[ The charges the U.S. government filed against Ken Lay “actually deal only with a small part of his ultimate culpability in the Enron scandal. He was at the head of a company that engaged in massive fraud, which included the looting of large sections of the population for private gain.” Further, in many ways, “The story of Enron is the story of American ruling class over
the past several decades.” –BL ]
The indictment of Kenneth Lay
by Joseph Kay
Former Enron CEO and Chairman Kenneth Lay pleaded not guilty
on July 8 to eleven charges of fraud related to the collapse of
the former energy giant. He has been accused by the Enron Task
Forcea joint venture of the Justice Department, the FBI
and the Internal Revenue Serviceof conspiring to manipulate
Enrons financial results, making false public statements
regarding the health of the company, and filing false financial
reports. The Securities and Exchange Commission (SEC) filed separate
civil charges accusing Lay of insider trading.
The charges against Lay have been added to a previous indictment
handed down against former CEO and chief operating officer Jeffrey
Skilling and former chief accounting officer Richard Causey. If
convicted on all counts, Lay could spend the rest of his life
in prison and be subject to over $100 million in fines.
The governments indictment focuses almost entirely on
the period after Lay resumed the position of CEO in August 2001,
after Skillings abrupt resignation. Enron collapsed into
bankruptcy in December 2001, after it came to light that the companys
financial position was much worse than it had let on.
According to the governments charges, during the intervening
period Lay falsely promoted the companys stock and falsely
stated that Enron was in good financial health, while he and other
executives unloaded their own shares.
There are many things that can be said about the indictment
of Kenneth Lay.
The charges brought against him actually deal
only with a small part of his ultimate culpability in the Enron
scandal. He was at the head of a company that engaged in massive
fraud, which included the looting of large sections of the population
for private gain.
The collapse of Enron led directly to the loss of thousands
of jobs and many millions of dollars in savings of ordinary workers
and investors. In the process, Lay and the other top executives
at Enron raked in hundreds of millions of dollars in income and
stock options. Lay should certainly be punished for crimes committed
in the course of his tenure at the head of Enron.
That being said, what is most critical for working people is
not the punishment of one or another individual. Rather, it is
necessary to extract from the Enron debacle an understanding of
the underlying issues involved in the crimes committed by Lay
and his cohorts.
The spectacular rise and fall of the former Enron boss is itself
a product of more general processes, and Enron itself was a manifestation
of a disease that extended far beyond a single company. To the
extent that the government has felt compelled to go after individuals
like Lay, Skilling and others, it has been for the purpose of
presenting the appearance of action, while obscuring and ignoring
the deeper issues.
From the words of his attorney and from a press conference
that he gave last week, it appears that Lays principal defense
will be the argument that he was deceived by other executives,
in particular former chief financial officer Andrew Fastow. The
latter has already accepted a deal with prosecutors in which he
has pleaded guilty to charges of fraud in exchange for cooperation
in the trials of Skilling, Causey and now Lay.
If one takes Lay at his wordwhich requires a substantial
willing suspension of disbelief, to borrow a phrase
from the poet Coleridgeone can only conclude that Lay failed
to notice the fraudulent tactics employed by Fastow because both
Fastow and Lay were involved in a culture of corporate fraud and
criminality that was so pervasive, Fastows antics did not
attract any attention.
This was, after all, a company that deliberately looted the
states of California and Washington to the tune of $11 billion;
a company in which traders openly gloated over the manipulation
of energy markets for the purpose of driving up prices and profits.
[See Enron tapes expose
blatant criminality of corporate America]
Fastows particular contribution was to invent nominally
independent off-shore entitiesghost companies constructed
for the sole purpose of hiding debt and boosting stock prices.
He helped disguise loans as sales in order to boost the companys
revenueon paperand thereby deceive the public as well
as government regulators.
Again, if one takes Lay at his word, what does his gross ignorance
and incompetence say about the waste of resources in the form
of the seven-figure salaries typical of top executives in the
American corporate world? If they are so sublimely oblivious to
the daily operations of their firms, why are these modern-day
plutocrats paid such princely sums, while the vast majority of
employees face stagnating or falling real wages?
