February 19, 2002

Lay Sold $70.1 Million in Enron Stock Back to Former Energy Giant in 2001

Former Enron Corp. Chairman Kenneth Lay sold $70.1 million of stock back to the company between February and October of last year, conducting transactions even as the Houston energy giant's shares were in free fall and he was exhorting employees to stand by the company.

The stock sales are disclosed in a Securities and Exchange Commission proxy filing and seem certain to fuel criticism that Mr. Lay, who resigned from the company's chairmanship earlier this month, acted in ways that showed less confidence in Enron than he expressed publicly as the company slid toward a Dec. 2 filing for bankruptcy protection.

The stock sales detailed in the report include 20 transactions governing 1.77 million shares of stock. From a high price of $78.79 a share in February 2001, Mr. Lay continued to sell stock as the price fell to $15.40 a share for the final disclosed transaction on Oct. 26.

The sales only tell part of the story, though. The disclosure is limited to stock sold back to Enron by Mr. Lay, intended to repay borrowings from the company from a $4 million revolving credit line. As he drew down the credit line, Mr. Lay sold back more stock to the company, sometimes on a daily basis, including a stretch from Oct. 23 to 26 in which he sold $6 million of stock. That was shortly after Enron reported a big third-quarter loss due in large part to executive-run partnerships that became known for the first time. Disclosures about the partnerships, which enriched several other Enron executives, helped destroy investor confidence in the company. During this period, Mr. Lay told Enron staffers the company was in good shape.

Kelly Kimberly, spokeswoman for Mr. Lay, said he had numerous investments that fell in value in 2001. As the value of these outside investments declined, he needed to meet margin calls. She declined to identify the investments. "The credit lines were for his personal finances. We won't discuss them," Ms. Kimberly said.

More than half the stock sales occurred prior to Aug. 14, when Enron Chief Executive Jeffrey Skilling quit the company, prompting inquiries into the firm's finances that eventually led to the disclosures about its unorthodox financial practices.

Sales of stock by Mr. Lay on the open market aren't covered in the SEC filing. Like many top officers, Mr. Lay received huge grants of stock options and had a selling program in place that called for exercising those options as they came into the money. He sold roughly 387,000 shares in 2001, Ms. Kimberly said, but still owned one million shares that now are essentially worthless. Enron shares were delisted from the New York Stock Exchange shortly after the company filed for bankruptcy-court protection.

Mr. Lay received more than $8.6 million in compensation in 2000, the last year for which full statistics are available, and also was granted stock awards valued at $7.5 million. He received a $7 million bonus, on top of base pay of $1.3 million.

According to the proxy, Mr. Lay's compensation was designed to reward him for the "creation of shareholder wealth." It said a $100 investment in Enron stock made in 1991 was worth nearly $1,500 by the end of 2000, more than triple the appreciation of the S&P 500 in that time period.

In television interviews, Mr. Lay's wife, Linda Lay, has said the family suffered a liquidity crisis as a result of non-Enron investments that soured with the bear market. In recent weeks, the Lay family has sold a home and some property in Aspen, Colo.

Write to Rebecca Smith at rebecca.smith@wsj.com²

Updated February 19, 2002 12:43 a.m. EST