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Enron's Kenneth Lay gives up the helm

Enron Corp Chairman and Chief Executive Officer Kenneth Lay resigned from the energy trading company he led into the biggest bankruptcy ever, amid pressure from creditors and mounting investigations of his role in the collapse.

Lay is a target of more than a dozen government probes and more than 50 civil lawsuits after Enron admitted overstating profit by US$586 million since 1997 and fired 4,500 workers at its Houston headquarters. In the seven weeks before its bankruptcy last month, shareholders lost US$26 billion in market value and US$850 million in pension funds vanished.

"He had become an absentee landlord, a figurehead who put the company's fate in the hands of other executives and didn't ask questions as long as the profits rolled in," said James Alexander, a former consultant for Enron's Global Power and Pipelines unit who dealt with Lay as head of Drexel Burnham Lambert's Houston office in the 1980s.

Lay, 59, couldn't stop Enron's plunge into insolvency. One of President George W. Bush's earliest and most loyal supporters, Lay called administration officials, including Treasury Secretary Paul O'Neill, late last year, seeking help in averting Enron's collapse. He was rebuffed.

Last week congressional investigators revealed an internal company memo that showed Lay, who has said he knew little of the complex financial transactions that brought down Enron, was warned in August that Enron was on the verge of crumbling.

Lay will no longer be an employee of Enron and will remain on the company's board.

By remaining on the board, Lay is protected from lawsuits because Enron provides legal and liability insurance for its officers and directors. Federal and state laws hold boards responsible for only the most serious fraud and misrepresentation, experts say. They are designed to shield directors from legal liability to make service on the board more attractive.

"I want to see Enron survive," Lay said in a statement.

"And for that to happen we need someone at the helm who can focus 100 percent of his efforts on reorganizing the company. Unfortunately, with the multiple inquiries and investigations that currently require much of my time, it is becoming increasingly difficult to concentrate fully on what is most important to Enron's stakeholders."

Enron is in the process of choosing a restructuring specialist who will act as interim chief executive until a permanent successor is found, the company said.

Enron spokesman Mark Palmer said the existing management team, including Chief Financial Officer Jeff McMahon and Stan Horton, chairman and chief executive of Enron Global Services, will run the company until a replacement is named.

Lay decided to resign after meeting with the board and creditor representatives, Palmer said.

"It was a decision that the board and Ken reached together in cooperation with Enron's creditors committee," Palmer said.

Lay's attorney, Earl Silbert, and Luc Despins, an attorney for Enron's creditors' committee, didn't return phone calls.

"Bad management is the leading cause of corporate bankruptcy; solving the bad management problem is a cornerstone of any Chapter 11 restructuring," said Peter Chapman of Bankruptcy Creditors' Service Inc, which publishes newsletters on major Chapter 11 cases such as Enron's. "Creditors are in control and it's their money that's at risk."

Creditors are concerned Enron may be worth less than they thought, analysts say. That means they're likely to end up with a fraction of the more than US$40 billion they're owed.

Enron, which was once the largest energy trader, earmarked about US$8 billion worth of assets and businesses to sell to raise money for creditors. Last week, it sold a controlling interest in its dormant energy trading business to UBS AG. UBS agreed to pay Enron out of the unit's future profits, rather than provide any cash up front.

On Wednesday, BG Group Plc of the UK agreed to pay US$350 million for Enron's stakes in oil and gas fields in India.

A group of creditors led by Wiser Oil has asked the bankruptcy judge to appoint a trustee to run Enron's North American operations.

Creditors can ask a bankruptcy judge to name a trustee to run a bankrupt company in lieu of the chief executive officer and the board of directors, experts say. To oust management and have a trustee appointed, creditors must show management has been incompetent or committed fraud, said Patrick A. Murphy, a lawyer with San Franciso's Murphy Shenemen Julian & Rogers.
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