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CNN LARRY KING LIVE

Ken Lay's Legacy

Aired July 7, 2006 - 21:00   ET

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


(BEGIN VIDEO CLIP)
KEN LAY, ENRON FOUNDER: I firmly believe I'm innocent of the charges against me as I have said from day one.

(END VIDEO CLIP)

LARRY KING, CNN HOST: Tonight, he went to his grave maintaining his innocence but he never went to jail for crimes that could have meant 25 to 40 years behind bars. Enron founder Kenneth Lay dead this week at 64 of a massive heart attack. What happens now to his conviction, to the Enron employees who lost everything, and to the millions the feds are trying to recover?

We'll hear from some of those former employees from a close friend of the late family who is trustee of Ken Lay's legal trust and from Daniel Petrocelli, attorney for Ken Lay's co-defendant Jeffrey Skilling next on LARRY KING LIVE.

Good evening from New York. Our panel in this first segment, Daniel Petrocelli, the lead attorney for Jeff Skilling he's in Los Angeles.

In Houston is Terry Giles, close family friend of the Lays, trustee of Ken Lay's legal trust and a fellow Horatio Alger Award winner along with Ken Lay.

Diana Peters is co-founder of the Severed Enron Employees Coalition. She worked for Enron for ten years until it went bankrupt, selected by a federal judge to represent the Enron employees in a class action lawsuit.

Mary Flood is a reporter for the Houston Chronicle also an attorney and has covered the Enron story since 2001.

And, here in New York is Bethany McLean, senior writer, Fortune magazine, writer of "The Smartest Guys in the Room," which was the basis for an Oscar-nominated documentary feature.

Terry Giles, tell us about what happened early Wednesday morning.

TERRY GILES, LAY FAMILY FRIEND: Well, the suddenness of it, Larry, I think stunned all of us and those of us who knew Ken well and were his friends were devastated by the news and we just feel so sorry for Linda and the rest of their family.

KING: He had a history of heart problems right?

GILES: That's what I understand. I have to say that that was not something that was well known. Ken always looked as if he was in good health. He worked out regularly. He seemed to watch his health with vigor. So, to be honest with you, although I've heard those reports as well that was not something that I was aware of until this occurred.

KING: Diana Peters, who worked for Enron for ten years, were you shocked?

DIANA PETERS, CO-FOUNDER, SEVERED ENRON EMPLOYEES COALITION: Very. I was very shocked, Larry, very shocked.

KING: Did you know that he had any history of heart problems?

PETERS: There had been some rumors at his retirement that that might have something to do with it.

KING: Did you feel in that death you were denied justice?

PETERS: I really feel like I've been vindicated just by the fact that he was found guilty. He was found guilty and I'm happy with that.

KING: Mary Flood with the Houston Chronicle did you know about heart problems?

MARY FLOOD, HOUSTON CHRONICLE: No, Larry, I didn't know he had heart problems.

KING: So, therefore you were equally shocked?

FLOOD: Definitely, I'm stunned. It's still hard to believe he's gone.

KING: Bethany McLean, who has written about this, wrote "The Smartest Guys in the Room," what was your reaction?

BETHANY MCLEAN, FORTUNE MAGAZINE: Like everybody else's I think shocked is the first word that everyone uses. After that the emotions run a surprising gamut but shocked is everybody's first word.

KING: What's the gamut?

MCLEAN: I think people describe it from a tragedy. People are suspicious. Could he really be dead? And people are I find surprisingly mad. Some people feel that they have been deprived of justice.

KING: Daniel Petrocelli, the lead attorney for Jeffrey Skilling and one of the best lawyers in the United States, what was your reaction?

DANIEL PETROCELLI, LEAD ATTORNEY FOR JEFFREY SKILLING: Devastated, Larry. I only knew Ken Lay over the last couple of years and under the most difficult and trying circumstances and yet as short of a time that was I got to know that he was a wonderful man, a man who held his head up high in the most difficult of circumstances.

I spoke with Jeff Skilling several times today and over the past couple of days about Ken's death and Jeff is distraught. They've known each other for over 20 years. They worked closely together. They were good friends. Ken was a sort of mentor to Jeff and Jeff is going to miss him dearly as we all will.

KING: Now, Jeff of course insisted on his innocence. I heard today that he will attend both memorial services. There will be one in Aspen and one in Houston for Ken Lay. And I know you believe strongly in Skilling's innocence. Did you also believe in Lay's innocence Daniel?

