Kenneth Lay, every mention

Enron · Acquired Nov 29, 2022 · 100 mentions

• ▶ 13:35 David Rosenthal So enter one Kenneth Lee Lay.
• ▶ 13:41 David Rosenthal Lay, like our first protagonist of this season, Sam Walton, Lay was born in rural Missouri in 1942, after Walton.
• ▶ 13:58 David Rosenthal That ended up failing, and Le grew up very, very poor, but his family believed in education, and when his older sister graduated high school, his family wanted her to go to college.
• ▶ 14:30 David Rosenthal Ken would follow in her footsteps, also go to the University of Missouri, where he would discover a lifelong passion for economics.
• ▶ 15:12 David Rosenthal And so he calls up Leigh and says, come join me here in DC and help me work through
• ▶ 15:19 David Rosenthal So Lay ends up serving as the Deputy Undersecretary of Energy in the Department of the Interior, right as these oil shocks are happening and deregulation is starting to be talked about.
• ▶ 17:04 David Rosenthal So Lay is now in the big time, and as is fitting for now being in the big time and of the era, he leaves his wife behind in Florida and moves to Houston with his new wife, who was his secretary at Florida Gas.
• ▶ 17:56 David Rosenthal So as a result, right after Lay shows up,
• ▶ 18:25 David Rosenthal Lay, remember, he's a PhD
• ▶ 19:24 David Rosenthal So Lay, he becomes like a total industry legend.
• ▶ 19:28 David Rosenthal So before Transco and Lay, the whole idea of like any form of trading or financialization of energy, of oil and gas, didn't really exist because it was all regulated by the government before then.
• ▶ 21:05 David Rosenthal But as I said, this is Lay.
• ▶ 21:06 David Rosenthal This is Lay's baby.
• ▶ 21:33 David Rosenthal So, on the back of that, in June of 1984, Lay, remember he's number two at Transco, he gets poached by another big Houston energy company, Houston Natural Gas, to come over as the CEO.
• ▶ 24:04 Ben Gilbert I mean, usually the floor of what a board will accept is something around 20%, but a 40% premium, they paid a pretty penny to go buy Ken Lay's H&G here.
• ▶ 24:24 David Rosenthal Lay and the HNG guys were gonna be running the show from then on.
• ▶ 25:21 David Rosenthal And Lay, of course, he's very political.
• ▶ 30:29 David Rosenthal Skilling, the Hotshop McKinsey consultant, is sitting there in the waiting room, getting ready to go present to management and the board when the prior CEO, the number one, remember Lay is number two after the merger,
• ▶ 30:44 David Rosenthal Walks out and informs Skilling that he's gonna keep on going because he has just been fired by the board and Lei has engineered the coup that Lei is now the CEO of the company.
• ▶ 31:01 David Rosenthal The board is like, no, obviously we're keeping it in Omaha and, you know, Lei's the consummate politician.
• ▶ 31:14 Ben Gilbert For Ken Lay, I don't think he ever said anything in a public or pseudo-public context that was confrontational or pissed anybody off.
• ▶ 31:30 David Rosenthal But this is where Skilling and Lay meet for the first time.
• ▶ 31:35 David Rosenthal And, uh, Lay comes out in his very, you know, sort of politician manner after the board meeting is over.
• ▶ 32:05 David Rosenthal So, Lay's now settled in, he's in charge, he's the chairman, he's the CEO, and he decides that he wants to get a new name for this company, you know, HNG InterNorth, that, you know, it sounds too old and, you know, it's reeking of his…
• ▶ 33:41 David Rosenthal Lay loves it.
• ▶ 33:42 David Rosenthal Lay loves it.
• ▶ 34:29 David Rosenthal Lei, so concerned about appearances, he goes nuts.
• ▶ 34:34 David Rosenthal Lei never loses his cool, as we'll see throughout this story.
• ▶ 34:51 David Rosenthal Which Lay probably loves because he's like,
• ▶ 35:24 David Rosenthal Yep, and they're running the proto-trading playbook that Lay pioneered back in his early days, and pretty quickly after this, they actually face their first trading scandal.
• ▶ 35:40 Ben Gilbert It's such a predecessor, like, it's such an obvious personality flaw of Ken Lay's to look the other way, and it's, like, amazing that it happened, what, 10 years before the big scandal.
• ▶ 36:20 David Rosenthal It comes to Lay's attention.
• ▶ 36:33 David Rosenthal They recommend that Lay and the company should fire these guys.
• ▶ 36:36 David Rosenthal Obviously, they're stealing from the company, they're falsifying trades, and Lay's like, well, you know, these guys, it's really bad.
• ▶ 37:09 David Rosenthal Uh, but he lets it slide, and, um, he is immediately rewarded for his faith in them and his, uh, decision here.
