Friday, April 28, 2006

All in the Family

Lay Says Son Was Among Enron Short Sellers He Blamed

That was the Bloomberg headline yesterday above a story describing how the man who built Enron and took full credit during the halcyon days of that company's rise to power blamed its fall on his own CFO and the dreaded short-sellers's cabal—and I am not making that up.

Former Enron Corp. Chairman Kenneth Lay acknowledged his son was among short sellers of company stock, a group of investors the executive blamed at his fraud trial for destroying the company. Lay was shown a March 2001 Charles Schwab Corp. statement that listed four trades by his son Mark, betting on a decrease in Enron's stock price. Lay agreed it showed his son, 37, a former Enron vice president, had been one of the short sellers he'd criticized as a group.

Mark Lay ran the paper products group, which was—according to friends of mine in the paper industry—a disaster from the day Enron overpaid for its first paper mill and set about changing the way the paper business operated. That initiative was so successful the man in charge shorted his own company’s stock. Meanwhile, Father Ken was letting go shares of Enron while telling Wall Street encouraging things about his company.

You could say short-selling was all in the Lay family.

From what I’ve seen, people seem genuinely surprised that Ken, often described as folksy and avuncular, lost his cool in the courtroom.

I have a suggestion: somebody should ask Lay’s first wife—the wife he left—how folksy and avuncular a guy who rose to the head of a multi-billion dollar enterprise could be.

Me, I think we’re seeing the real Ken Lay.

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


dkman said...

As someone who believes that short sellers can and do serve a very valuable function in capital markets,
I love the idea of company insiders being allowed to short the stock of their own companies, provided, of course, it is nicely and timely disclosed in WSJ's "Insider Trading Spotlight".

Now that would be a great improvement to our capitalist system.

Chris Fischer said...

I couldn't agree more about Mr. Lay.

I'm also beginning to become concerned about how every time there is a problem with a company these days, (naked)short sellers are being blamed. This isn't good.

I really like it when people talk about "re-inventing a business." That's one of my keywords to run for the hills, right up there with "it's different this time." Re-invent the business huh? Yeah, just like Webvan reinvented grocery shopping, eToys reinvented toy sales and reinvented the Pet supply business. Right.

AltaJoe said...

Ken Lay move Enron from Omaha to Houston because he couldn't attract the right kind of people to Omaha. We here in Omaha are greatful that the right kind of people didn't move here.

Jim Chanos said...

"The smartest thing the Devil ever did, was convince us he didn't exist." K. Soze' ("The Usual Suspects")

dm said...

dumb question - wouldn't it be illegal to short one's own company stock (I'm assuming Mark was doing this while still employed by Enron) or is that going against generally accepted company policy.

part 2 - how come Ken Lay's sales of Enron stock back to Enron did not need to be reported? Isn't that a gigantic hole in the SEC/whatever ruleset? Given that the company is the ultimate insider wrt its own stock, shouldn't all stock transactions (its own or others) that the company engages in have to be reported within that minimum 10-15 day reporting deadline?

DaleW said...

Yeah, just like Webvan reinvented grocery shopping, eToys reinvented toy sales and reinvented the Pet supply business. Right.

Yeah! Like Nucor reinvented steel! eBay reinvented classifieds! Southwest reinvented airlines! Google reinvented marketing communications! Idiots -- run for the hills when you hear someone wants to innovate.