PETROCELLI: Absolutely, Larry, and it's not just a belief. It's based on an intensive investigation into the facts and evidence of this case. Ken had a great legal team. Jeff had a very large and great legal team of people who plowed into this case more than anybody's done despite all the people who have spoken about Enron, written about Enron, given speeches about Enron.

It's the people who worked 24/7 for the last couple of years that really understand this case, Larry, and, you know, the jury saw it a different way. We know what the facts are. We're going to continue the fight and we're going to take this as long and as far as we can.

KING: Terry Giles, it would be a layman's guess, do you think that the verdict had something to do with the death?

GILES: Well, you have to assume that that's true. There had to be enormous stress on Ken. He was always very courageous throughout this entire matter. He was always positive. He always brought his best to the table.

But the truth is that inside there had to be stress. And, after the conviction I think the conviction undoubtedly had to take a toll on him. And, I can't help but to believe that it was a contributing factor.

KING: Diana Peters, you said you feel vindicated because he was found guilty but do you also feel that sense of "We didn't get our day in -- we didn't get our day"?

PETERS: I think we've had our day in court. I think that the federal government did an excellent job and I think the jury did an excellent job. He was guilty and there was no doubt about it. That tells me a lot.

KING: Is there money still due from his estate to you and your fellow employees?

PETERS: Yes, there is.

KING: Will there be a civil suit?

PETERS: Yes, I'm sure.

KING: Is there a question, Daniel Petrocelli, as to whether that money can be released because I read somewhere that there's a law dealing with unless your appeal has been heard the conviction doesn't stand?

PETROCELLI: You're right, Larry. In the eyes of the law, not only the conviction but the indictment against Ken Lay should be dismissed as though it never happened. It's a complete nullity in the eyes of the law and the government should have no right whatsoever to seize any of Mr. Lay's property.

KING: What's the reason for that law?

PETROCELLI: Well, because you're not guilty under our system of laws until you've had a chance to carry your case all the way through the courts. The trial court is just round one. If you're found guilty in the trial court, you have an automatic right to appeal and then you can even go beyond the appellate court to the Supreme Court in certain circumstances. Mr. Lay did not have that chance.

KING: But he might well have been jailed though on September 11th.

PETROCELLI: The sentencing date was actually pushed off until October 23rd and the judge would have had to make a decision whether to submit him to confinement then or possibly not submit him to confinement pending his appeal.

KING: Let me get a break and we'll come right back with more.

We'll meet some more former employees.

As we go to break, last night I interviewed the president of the United States and the first lady and I asked them about Ken Lay.

(BEGIN VIDEOTAPE)

KING: The death of Ken Lay.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Yes.

KING: I know he was your friend. How did you feel? Were you shocked?

BUSH: I was. I was very surprised. You know I guess my hope is, is that his heart was right with the Lord and I feel real sorry for his wife. She's had a rough go. She's now here on earth to bear the burdens of losing her husband, a man she loved.

KING: Was that whole thing, the whole Enron story shocking to you?

BUSH: Yes, yes.

KING: Because I mean you knew it pretty well from Texas, right? BUSH: Pretty well, pretty well. I've known him -- I got to know him. People don't believe this but he actually supported Ann Richardson in the '94 campaign.

KING: She told me that.

BUSH: She did?

KING: She liked him a lot.

BUSH: Yes, he's a good guy and so what I did -- then did was we had a business council and I kept him on as the chairman of the business council and, you know, got to know him and got to see him in action. One of the things I respected him for was he was such a contributor to Houston's civil society. He was a generous person. I'm disappointed that, you know, that there was -- betrayed the trust of shareholders.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Confirmed through a family spokesman that Ken Lay, the founder of Enron...

UNIDENTIFIED MALE: ...died suddenly in Aspen, Colorado. He was 64. And an autopsy confirms he died of a...

UNIDENTIFIED MALE: ...massive heart attack. He was awaiting sentencing just months from now for his role in the collapse of that company.

UNIDENTIFIED FEMALE: He took it to such great heights before it collapsed as one the greatest scandals in corporate history.

(END VIDEO CLIP)

KING: Joining us now in Houston Garrett Ashmore, former Enron employee, first met Ken Lay when Garrett was in high school in the late '90s, later co-founded Enron's broadband services.

Angie Lorio, former employee, lost $500,000 of her retirement savings after working at the energy company 28 years.

And, Charles Prestwood, former employee, worked for Enron for over 30 years, lost all of his savings when the company went bankrupt. He went to D.C. twice to attend Senate hearings after the collapse of Enron.

You were kind of a protege of Ken Lay's weren't you Garrett?

GARRETT ASHMORE, FORMER ENRON EMPLOYEE: I guess some might describe that absolutely, Larry.

