Kenneth Lay
Kenneth Lay was the founder and CEO of Enron, a major American energy company that became infamous for its role in one of the biggest corporate scandals in history. Born in 1942 in Missouri, Lay worked his way through school, eventually earning a doctorate in economics and taking on various roles in the energy sector, including significant positions in government and private companies. Under his leadership, Enron expanded aggressively and diversified into numerous markets, initially gaining acclaim for its rapid growth and profitability. However, by the late 1990s and early 2000s, allegations of insider trading, bribery, and accounting fraud began to surface, revealing that the company's financial success was largely built on deceptive practices.
In 2001, Enron declared bankruptcy, which was the largest in U.S. history at the time, leading to substantial losses for employees and investors. Following the scandal, Lay faced multiple legal charges, including conspiracy and fraud. He was convicted on several counts in 2006 but died of a heart attack shortly before he was to be sentenced. The fallout from Enron's collapse prompted significant changes in U.S. corporate governance, including the enactment of the Sarbanes-Oxley Act, aimed at preventing similar financial scandals in the future. Lay's connections to political figures, particularly within the Republican Party, also sparked discussions regarding the intersection of politics and corporate ethics during this turbulent period.
Subject Terms
Kenneth Lay
American business executive of Enron Corporation
- Born: April 15, 1942
- Birthplace: Tyrone, Missouri
- Died: July 5, 2006
- Place of death: Aspen, Colorado
Major offenses: Bank fraud, money laundering, securities fraud, insider trading
Active: 1990’s-early 2000’s
Locale: Houston, Texas
Early Life
Kenneth Lay was born during the early years of World War II into a financially struggling family in Tyrone, Missouri. Lay’s father ran a general store and sold tractors before becoming a Baptist minister. According to all accounts, the young Lay was a hard worker who helped his family by mowing lawns and delivering newspapers. After graduating from Hickman High School in Columbia, Missouri, he enrolled in the University of Missouri. He was elected president of his college fraternity and graduated in 1964 with a B.A. in economics. The following year, he earned a master’s degree and went to work at Humble Oil Company, which was later renamed Exxon.
After serving in the Navy, Lay completed a doctorate in economics at the University of Houston in 1970. During the early 1970’s, he worked for the federal government, first at the Federal Power Commission and then as undersecretary for energy issues at the Department of the Interior. He took a position as vice president of Florida Gas in 1974 and became president two years later. By 1984, he had become chief executive officer (CEO) of Houston Natural Gas. A year later, Houston Natural Gas merged with InterNorth to become Enron.
Criminal Career
Under Lay’s leadership, Enron became a successful and increasingly diversified company. At first, most of its activities remained in energy, mostly in distributing gas and electricity and in forms of construction, such as building pipelines and power plants. During the 1990’s, however, Enron used its assets to move into other fields, eventually trading in more than eight hundred products, including communications and financial instruments.
Lay won praise for Enron’s apparent success, and he became a pillar of Houston society, giving large donations to charity and becoming politically involved. He cultivated close ties to the Republican Party in Texas and in the national government. By the end of the twentieth century, Lay had become one of the highest-paid CEOs in the United States.
Signs of Enron’s fall appeared behind the apparent success. There were rumors throughout the business world that many of Enron’s contracts were results of bribery and political pressure. Following the late 1980’s, executives with the company had also been accused of engaging in insider trading, or buying and selling stock by individuals engaged in activities that would influence the price of the stock. During the 1990’s, under Chief Financial Officer Andrew Fastow, Enron created companies that were offshore and off the books. This enabled the company both to move currency that could not easily be tracked and to hide losses. Moving currency and assets around gave executives the power to make their company appear more profitable than it actually was and thereby drive up its stock price, bringing more money into the company and enriching Enron executives.
By 2000, Enron stock had reached its highest price. Company executives, who knew about their corporation’s hidden losses, sold their own stock. As stock prices began to decline, Lay and fellow Enron executive officer Jeff Skilling assured the public and Enron’s employees that the business was basically sound and that stock would rebound. Thus, they encouraged their employees and others to invest money in a declining company. Lay’s wife, Linda, sold 500,000 shares of stock just ten minutes before the public announcement of bankruptcy at the end of November, 2001.
Legal Action and Outcome
On July 7, 2004, a grand jury in Houston indicted Lay on eleven counts of conspiracy, fraud, and making false and misleading statements. Lay’s attorneys attempted to delay the legal proceedings and have them moved out of Houston, claiming that the negative publicity their client had received would make it impossible for him to receive a fair trial. However, a jury trial did begin in Houston on January 30, 2006. In this trial, Lay was found guilty on six counts of conspiracy and fraud on May 25. After hearing the decision of the twelve jurors, he stated that he was shocked at the verdict and once again asserted his innocence. In the separate bench trial, in which U.S. district judge Sim Lake made the decision, Lay was found guilty on four counts of federal banking violations. On all charges together, the former Enron executive faced a possible 165 years in prison. On July 5, 2006, Lay died of a massive heart attack while on a family vacation in Aspen, Colorado. On Tuesday, October 17, a federal judge, in accordance with the law, vacated Lay’s conviction, making it more difficult for the government to seek damages from Lay’s estate.
Impact
The Enron scandal was one of several widely publicized corporate scandals in the United States in the early twenty-first century. Lawmakers responded to public concern over apparently corrupt practices at Enron, Tyco International, and Worldcom by passing the Sarbanes-Oxley Act, named after Maryland Democratic senator Paul Sarbanes and Ohio Republican representative Michael Oxley, in July, 2002. The Sarbanes-Oxley Act is generally considered the greatest change to American securities law since the 1930’s. It was intended to prevent crimes such as securities fraud by raising accounting requirements, increasing penalties for corporate criminals, and mandating changes in the Securities and Exchange Commission (SEC).
Kenneth Lay’s legal problems also had political impact. His company had made substantial contributions to politicians and political parties around the world, especially in the United States and Great Britain. The U.S. Republican Party was one of the largest recipients of these contributions. Lay was a strong supporter of George W. Bush when Bush ran for governor of Texas; he also made one of the largest individual contributions to the successful Bush campaign for the presidency in 2000. This led some critics of the Bush administration and of the Republican Party to raise questions about Republican connections with corrupt corporations.
At the time of its collapse, Enron’s bankruptcy was the largest bankruptcy in American history. The affair also produced waves throughout American financial circles. The investigation of Enron led to the trial of the Arthur Anderson accounting firm, which in turn incriminated other companies. The widening investigation helped to uncover fraud at Worldcom; Worldcom’s own resulting bankruptcy was even bigger than that of Enron.
Bibliography
Eichenwald, Kurt. Conspiracy of Fools: A True Story. New York: Random House, 2005. A popular and detailed account of the Enron scandal.
McLean, Bethany, and Peter Elkind. The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. New York: Portfolio, 2003. The story of the Enron company, written by a Fortune reporter who was one of the first to question whether Enron was overvalued.
Skeel, David. Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From. New York: Oxford University Press, 2005. Inspired by the actions of Lay and other high-profile executives in the early twenty-first century, this book takes a general look at the risk-taking behavior of corporate leaders in American society.