• ▶ 38:02 David Rosenthal This time, Lei does fire them, and fortunately for Young and Ron and for Lei, but unfortunately for the rest of the world, this happens early enough in the quarter that the trading floor is able to dig out enough of these losses that they…
• ▶ 38:27 David Rosenthal So you would think that Lei would learn his lesson here.
• ▶ 40:11 David Rosenthal What if Enron goes one step further from Lay's kind of original innovation of creating a spot market for energy,
• ▶ 41:27 David Rosenthal Lay's innovation is like, create a market where you let the producers and the customers trade directly today.
• ▶ 45:43 David Rosenthal So, 1990, now we're a couple years into the Lay Enron era, and Lay and the vice chairman of the company, a guy named Rich Kinder, who later would leave Enron before all the dirt hits the fan and start Kinder Morgan.
• ▶ 47:24 Ben Gilbert It was that Jeff Skilling insisted that in order to join Enron and start this new division, Ken Lay and the board had to agree to use mark-to-market accounting.
• ▶ 1:10:07 David Rosenthal Number two behind Lei, who's still the chairman and CEO, but he basically just takes on a kind of elder statesman role.
• ▶ 1:22:12 David Rosenthal Everybody in Enron is so hyped up about this that in 1999, Fastow starts a campaign within Enron with Lay and Skilling and the PR people in Enron to get himself nominated for the CFO of the year in the CFO magazine annual rankings of CFO.
• ▶ 1:24:25 David Rosenthal Lay has now stepped back to just be chairman.
• ▶ 1:36:07 David Rosenthal I think the skillings and, like, the Kenneth Lays of the world fit that bill.
• ▶ 1:49:19 Ben Gilbert He managed to convince Lay that
• ▶ 1:49:51 Ben Gilbert And Lade signed that deal.
• ▶ 1:50:50 Ben Gilbert And as people start digging in with Skilling and with Lay and with Fastow and granting interviews and doing this sort of stuff.
• ▶ 1:57:01 Ben Gilbert Because he's been running the big profit center forever in trading, and he's been trying to masquerade the business, and same with Ken Lay, as we're still a logistics company, but they obfuscated the crap out of their segments and their…
• ▶ 1:58:57 Ben Gilbert He's been making noise internally to Ken Lay, even only a few months on the job of saying,
• ▶ 1:59:04 Ben Gilbert Of course, Ken Lay is sort of parroting back to him in private clothes to our rooms, like, this was supposed to be fun.
• ▶ 2:01:29 David Rosenthal In the beginning of August, this yelling goes to Lay, who's still the chairman of the board, and says, I'm quitting.
• ▶ 2:02:21 David Rosenthal Certainly Leigh's to blame.
• ▶ 2:02:29 Ben Gilbert Leigh, you could make an argument, was out to lunch the whole time.
• ▶ 2:03:14 Ben Gilbert Ken Lay had been on a selling plan for the last couple of years.
• ▶ 2:03:17 David Rosenthal Oh, we need to talk about how Ken Lay was selling.
• ▶ 2:03:20 Ben Gilbert Ken Lay was so over leveraged, he had received advice from his money manager saying,
• ▶ 2:04:10 David Rosenthal But when I took a step back and looked at what was going on here, you know, Lay is not a bozo.
• ▶ 2:04:47 David Rosenthal Ken had most of his net worth in Enron stock, and then he started doing margin loans against that stock with banks, and then we'd get the margin calls and he would have to repay them.
• ▶ 2:05:10 David Rosenthal And Ken backed his collateral for that cash that he ended up then repaying the loans to Enron with,
• ▶ 2:05:29 David Rosenthal And then the repayment mechanism of all this is Ken's equity goes back to the company.
• ▶ 2:05:38 David Rosenthal Nowhere does it show up to any publicly available information that Ken Lay is selling his Enron shares.
• ▶ 2:06:19 David Rosenthal All told, I think Lay sells about three hundred million dollars worth of Enron stock via these transactions.
• ▶ 2:08:17 Ben Gilbert What Ken Lay, what Skilling are telling people is, stock should be a 125.
• ▶ 2:08:23 David Rosenthal There are these videos you can find of Lay at employee all hands where he gets a question card
• ▶ 2:08:38 David Rosenthal And this is the same time that lay is doing the structure transactions we were talking about to offload his Enron stock selling his shares.
• ▶ 2:08:45 David Rosenthal And he says, I think you should put all of your four Oh one K in Enron stock.
• ▶ 2:09:16 David Rosenthal Ok, so, Skilling surprise resigns, Lei comes back in into the operator seat as CEO.
• ▶ 2:09:31 David Rosenthal Lay comes back in and two things happen.
• ▶ 2:09:33 David Rosenthal One, he asks Fastow, the CFO, he's trying to get a handle on, you know, like, what's going on here?