KING: I mean he took you on, you rose fast, right through the company?

ASHMORE: Sure did, yes. I was I guess at the time one of the lucky few who he took under his wing and tried to make a difference at the time.

KING: Do you have mixed emotions?

ASHMORE: Absolutely. You know I guess I represent so many of the former employees and people who are just conflicted about Ken Lay. I mean on one hand here's a guy who helped me as a sophomore in high school to go to Russia and expand my horizons and give me a completely new perspective on the world. And yet, on the other hand, here's a guy who took away almost everything we had at the time.

KING: Angie Lorio, who lost $500,000 of her retirement savings, how do you feel about Ken Lay and about his death?

ANGIE LORIO, 28 YEARS AT ENRON: Oh, I really feel sorry. I was totally shocked but Mr. Lay was a person that had a big heart but at the same time he carried a lot of guilt, so I know in my heart that's what killed him was all the guilt he had to carry with him and now God Almighty may he rest in peace.

KING: No doubt in your mind, Angie, about his guilt?

LORIO: None at all. From the beginning I've always believed that he knew what was going on inside the company.

KING: Charles Prestwood, you worked there over 30 years, what were your feelings when you heard about his dying?

CHARLES PRESTWOOD, 30 YEARS AT ENRON: Well, I was kind of startled too, you know. It's something that shouldn't have happened I think, you know, because I have heart trouble myself but I keep on top of mine. My plumbing is good. In other words, my arteries and stuff, but I have a rhythm problem with my heart but I got a defibrillator that helps correct that.

And I think that, you know, it startled me at first and then I got thinking. I says "Man, I don't understand. He ought to have been a picture of health you know" but I don't know. Apparently he wasn't.

KING: Diana, what legal moves are open to you now?

PETERS: We have been working on the class action lawsuits have been I guess kind of put on a hold for a few minutes I guess speaking. We are -- the employee-related committee is working with David McLean (ph) and Mark Manning (ph) here in Houston recovering some of the 90- day bonus money that was handed out.

We have recovered quite a bit and hopefully we'll be able to finish that and start passing out some of that money to the severed employees that were let go on December 3rd so that they can receive the rest of their severance money that they were owed.

KING: Mary Flood, as a reporter for the Houston Chronicle and also an attorney, how much money is out there? How much Enron money is still available?

FLOOD: Well, there's about $7 billion in the class action war chest for shareholders. There's another -- well there are many other millions that the government holds as well. I would assume that in the end there will be -- it could be as many as 10 billion that's split up among the former employees and shareholders.

KING: This, therefore, seems laughable. If they had $10 billion, why are they bankrupt, Mary Flood?

FLOOD: Well the $10 billion isn't all -- Larry, the $10 billion isn't all from Enron and it's not -- a lot -- obviously a lot of the money isn't coming from Enron but companies go bankrupt for all sorts of reasons. What Mr. Lay told us was that there was a run on the bank. They lost their creditors. Other people think it was because of fraud that they went bankrupt.

But, of course, the trial against Mr. Lay and Mr. Skilling wasn't really about the bankruptcy. It was about whether they had committed fraud or not. There was no -- the bankruptcy trial was a separate event.

KING: All right, Daniel Petrocelli, is there still a lot of money around?

PETROCELLI: Well, Larry, as Mary was indicating, most of the money that the civil plaintiffs are seeking to obtain is not from Enron or from former officers of Enron but from banks and financial institutions who did business with Enron and indeed those are the main targets for the money. The individuals, whether it be Mr. Skilling or Mr. Lay, they don't have the kinds of sums of money that the shareholder lawyers are seeking to pursue.

KING: Do the banks have it?

PETROCELLI: Well, banks are very healthy and are making lots of money.

KING: I mean do they specifically have money which is Enron's money?

PETROCELLI: No, no. This is not the time or place to debate the Enron case but Jeff Skilling and Ken Lay didn't take anybody's money. These banks are being sued simply because they did business with Enron under various theories of liability and most of them are settling just to avoid difficult trials and difficult circumstances in Houston as we saw in our own case.

KING: We'll be back with more right after these words. Don't go away.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: As the truth about Enron started to come to light and the officers at the top cashed out, we the employees had no choice but to ride the stock into the ground. UNIDENTIFIED FEMALE: At the most crucial time they denied us access to our own money. My life savings is gone.

UNIDENTIFIED FEMALE: Sometimes at night I do feel real bitter over what I've lost because it was a big part of my future and I don't know how I'm going to have a future now. All I can do is hope and pray I don't get sick.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

KING: What do you say to employees and people who lost a lot? I mean what do you say?