Lays defense, and by implication that of the corporate
elite he represents, is evidently that he was a negligent fool,
rather than a malevolent law-breaker. Either way, one is left
with a stunning indictment of American big business.
It is not only Lay who was supposedly unaware of what was going
on. The phenomenon of Enron was possible only with the help of
the political, media and corporate establishment. All have in
one way or another professed innocence in the matter.
Directly implicated in Enrons crimes was the Bush administration,
whose connections with the company have largely been pushed aside
in the coverage of Lays indictment. While Enron was in the
process of manipulating Californias energy market to drive
up prices to astronomical levels, the state government appealed
to the Bush administration to implement price caps. On the advice
of Lay, Vice President Cheney and President Bush came out against
price caps. Since then, the administration and the Federal Energy
Regulatory Commission (FERC) have frustrated attempts by the states
to recover lost funds.
Bushs personal connections to Lay are well known. These
connections are not incidental, notwithstanding the casual way
in which they are treated by the media. It is not an accident
that Lay was Bushs single biggest campaign contributor throughout
Bushs political career in Texas and right up to Bushs
installment in the White House in the hijacked election of 2000.
Bush and Lay represent the same social layer. As governor of
Texas and to a large degree as president, Bush was Lays
man in office. Lay played a direct and central role in drafting
the administrations energy policy for the closed-door task
force headed by fellow oil executive Cheney. To this day Cheney
and Bush refuse to divulge to Congress or the American people
the names of those involved in the meetings of this oil-dominated
Bush, Cheney and company are the embodiments in the political
realm of the social layer of corporate crooks and predators who
to a great extent occupy of the upper echelons of American big
As much as a corporate scandal, the rise and fall of Enron
is a deeply political scandal. The political and corporate
aspects of the story are inextricable intertwined, though the
Justice Department has predictably ignored the political issues.
It is not just the Bush administration that is implicated.
Enron was possible only as a result of policies pursued by both
political parties. Crucial assistance also came from financial
giants such as Citigroup and JPMorgan Chase. As Enrons cash
flow dwindled in 2001, these banks helped the company by engineering
loans disguised as purchasesa maneuver designed to boost
Enrons cash reports without increasing the companys
Enrons accountant Arthur Andersen aided Enron in producing
bogus reports, and the Securities and Exchange Commission looked
the other way. Stock market analysts touted the companys
stockin some cases up until its bankruptcyand the
media played along, presenting Enron as a prime example of the
enormous potential of the new economy.
The Enron model was promoted endlessly by think
tanks and academic organizations such as the Harvard Business
School. For seven straight years, from 1995 to 2001, Forbes
Magazine named Enron the most innovative company.
The entire system was involved, yet supposedly unaware of what
was going on. And Enron was only one of a whole number of companies
engaged in fraudulent practices. WorldCom, Tyco, Adelphiaall
were involved in fraudulent manipulations. These companies were
aided and encouraged by a system of corporations, banks, regulators,
politicians and media moguls who were quite happy with the process,
so long as stock prices were rising and everyone was getting a
How was such a company as Enron possible? According to the
government, it was all a product of the lies and manipulations
of individuals like Lay, Skilling and others. The director of
the Enron Task Force, Andrew Weissmann, made the entirely predictable
statement that the indictment proves that no one is above
the law. According to this argument, now that the culprits
and deceivers are being brought to justice, we can all rest easy,
since the problem is being fixed.
In fact, the phenomenon of Enron was merely one manifestationif
one of the most egregiousof the present state of American
capitalism. It was the product of tendencies stretching back to
the 1970s, including the wholesale deregulation of the economy
and the increasing subordination of corporate decision-making
to the demands of the financial markets. The entire political
establishment and ruling elite are responsible for these developments,
which reached a pinnacle in the stock market speculation and wide-scale
accounting fraud of the late 1990s.