• ▶ 2:09:39 David Rosenthal You know, again, he's been out to lunch for years at this point, both metaphorically and literally speaking.
• ▶ 2:09:45 David Rosenthal And he asked Fastow to say like, okay, what's the current debt obligations of Enron?
• ▶ 2:10:16 David Rosenthal So he comes back to Lay and the board and says, our actual obligations are thirty four billion dollars, which the debt on the balance sheet was 12.8 billion dollars.
• ▶ 2:10:45 David Rosenthal So then, right around the same time, a VP in corp dev named Sharon Watkins writes first an anonymous memo and then she puts her name on it and asks for a private meeting with Ken Lay about this memo that she writes where she's trying to be…
• ▶ 2:11:20 David Rosenthal And Lay meets with her, reads the memo, but just like back in the day with the rogue traders, he doesn't do anything.
• ▶ 2:22:34 David Rosenthal One, Ken Lay starts calling around to all of his political connections in the Bush administration, basically with his hand out looking for a bailout, kind of like, um,
• ▶ 2:22:53 David Rosenthal Once that becomes clear, he does the only next thing that is even any remote possible chance of saving the company, which is he reaches out to the CEO of Enron's largest competitor, Dinergy, and tries to broker a deal.
• ▶ 2:23:09 Ben Gilbert He also tried to line up a bunch of private equity.
• ▶ 2:23:11 Ben Gilbert He was gonna go for a take private.
• ▶ 2:27:52 David Rosenthal At 10:20 a.m., 10 minutes before the news comes out, Ken Lay's wife sells 500,000 shares of Enron stock that the Kenan, uh, whatever her name is, that the Lay Family Foundation held.
• ▶ 2:28:29 Ben Gilbert By the way, that Ken Lay thing, the, like, he, the Lay Family Foundation made some money on the way out.
• ▶ 2:28:38 Ben Gilbert As a part of the Dyna-G term sheet, upon completion of the deal, Ken Lay just got sixty million dollars in cash as, like, a bonus.
• ▶ 2:28:47 David Rosenthal It was at Golden Parachute, yeah, because he was gonna leave as part of the deal.
• ▶ 2:28:50 Ben Gilbert Exactly, and there was such a revolt among employees who were all, like, actively losing their life savings in retirement, or, like, hell no, and so he ended up realizing the optics were bad enough that he actually
• ▶ 2:35:08 David Rosenthal Ken Lay and Skilling, even though Skilling's, you know, quit months before, like, obviously he's implicated in all this.
• ▶ 2:35:31 David Rosenthal So, Lay and Skilling know, kind of, there's no way out for them.
• ▶ 2:35:44 David Rosenthal Fastow initially also tries to fight and lawyer up like Lay and Skilling, but the feds ultimately end up getting him to cave when they bust his wife Leah for tax evasion for everything that she was involved in.
• ▶ 2:36:36 David Rosenthal He lays close ties with the Bush family and everybody in the Bush political cabinet in the White House.
• ▶ 2:37:02 Ben Gilbert Earlier in the press, refer to him as Kenny Boy, my friend.
• ▶ 2:37:09 David Rosenthal So close, in fact, that when W was inaugurated president, George H.W. and Barbara Bush traveled from Houston to Washington for the inauguration with Lay on the Enron corporate jet.
• ▶ 2:40:44 David Rosenthal The actual case that the government wants is to go against Lay and Skilling, go against the top.
• ▶ 2:41:05 Ben Gilbert So there was a handful of those, like, wrist slap ones to get Ken Lay and Skilling.
• ▶ 2:42:09 David Rosenthal So it takes a very long time for the government to build up all their case against Lay and Skilling.
• ▶ 2:42:38 David Rosenthal So, May, 2006, a jury finally convicts Skilling of 19 out of 28 counts of wire fraud and securities fraud, and Lay gets convicted on six counts of securities fraud.
• ▶ 2:42:52 David Rosenthal A short while later, on July fifth, 2006, before the sentencing happens, Lay is found dead at his vacation home in Colorado.
• ▶ 2:43:09 Ben Gilbert The cover of the New York Post had some joke about, like, it was a photograph of Ken Lay's casket, and it was like, check if he's in there.
• ▶ 2:44:48 David Rosenthal Quote, Ken spent 64 years on earth doing God's work, helping others with love.
• ▶ 2:44:57 David Rosenthal Ken's life exemplified Galatians five 22, but the fruit of the spirit is love, joy, peace, patience, kindness, goodness,
• ▶ 2:55:54 Ben Gilbert Um, and he was sort of Ken Lay's right-hand man for a while.
• ▶ 2:59:04 David Rosenthal When they have first Lay and his original companies, and then Skilling and Lay together with creating the, you know, energy derivatives market, I think there's value to doing that.