LAY: Oh, I'm incredibly sorry. I mean I grieve for them. I honestly still grieve for them and probably will to the day I die, Larry. I mean as I said earlier I've always taken my responsibility to my employees very seriously.

I've always tried to provide opportunities for them and indeed let them realize growth and potential and even financial success like they probably never dreamed of. And, indeed, Larry, we had the most creative, the brightest, most accomplished group of employees and certainly in our industry, maybe in many other industries.

We were competing with the very best and biggest companies in the world for the best talent and they loved working at Enron just like I did. But I grieve for all that they've lost and we, I mean even having lost what we've lost, I mean we are so much better off. My family is so much better off than most of them and it just, it pains me each and every day of my life.

(END VIDEOTAPE)

KING: That was our interview a couple years ago with the late Ken Lay. It will be replayed in its entirety tomorrow night.

What do you make when you see that Garrett?

ASHMORE: Well, when you take that at face value I couldn't agree completely more than what he had to say. I mean he did give opportunities and there were tremendous opportunities for both young and old people at Enron. I mean I was 22 years old, putting, building businesses and flying around on corporate jets. I mean I was living the true life that any young individual would love to lead.

KING: Angie, do you think he was sincere when he said he grieved for all of you?

LORIO: I really do believe in his heart that he really did grieve. But at that time now when he was saying that it was all too late and it was -- it was -- his words didn't mean anything in the end. KING: Do you think to put it bluntly, Charles, that he was a crook?

PRESTWOOD: Yes, sir I sure do. I'll tell you one thing because if he'd have done his job right we wouldn't be in poverty ourselves.

KING: Diana Peters, how do you react to when you see him like that?

PETERS: When I went to work there I was so excited to go to work there. It was a very popular company and, Larry, everyone wanted to work there. And he did offer, Ken Lay did offer through the company they did offer ways for you to expand and grow and we had cutting edge technology that you could grow into.

It gave me opportunities that I might not have had if I'd have worked somewhere else. But I think that -- I think when it got down to the nitty gritty he just needed to take care of himself and he moved on.

KING: Daniel, was your client and Mr. Lay in a sense doomed from the start?

PETROCELLI: To the extent they were going to be tried in Houston, Texas I think they were. Look, you know, there are no winners in this story, Larry. This is one of the most tragic stories of all time and the loss of Ken Lay now just adds to that tragedy.

But the facts are the facts. Jeff Skilling, Ken Lay, and many other good people at Enron they built a wonderful company. They created thousands of jobs. They created tens of billions, hundreds of billions of dollars of shareholder value. They never set out to hurt anybody.

I feel very sorry as they do for the employees who lost their jobs and lost the value in their stock but nobody set out to do that. Making a mistake or making a business judgment that turns out to be the wrong one after the fact in hindsight does not make someone a crook or a criminal.

KING: But, Mary Flood, somebody did something wrong right?

FLOOD: Certainly. There are 16 people who have pleaded guilty, Larry. Only three of them have been sentenced. There's a lot more to the Enron story. We've got 13 more people to be sentenced, three more people to be tried in the broadband section, three British men, former bankers, who are coming over. There's a lot more than just Mr. Lay and Mr. Skilling's trials as well.

KING: Let's get an e-mail in from -- we make e-mails available through our Web site. This is from Ken in Effort, Pennsylvania. "Was it clear to the typical Enron employee how exactly Enron was supposedly making out so well or was it more 'hear no evil, see no evil' in the company culture" -- Garrett. ASHMORE: I'd say at the time, Larry, you know, Enron had a business model that made money and it made revenues. The sad fact of the matter is that it was a handful of people at the top that destroyed that company.

KING: All right, we thank Garrett and Angie and Charles for joining us. Diana will remain. And returning will be Bethany and Terry Giles, the close family friend.

We'll also be hearing from Bob Lanier, the former mayor of Houston, a close friend of Ken Lay's, and Sam Malone of KTRH Talk Radio in Houston who knew Ken Lay socially.

That's all ahead. We'll also include some of your phone calls. Don't go away.

(BEGIN VIDEO CLIP)

LAY: This might surprise many people in your audience. I mean for the most part I, my wife, our family, are treated very kindly and very warmly by most of the people we come in touch with.

KING: Even Enron employees and the like who might have a reason to be angry?

LAY: Even Enron employees. I mean I was thinking as I was driving out here today for this interview, if I go back over the last two and a half years and think about the number of people even in this town, I mean that have maybe gone out of their way to make an unpleasant gesture in my direction, it's probably less than you can put on one hand.

KING: Really?

