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Enron founder goes on offensive

Lay testifies that he was betrayed by CFO

HOUSTON -- Betrayed, bothered, and bewildered.

In his second day on the stand, Enron Corp. founder Kenneth Lay took Andrew Fastow head on, saying the former chief financial officer had abused his trust and describing a heated conversation with Fastow after he was ousted.

Lay also said he was taken by surprise when the Wall Street Journal wrote in late October 2001 about an off-balance-sheet Fastow venture that eventually helped force Enron to wipe $600 million in profit off its books.

Only then, according to Lay -- less than six weeks before Enron filed for bankruptcy protection -- did he realize just how much trouble the company was in.

It was on the evening of Oct. 26, 2001, that Lay said it dawned on him: ''This may be a more serious problem than I thought up until then. There might be a real problem with our accounting."

Lay, on trial with former Enron chief executive Jeffrey Skilling on federal fraud and conspiracy charges, testified Monday that Fastow's crimes, in addition to bad press and rumors spread by market short-sellers in a bear market, led to Enron's demise.

Yesterday, Lay described standing resolutely by Fastow as the Journal began raising questions about special partnerships run by the former CFO that did business with Enron -- only to have his trust betrayed.

Lay said he was surprised to learn in October 2001 that Fastow had skimmed a $45 million profit for himself in those partnerships, far from the $1 million estimate that Fastow had given him. The board fired Fastow shortly afterward.

The government contends Lay and Skilling conspired to hide accounting tricks and failing business ventures at Enron, pushing it toward collapse as its true financial state came to light.

The defendants say there was no overarching fraud at Enron, just lesser schemes by Fastow and others involving a few millions of dollars.

Lay faces six counts of fraud and conspiracy. Skilling faces 28 counts of fraud, conspiracy, insider trading, and lying to auditors.

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