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CNN Live Saturday

Interview With Eli Gottesdiener

Aired January 19, 2002 - 20:16   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: Just weeks before Enron declared bankruptcy, the company's top executive went online to chat up the company's stock to employees. The transcript of this in-house Web chat has been made available to CNN by the attorney representing some of Enron's former employees. He'll be joining us live in just a few moments.

But first, CNN's Ed Lavandera with a closer look at what the employees were told shortly before Enron went bankrupt.

(BEGIN VIDEOTAPE)

ED LAVANDERA, CNN CORRESPONDENT (voice-over): Even as 4,500 Enron employees emptied our their desks last month, many of their retirement plans had already been wiped away. But an essential question in the Enron collapse mystery, why did so many people continue investing heavily in a struggling company?

ELI GOTTESDIENER, ATTORNEY, FOR ENRON EMPLOYEES: He actually had the nerve to tell them to buy more stock. This was a "buying opportunity," he said. The stock was "an incredible bargain." That's a quote.

LAVANDERA: He is Ken Lay, the head of Enron. Eli Gottesdiener has filed a class action lawsuit against the energy giant. He represents workers who lost millions in retirement savings. The suit accuses Ken Lay and company executives of hiding Enron's sickness.

In an online chat session on September 26th, Lay says, "Enron is an incredible bargain. We will look back a couple of years from now and see the great opportunity that we currently have." Lay says this, even though a month earlier, Vice President Sherrin Watkins warned him about the company's accounting practices.

Later in the chat, one person asks, "What can Enron employees do to help increase the stock price?" Lay responds, "You can talk up the stock and talk positively about Enron. The company is fundamentally sound."

To John Sides, that meant buying more Enron stock. He had $500,000 in a 401(K) plan, much of it invested in Enron. For 22 years, the company provided his family economic security. Even in tough times, he never doubted the leaders. Today, his retirement plan is worth less than $4,000. JOHN SIDES, FMR. ENRON EMPLOYEE: You feel like you've almost been raped, because all along all last year they were telling the employees, "Oh, we're going to bounce back."

LAVANDERA: Ken Lay has been silent about the issue.

(on camera): (UNINTELLIGIBLE) with CNN?

KEN LAY, CHAIRMAN, ENRON: Really not this morning. Thank you.

LAVANDERA: In that online chat session, Ken Lay predicts that in 10 years his company would increase its net income four to six-fold, and be 10 times as strong in the marketplace. We now know that's a prediction that will never come true.

Ed Lavandera, CNN, Houston.

(END VIDEOTAPE)

LIN: Joining us now from Washington is Eli Gottesdiener. He is the attorney representing some of the former Enron employees who have been affected. Good evening, sir.

GOTTESDIENER: Hi, Carol.

LIN: Is there any chance at all that in this online chat, what his real intent -- Kenneth Lay -- what his real intent was, was simply to be a cheerleader for his company. Not specifically the stock, but just to encourage employees to feel good about the place where they work?

GOTTESDIENER: Yeah, well, he was doing that, but he was doing a lot more than that, Carol. Because as Ed's piece shows specifically, and quoted from the transcript, he kept on telling people "This is a buying opportunity." In other parts of the transcript that didn't make it into Ed's piece, he's specifically saying, "This is a cheap stock. You should buy more stock. Not just talk up the stock, but you yourself should buy." Now he did not disclose that he was selling as he as he was telling people to be buying more.

LIN: But what he said, is it really illegal? I mean, it's not as if he held a gun to their heads and said you must buy your company stock.

GOTTESDIENER: No, but what is arguably illegal -- I want to be careful of what I accuse him of on TV -- he was specifically asked, in particular by a client of mine who knew about these offshore partnerships -- these off balance sheet partnerships that had millions of dollars and debt and kept it off their books. This employee specifically asked him, Carol, "Could you please reassure us that there's nothing improper about that." And what Mr. Lay did was he said, yes, I am specifically telling you we have looked at all of that. Andersen has approved it; our outside lawyers have approved it. And in his words, "All of our internal officers have approved it."

That was not true. We know from Ed's piece that Ms. Watkins had specifically questioned, one month earlier, this whole thing and said that the company is basically an elaborate accounting hoax. He also failed to disclose to his workers, as he was required by federal law to do, that all of this was under investigation. He made it sound like everything was on the up and up and everything was going to be fine and that the market didn't recognize that actually this was a buying opportunity.

LIN: So does this make him personally liable? I mean, can you go after Kenneth Lay's personal fortune in this case?

GOTTESDIENER: Yes. Yes.

LIN: You can?

GOTTESDIENER: Yes.

LIN: Are you going to?

GOTTESDIENER: Yes, ma'am. And I think there's going to be other people. I'm not a prosecutor, I'm a civil attorney. But I think there are going to be other people who are going to take up Mr. Lay's own advice. If I could read from something that he said to his employees -- this hasn't been reported yet.

He was addressing a separate issue, what we should do about people who send viruses over the Internet. Mr. Lay said this, quote, "I think we should seriously consider as a country imposing very stiff criminal penalties on anyone that is identified and proved guilty of sending out these viruses. Hopefully, one or two cases where individuals are given large financial penalties, as well as some time in prison, might make this a less attractive activity." I know my clients share Mr. Lay's sentiments in that regard.

LIN: So when you look at the assets that might be available to your clients if they were to win their lawsuit, what is it that you see claiming? His house, his cars, his bank accounts?

GOTTESDIENER: All of that, Carol. And you've got to remember, it's not just Mr. Lay. The reports are that $1 billion in illegal insider profits were made by top company officials, including Mr. Lay. There are numerous officials who harvested tens of millions of dollars each. The estimates are that there are approximately $1 billion in illegal insider trades just by Enron folks. And, don't forget, I've sued Arthur Andersen as well. And Arthur Andersen, they have revenues of $9 billion a year.

Now one of the problems is, is that the pension laws in this country are so porous, and they were made more porous last week by a ruling by the Supreme Court that hasn't been reported sufficiently, that it may be difficult for us to reach Arthur Andersen's assets. But we are going to try.

LIN: Mr. Gottesdiener, how long is this going to take? I mean, how long do your clients have to wait before they see the outcome of this court case? GOTTESDIENER: Well, you ask a good question, because there's criminal probes going on, and traditionally in these matters those take priorities. And we may be unavoidably stayed as a result of those criminal probes.

LIN: It's going to be a long wait indeed.

GOTTESDIENER: It will be.

LIN: All right. Thank you very much for joining us tonight.

GOTTESDIENER: Thanks, Carol.

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