LAY: And quite the contrary, it's amazing and my wife and I talk about this quite often but amazing the number of people, even complete strangers but also former Enron employees that go out of their way to be very kind and generous in their comments and warm and supportive and all the other things that they are.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

KING: We're back.

And by the way, we did invite the prosecutors in the Enron case to be on the show tonight, and they declined. We'll talk with Bob Lanier in a moment, but first I wanted to ask Bethany, who was telling me during the break -- Bethany McLean, the senior writer at "Fortune" magazine -- that there were kind of two Ken Lays.

MCLEAN: One side of Ken Lay was the side most people saw, this gracious, charming, lovely man. And even during the trial, in the courtroom, most of the time that was the side of Ken Lay we saw. But when he took the stand, this other side of Ken Lay came out, this self-righteous, angry, defensive man. And most observers of the trial thought that was when the tide started to turn.

KING: He was not a good witness?

MCLEAN: He was not a good witness for himself at all, no.

KING: Even with his own lawyer, right?

MCLEAN: Even with his own lawyer. He snapped at his own lawyer at one point, and then once the prosecution's cross-examination began, it just went downhill from there for Mr. Lay.

KING: Joining us in Los Angeles is Bob Lanier, the former mayor of Houston, a long-time friend of Ken Lay's. He testified as a character witness. Bob, did you know that Ken had heart problems?

BOB LANIER, FORMER MAYOR OF HOUSTON: No, I didn't.

KING: So you were shocked?

LANIER: Well, I was surprised. I wasn't necessarily shocked. I've had a heart attack. And he's 64 years old. He's been under an enormous amount of stress. So it wasn't just totally shocking to me, but I was surprised.

KING: Why did you stand up for him in view of the Enron debacle?

LANIER: Well, I was his friend. I was his neighbor. I'd done business with him as mayor. He was totally forthright. He was helpful to different projects for the city. He was helpful to revitalize the city and so forth. He worked on virtually every charitable program that we had and was one of the biggest givers on every list.

The side I saw of him was what Ms. McLean said. He was charming. He was straightforward. I never even really saw him do anything selfish. I lived right next door to him.

KING: Would you call him a good man?

LANIER: I would, yes.

KING: In other words, someone -- if you called him 3:00 in the morning, he'd be there for you?

LANIER: I think I would like the expression in the Yom Kippur prayers I've heard and read at temple, at a temple, in his book of life there would be a lot of pages and a whole lot of them are very, very good. And he made some mistakes. And those are in the book of life also. And he'll be judged as a whole person for his whole life, I suppose, in the hereafter.

Probably those of us that knew him will see him primarily for the person that represented how we dealt with him. I can understand these employees' feelings, certainly. I can understand the loss, the feeling of people who suffered losses.

But a man's life is more than just one event. His life also included building Enron. It included the fall. The question is whether his mistakes -- and there were mistakes -- were (inaudible) or criminal, as the jury decided. But my dealing with him was totally favorable.

As to why I appeared as a witness, I thought I owed him that as a friend.

KING: Was it hard for you, though, as a public figure? Because you knew as a former mayor, you'd be criticized in some circles.

LANIER: Not really. I just really thought that was the right thing to do. I would have felt bad about myself if I would not have done it.

I simply testified truthfully. I didn't try to get in and decide the different matters of dispute in the trial. What I said was the man I knew was the things I've described. He was charitable. He was generous. He was straightforward. He was interested in doing for other people. He'd worked in causes you wouldn't expect to find him: Affirmative action, NAACP, United Negro College. Holocaust. He raised a whole lot of money for the Houston Holocaust Museum. And you'd find him on every list of every charitable effort. And he gave not just his money, he really gave his heart and his time to the efforts.

KING: Thank you, Bob.

LANIER: I thought he was genuine.

KING: How's your health, by the way?

LANIER: Pretty good. Pretty good. Good enough to be 81.

KING: You look great. That's Bob Lanier, the former mayor of Houston.

Diana Peters, how do you react when you hear that? Was this maybe a good man who did some things wrong?

PETERS: I think that in retrospect of everything that has happened, I think he had lots of good intentions. I think that the business deals that he did were instigated by Jeff Skilling and Andy Fastow, and he went along with them. I think that he knew somehow that they could not be on the up and up. I don't believe as smart as he was, that he did not figure that out.

KING: Terry Giles, what do you think of what the mayor had to say?

GILES: Well, first of all, I spent hours talking with Ken about how badly he felt for all of the employees. But it wasn't because he felt guilt because he had acted criminally or committed any fraud. He genuinely felt bad that in those last four chaotic months when he came back into the company, that he was unable to save it. And that's why he felt bad, and he felt horribly that everyone lost everything, but -- and he and his family have ended up losing virtually everything as well.

