repaid it with stock again and again.
Nearly everything Mr. Lay and his wife own is now up for sale, the family members said, including residential properties in Texas and Colorado, worth about $30 million. The family plans to keep a home worth about $8 million in the River Oaks area of Houston. Under Texas law, a person who files for bankruptcy can keep a home, no matter how much it is worth and no matter how large are the losses suffered by that person's creditors.
Last week, Mr. Lay sold his minority stake in the Houston Texans, an expansion National Football League team, for an undisclosed sum. He and his wife also sold one of their Aspen, Colo., properties for about $10 million, according to Joshua Saslove, Mr. Lay's real estate broker. They had bought the property in 1991 for about $1.9 million, but the property had undergone extensive renovations in 1993. Another plot of land in Colorado the family owns sold for about $2.15 million, Mr. Saslove said. There are two other Aspen properties for sale, worth $6 million apiece, he said.
Family members said that as 2001 began, 80 percent of Mr. Lay's wealth was in Enron, including his stock, options, deferred compensation plan and his 401(k) savings plan. Ms. Kimberly said with Enron virtually worthless, his net worth is down by 80 percent, but she did not give an exact figure. A family member said yesterday that Mr. Lay was worth about $400 million a year ago.
While some Enron executives were able to request and pull their deferred compensation out of Enron before it collapsed, Mr. Lay did not request or receive any of his deferred compensation, Ms. Kimberly said.
Though most of Mr. Lay's money was in Enron stock, family members and associates say Mr. Lay did have some other holdings. Because he was a director at Compaq, Eli Lilly & Company (news/quote) and i2 Technologies (news/quote), he owned stock in those companies that is now valued at about $10 million.
In the last few years, Mr. Lay and his son Mark, 33, invested about $1 million in two privately held technology companies, EterniTV, an Internet start-up that delivers video services over the Web, and EC Outlook, a company that develops supply chain management software. Both companies are struggling.
Mr. Lay also invested nearly $20 million in Questia, a Houston company that sells access to online books. The company's work force has been cut drastically in the last year.
Asked whether Mr. Lay had a financial adviser, one close friend said: "There were no advisers. He did it all himself."
One reason, a person close to the family said, was an experience Mr. Lay had in the mid-1980's, after receiving a huge payout when he helped merge Houston Natural Gas and Internorth to create Enron. The windfall of more than $3 million was largely invested in California real estate by an adviser, he said, adding that much of that money was lost when the real estate market tumbled.
Mr. Cooper's firm, Stephen Forbes Cooper L.L.C., will be paid $1.3 million
a year, payable in monthly installments of $110,000 each, along with an
additional $1.2 million a year, also payable in monthly installments,
for each senior executive who works on Enron's restructuring. If Enron
is not liquidated and emerges from bankruptcy, Mr. Cooper's firm will
also receive a fee of at least $5 million; if the company is liquidated,
a fee will be agreed upon.