The American ruling elite responded to the economic downturn
of the 1970s by making a major push toward eliminating any constraints
on the ability of corporations to maximize profits. This began
during the years of the Democratic Carter administration, and
escalated during the 1980s under Ronald Reagan.
Reagan escalated the assault on the working class and on social
services, while scaling back or eliminating regulations that had
been placed on key sectors of the economy.
The process of deregulation was a reversal of a decades-long
policy of American capitalism. Particularly following the catastrophic
effects of the Great Depression, it was considered necessary to
place limited restrictions on the profit motive in certain sections
of industryincluding energy, communication and transportation.
Such industries were acknowledged to be too critical to public
and corporate life to be subordinated solely to the drive for
personal enrichment. In the 1980s and 1990s, these conceptions
were rejected. Nothing could be allowed to stand in the way of
the raw pursuit of corporate profit and wealth accumulation.
In the face of declining profit ratesand, correspondingly,
the declining relative wealth of the richest sections of the populationthere
was a corresponding drive to subordinate all economic decision-making
to the short-term demands of share holders, that is,
of Wall Street. It was this drive that produced the leveraged
buyout phenomenon of the 1980s. Corporation after corporation
was taken over by outside entities and new management groups were
installed who would be more directly responsive to the dictates
of the financial markets.
Enron epitomized these tendencies. It was in the 1990s that
the government, under Democrat Bill Clinton, made a major move
to deregulate the energy markets, a development which Enron exploited.
In 1992 and again in 1996, the Federal Energy Regulatory Commission
(FERC) took steps to break up the vertically integrated and regionally
organized electrical utilities. This opened the way for the creationalmost
entirely by Enronof a national market in wholesale energy
contracts. In the memorable words of Jeffrey Skilling, Enron was
doing great things. As Skilling put it: We are creating
markets where markets didnt exist.
Starting out as a relatively small pipeline company, Lay took
advantage of the environment of deregulation to transform the
company into a multi-billion-dollar giant. In the chaotic environment
created by deregulation, Enron emerged as a middleman between
producers and consumers of energy. It was largely a parasitic
entity, making money not by producing anything of value, but rather
by playing the market, with all the opportunities this provided
for manipulation and price gouging.
At the same time, Enron emerged in an economic environment
characterized by an obsessive emphasis on stock market valuation.
In the speculative boom of the late 1990s, a company that did
not produce good financial numbers was doomed. Enrons executives
accordingly did whatever was necessary to produce good numbers,
even if these numbers were fictional. The frenzied drive for profit
created a situation in which fraud became an ordinary part of
business life, manifested not only in Enron, but in countless
other companies as well.
In this sense, the claims that Enron was the paradigm of the
new economy were accurate. Enron was fairly representative
of the largely hollow character of the boom of the 1990s. It embodied
speculation, greed, the unbridled worship of wealth, parasitism
and the subordination of even the most basic public necessities
to profit-making. The criminality of Enron reflected the economic
circumstances that created it.
The story of Enron is the story of American ruling class over
the past several decades. It reflects the social inequality that
has increased at an extraordinary pace since the 1980s. It reflects
the criminalization of an economic oligarchy that will defend
its own social interests by whatever means necessarywhether
through price-gouging and economic fraud or the launching of predatory
wars of plunder.
The argument pushed by the government and the media that the
indictment of Ken Lay proves that even the big boys are
not above the law is a fraud. It is an indication of the
crisis faced by the American ruling elite that it feels compelled
to put up for a public trial one of its own. But this trial should
by no means be mistaken for an attack on the roots of the problem,
which lie in a crisis-ridden and socially destructive economic
system based on the subordination of human needs to corporate
profit and the accumulation of personal wealth.
- Former Enron CEO Jeffrey Skilling
[24 February 2004]
- Enron executive pleads
[27 August 2002]
- Enron execs looted
company prior to bankruptcy
[22 June 2002]
- Hearings reveal Enron
at center of California energy crisis
[25 April 2002]
- White House stonewalls
Congressional probe into Enron links
[4 February 2002]
- Enron and the Bush
administration: kindred spirits in fraud and criminality
[18 January 2002]