KING: Daniel Petrocelli, even though I know you defended Jeff Skilling and will handle the appeal and everything, it's obvious, isn't it, that somebody did something wrong?

PETROCELLI: Well, there was a very small pocket of fraudulent activity at Enron that did not involve Jeff Skilling or Ken Lay.

And the problem with this case, Larry, is that nobody really understands what really happened. I have never seen a wider gulf between perceptions that people have about what happened and what actually happened than this Enron story. And, you know, we're not going to be able to discuss it in detail here on the show, but essentially, you have a case about business practices and business issues, not people diverting money, stealing money, looting money, or committing these kinds of frauds that I think most people in the public think actually happened at Enron. They simply don't understand the facts.

KING: This is not a case of somebody that he should have said the buck stops here?

PETROCELLI: You know, Mr. Lay, as well as Mr. Skilling, did say the buck stops here. They took full responsibility. They were actively involved. They never told the jury in this case, Larry, that we didn't know what was going on. They said just the opposite. They said they had their hands firmly on the wheel, which they did.

This is a case of the government overreacting and overreaching because of political and other motivations resulting from the demise of Enron and how it fell, and Mr. Lay's own political connections with President Bush and the Bush family. You know the whole story. Most companies go bankrupt, we don't see large criminal investigations and trials.

KING: Does he have a point, does he have a point, Bethany?

MCLEAN: I think he has a point in that what happened at Enron is extraordinarily complicated. But a jury listened to four months of evidence presented by both the prosecution and by the defense teams, and the defense teams there had their opportunity -- both Jeff Skilling and Ken Lay took the stand -- to say what happened at Enron. And the jury of 12 people in the end decided that the government's version was what they believed.

KING: But of course there could be appeals successfully too.

MCLEAN: There could definitely be appeals.

KING: We'll take a break and come back. Here's some more from our 2004 interview with Ken Lay.

(BEGIN VIDEO CLIP) KING: What's it like these past two years to have been Ken Lay?

LAY: Well, it was more fun before that, Larry. I'll start off with that. No, it's just been very tough. Been very, very tough. I suppose there's several different ways we could look at that. I mean, number one and foremost, I through my whole life had lived my life in a certain way, to make sure that I would never violate any laws, certainly never any criminal laws, and always maintained that the most important to me was my integrity, was my character, were my values, and have always taken that very seriously.

And certainly the last thing I ever expected to happen would be to, quote, be up close and personal to the criminal justice system. So that's been very painful, to know that in addition to the collapse of Enron, that in fact there was a criminal investigation going on about me specifically.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: At the very moment Ken Lay was talking to employees, only a few blocks away Enron's accounting firm, Arthur Anderson had begun destroying its Enron files. On October 23rd Anderson shredded more than one ton of paper.

LAY: Despite the rumors, despite the speculation, the company is doing well, both financially and operationally.

UNIDENTIFIED FEMALE: He was making all kinds of statements, reassuring employees, and not just employees, reassuring investors, we have no accounting irregularities, the company's in the best shape it's ever been in.

LAY: Now, from the standpoint of Enron's stock, we're going to bring it back. We're going to bring it back.

(END VIDEO CLIP)

KING: That's from the documentary "The Smartest Guys in the Room," written by one of our special guests tonight, Bethany McLean, the senior writer for "Fortune Magazine." Joining us in Houston is Sam Malone of KTRH radio. He hosts his own program. He knew Ken Lay socially. What was it like for Ken Lay after the news of Enron broke?

SAM MALONE, KTRH NEWS RADIO: Well, interesting, Larry, you had our great former mayor on, Bob Lanier, and I saw Ken Lay at Mr. Lanier's 80th birthday party last year. And it was really eerie. You have footage of people coming up to Ken and saying hey, Mr. Lay. But at the party it was kind of weird. Not everybody was coming up. Myself included. I just didn't feel that comfortable coming up to Ken and saying hey, how are you doing? Because we were really disappointed by some of the facts and figures that were being made public. KING: Did you get along with him?

MALONE: Yes, he was a great guy. I got to know him socially. I had him on the air a bunch of times. I got to stand in for him at a Christmas party for Enron employees one year. He couldn't make it so I stood there with a cardboard cutout of Ken. He was a very nice, fun loving guy. Let me reiterate what Mayor Lanier and President Bush said, very generous. Enron was very generous in the community. That was so important. I saw it myself from environmental causes to the humane society. They were cutting checks and helping out everywhere.

