By Kristen Hays
The Associated Press

HOUSTON - Federal prosecutors unveiled charges Thursday that placed Enron Corp. founder and former chairman Kenneth Lay at the center of a conspiracy to manipulate the company's books in the frenzied weeks before its scandalous collapse.

He returned the punch with an unusual and aggressive public declaration of innocence, speaking at length at a news conference and taking questions from reporters after entering a not guilty plea.

"I firmly reject any notion that I engaged in any wrongful or criminal activity," Lay said, adding that his failure to prevent the company's bankruptcy did not equate to a crime.

"Not only are we ready to go to trial, but we are anxious to prove my innocence."

Lay was escorted to federal court here in handcuffs 21/2 years into a methodical investigation that has produced charges against some of his once most highly trusted lieutenants.

Prosecutors have aggressively pursued the one-time friend and contributor to President Bush, and this week's action made Lay the 30th and highest-profile individual charged.

Prosecutors contend that Lay; his hand-picked protege and former Enron CEO, Jeffrey Skilling; and the company's former top accountant, Richard Causey, were among principal operators of a wide-ranging scheme to deceive the public, shareholders, government regulators and others, costing investors billions in losses.

A federal indictment unsealed Thursday alleged that Skilling spearheaded the scheme until he abruptly quit in mid-August 2001, less than four months before Enron imploded. Lay resumed as CEO upon Skilling's departure and "took over leadership of the conspiracy," the indictment said.

In 11 counts of conspiracy, securities fraud, bank fraud and other charges, prosecutors allege that Lay was not a CEO blithely unaware of wrongdoing by his minions, as he has maintained. The indictment alleged that Lay intensified his oversight of Enron's day-to-day operations and "took control" of a conspiracy to keep Enron's ever-growing financial crises hidden in the bowels of the company.

Enron's collapse led a series of corporate scandals that led to Congress' passage of sweeping reforms to securities laws. Thousands of Enron's workers lost their jobs, and the stock fell from a high of $90 in August 2000 to just pennies, wiping out many workers' retirement savings.

The charges allege that Lay painted a rosy picture of Enron to employees, analysts and investors when he had learned in meetings that the company faced massive losses on shoddy assets and money-losing business units.

"Rather than come clean and tell the unvarnished truth about Enron, Lay chose to conceal and distort and mislead at the expense of shareholders and employees, people to whom he owed a duty of complete candor," said Andrew Weissmann, head of the Justice Department's Enron Task Force.

Lay asserted outside the courthouse that he took responsibility for Enron's collapse as chairman, but he said "that does not mean I know everything that went on at Enron."

Lay surrendered to the FBI before dawn Thursday and was placed in handcuffs.

Prosecutors allege that Lay knew Enron was preparing to announce massive third-quarter losses and a $1.2 billion write-down in shareholder equity, yet in a Sept. 26, 2001, Internet chat told Enron employees he had strongly encouraged management to buy Enron stock.

"Some, including myself, have done so over the last couple of months, and others will probably do so in the future," he said in the chat. "My personal belief is that Enron stock is an incredible bargain at current prices."

Then, Oct. 12, 2001, he told a credit-rating agency that Enron and its auditors had "scrubbed" the company's books and that no additional write-downs would be forthcoming. Four days later, the company announced those big losses, but the shareholder equity write-down was not in Enron's news release.

The indictment alleges that Lay also knew Enron was facing a $700 million write-down in its water business, Azurix, but didn't disclose detailed information. In addition, it alleges Lay knew Enron had reorganized its energy services unit to hide hundreds of millions of dollars in losses.

"We're not trying to conceal anything," Lay told analysts Oct. 23, 2001, according to the indictment. "We are not trying to hide anything."

He also told employees that same day: "Our liquidity is fine; as a matter of fact, it is better than fine, it is strong."

The bank fraud and false statements to banks counts accuse Lay of improperly drawing from his lines of credit, and exposing banks to a higher risk of loss, to directly or indirectly buy and sell stock on margin.

The indictment added Lay to a case already pending against Skilling and Causey, both of whom have pleaded not guilty. Lay was released on $500,000 bond - much less than Skilling's $5 million and Causey's $3 million bonds. Prosecutors had sought a $6 million bond, saying Lay was a flight risk. Lay's lawyers had requested he be released on his own recognizance.

Lay was allowed to keep his passport because he travels internationally on business, but U.S. Magistrate Mary Milloy said that if he left the country, he would have to seek permission from the court.

Lay's lawyer, Michael Ramsey, said he would seek immediately to have Lay tried separately from Skilling and Causey and to go in front of a jury as early as September. Ramsey called the charges against Lay a "tag-on" to the more expansive allegations against Skilling and Causey, since the Lay allegations target August through December 2001 while the Skilling and Causey allegations are spread over several years.

Ramsey also said he wants Lay to be tried wherever a fair jury can be chosen - whether that be in Houston or elsewhere.