KING: What was your listeners' reactions to his death?

MALONE: OK, well, you have an extensive radio background. So you know how people can get on the radio. When he died, we figured at 9:00 central, we found out. At 10:00 central it was shock. By 10:20 it was conspiracy. Probably by about 10:40 it was anger. There was about 20 percent compassion, 80 percent anger on the radio these past couple of days.

KING: The "New York Post" here had a headline, "Check the Casket," which is about as gross a thing as you'll ever see. But that was their front page headline.

MALONE: Well, you remember talking to people and how very vocal and adamant they get on the radio. People are saying, well, he's in Argentina. Maybe he's in Cabo. Maybe he was killed because he was going to write a book and expose people. He killed himself. And people felt that Ken Lay got off easy. And somehow having a massive heart attack, and you know about heart conditions, somehow having a massive heart attack is not the definition of getting off easy, Larry.

KING: Thank you, Sam. Sam Malone of KTRH radio. We have an e- mail from Brian in Buffalo, New York. "An employee 401(k)s, why was so much invested in Enron and not diversified as conventional wisdom says?" Becky? Why did they put it all in?

MCLEAN: There are two reasons for that. One is that Enron executives encouraged employees to put all their money in Enron stock. There's an infamous employee meeting where an employee asked the question what should we do with our savings? And the Enron executive says put it all in Enron stock. But there's another reason, too, and that's that the employees too wanted to believe in something that was too good to be true.

KING: Terry -- not Terry. Diana, is that true?

PETERS: That is. That's very true. We were also given what they call phantom stock for bonuses at the end of the year when we had a good profitable year. We were given phantom stock. So that was encouraging for us to invest more into the stock. And we did that. We were encouraged at every employee meeting and even as it became closer and closer that, obvious that a bankruptcy was going to happen. They still were encouraging us to, but we couldn't move it. So it wouldn't have made any difference anyway. KING: We'll be back shortly and include some phone calls for our panel. Right now let's check in with Anderson Cooper, who's right down the hall. The host of "AC 360." What's up tonight?

ANDERSON COOPER, CNN ANCHOR: Larry, tonight the American face of al Qaeda. Once a California kid, he went from mama's boy to Osama's boy. Now he plays a starring role in the latest terror tape. We'll show it to you tonight. Also, a 360 exclusive. Comedian Dave Chappelle. He walked away from his hit show and a $50 million deal. Tonight he talks about that and Comedy Central's decision to air what they call his lost episodes. Dave Chappelle joins me live tonight on 360, Larry.

KING: A very funny guy.

COOPER: Brilliant guy.

KING: Brilliant. That's at the top of the hour. "AC 360" at 10:00 Eastern, 7:00 Pacific. Back with more about Ken Lay. Don't go away.

(BEGIN VIDEO CLIP)

LAY: It's been a tragedy I think for us, and that is seeing how many other families in fact have just been wiped out by the Enron collapse. They've seen their dreams disappear, their new homes or their college for their kids or whatever it is. In some cases even health has been destroyed. Obviously we've had at least one suicide we know of. And I expect we'll grieve about that to our death.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Now, a federal grand jury in Houston has indicted the former chairman of the board of that company and its former chief executive officer, Kenneth Lay, and charged him with a variety of crimes related to the phenomenal collapse of that one-time energy giant.

(END VIDEO CLIP)

KING: Let's take a call. Chattanooga, Tennessee, hello.

CALLER: Good evening to you, Mr. King, and to all of you on the panel.

KING: Go ahead.

CALLER: My question is why was -- how was -- what was Mr. Lay's net worth at the time of his death and how well is his wife fixed financially for the future?

KING: Terry? GILES: Well, first of all, with all of the civil suits and everything else that exists and the attorney fees from the trial itself, the Lay estate has basically been dissolved.

Now, Linda certainly has some options going forward, including the potentiality of bankruptcy to protect her home. Here in Texas, you can protect your home, you can protect life insurance, you can protect annuities. There are some things in Texas that you're allowed to protect by filing bankruptcy. And that may in fact be an option that she has no choice but to pursue.

KING: Mary Flood, it was reported that he was worth -- about five years ago he was worth $400 million. Do you know the net worth now?

FLOOD: No, I don't. During the trial, the Lay camp was telling us that he was worth virtually nothing, and on the stand he said he was in debt. I'm not sure how they were figuring all that out since they still have a home and obviously were still living well. I don't know his private finances.

KING: Charleston, West Virginia, hello.

CALLER: Yes. If Mr. Lay, his record has been expunged and there's no record of him ever being charged with anything, then why should he have to pay legal fees?

KING: Daniel? He's got to -- you still pay, sir.

PETROCELLI: Well, maybe he can take -- I certainly don't want to represent that gentleman. But I'm sure the Lay family is going to pay all the legal fees that they owe. The lawyers earned it. They did a great job. And they're entitled to it.

KING: Do you understand, Bethany, the law of why they may not have to pay anything, that he's really not guilty until he goes through all the court procedures, even though he might have been put in jail in October?

MCLEAN: Because in a sense, it's fair. Our criminal justice system works on the principle that people get to appeal their conviction. And...

KING: But once you're found guilty, you're found guilty. The appeals count, of course, but you're still convicted.

MCLEAN: But he never got to appeal. And so in fairness, you can see theoretically why that makes sense, that he would be -- that the conviction would be vacated. And it really is in some ways a legal technicality. Nothing will ever change the fact that a jury of 12 people found him guilty.

PETROCELLI: Well, Larry, if I could just add to what Bethany said, it's more than a technicality. In the first Enron case, Arthur Andersen, the accounting firm, was convicted, and 28,000 people lost their jobs. And the Supreme Court reversed that conviction unanimously.

The second Enron case, five people were convicted, and the Fifth Circuit Court of Appeal may well be reversing some or all of those convictions. So these cases are cutting edge prosecutions, Larry, where the chances of appeal are substantial.

KING: But there's still no Arthur Andersen, though, right, Daniel?

PETROCELLI: There's still no Arthur Andersen, even though it turns out that they were wrongly tried and convicted.

KING: Terry, you want to say something quickly?

GILES: Yes, I was just going to say there were a number of very, very good appealable issues for Mr. Lay and for Mr. Skilling in this case.

KING: We'll take a break and be back with our remaining moments right after these words.

(BEGIN VIDEO CLIP)

DR. ROBERT KURTZMAN, MESA COUNTY CORONER: There was no evidence of foul play. The postmortem examination revealed that Mr. Lay had severe coronary artery disease. There was evidence that he had had a heart attack in the past. The only aspects of the examination that are outstanding at this particular point are toxicology and microscopic analysis of tissues.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: Daniel Petrocelli, does the death of Ken Lay affect Skilling's appeal?

PETROCELLI: We're looking into that, Larry. There's a very interesting issue. We sought to sever our case from Ken's, and Ken sought to sever his case from us. The government insisted and the court agreed that they be tried together, over our objections.

Now that Ken's case has effectively been vacated, there may well be serious questions about the effect that that has on Jeff's case and his ongoing appeal. It's certainly an issue that we're looking into.

KING: Terry Giles, when is burial?

GILES: It'll be -- funeral services are at 2:00 in Aspen.

KING: When?

GILES: On Sunday. And then the memorial will be at 11:00 next Wednesday here in Houston.

KING: So there will be a funeral and a memorial service? GILES: Yes. That's right, Larry.

KING: Diana Peters, how's he going to be remembered?

PETERS: He's going to be remembered as the fall of Enron. That's how he's going to be remembered.

KING: He'll be the most associated with the fall?

PETERS: Yes, he will be. Along with Jeff Skilling.

KING: Mary Flood, how do you think he's going to -- what's history going to say about Ken Lay?

FLOOD: Larry, I think he's going to have a mixed legacy, just like he has mixed reactions here in Houston to him. Some people will remember the charity, especially those who saw it or benefited from it. Some people will just remember the fall of Enron, especially the many who were hurt by it.

KING: Bethany, what do you think?

MCLEAN: I think Enron has become a symbol, shorthand for everything that's wrong with corporate America, whether that's fair or not. And I think that will be Ken Lay's legacy as well.

KING: Do you think it's going to become a generic term, that company Enroned, this company went Enron?

MCLEAN: It already has become a generic term, from going from a company few people recognized, it's now something -- ask most people Enron, and they say, oh, yes.

KING: Oh, yeah. Everybody knows it.

MCLEAN: Everybody knows it.

KING: Thank you all very much for an outstanding program.

And a reminder. Tomorrow night, we'll repeat that 2004 interview that we did with Ken Lay. It was conducted in Houston, Texas. That will be repeated tomorrow night.

And Sunday night, for those of you who may have missed last night's show, we'll repeat the interview with President Bush and Laura Bush conducted at the White House. And a major program next Wednesday night. Dan Rather will be our special guest. He will discuss the leaving of CBS and his new job. Dan Rather next Wednesday night on LARRY KING LIVE, live in Los Angeles.

Right now, let's turn the proceedings over to Anderson Cooper, the host of "AC 360," with a big show tonight.

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