(FORTUNE Magazine) – Was Ken Lay really clueless?

Even before his long-awaited criminal indictment, the former Enron chief--a Ph.D. economist who once reveled in his image as a brilliant corporate visionary--had launched a PR offensive to convince the world that he knew little about what was really going on inside Enron. While paying lip service to his "captain of the ship" responsibility in Enron's spectacular December 2001 demise, Lay rushed to pin the blame for virtually all criminal misdeeds--and even Enron's failure--on former CFO Andrew Fastow, who has pled guilty to conspiracy and is poised to testify against him. At an extraordinary post-indictment press conference, in fact, Lay suggested that his only real offense was hiring Fastow.

Federal prosecutors offer a radically different picture. In a sweeping 65-page indictment, they cast him as a key player in the massive fraud that brought down Enron--one of the "leaders and organizers of a criminal activity." While saying former CEO Jeffrey Skilling "spearheaded" the scheme until leaving the company in August 2001, the indictment claims Lay then "took over leadership of the conspiracy." Prosecutors hope to reinforce this theme by trying Skilling, Lay, and chief accounting officer Richard Causey together. Lay's lawyer quickly announced plans to seek a separate trial.

Lay and his defenders (including the editorial page of the Wall Street Journal) blame Enron's downfall on the greedy Fastow's private LJM partnerships--and in particular, media revelations about their sleazy dealings with Enron, which accelerated the company's decline. Under this theory--which Lay seems to embrace to this day--there was nothing fundamentally wrong with Enron.

But Enron, in truth, wasn't a good business brought down by Andy Fastow. It was a failing business that was, for a time, propped up by Andy Fastow. The partnerships (which, by the way, Lay had personally approved) engaged in rapid-fire dealings with the company, helping it hide its massive debt, weak earnings, and meager cash flow--the company's real problems. Fastow's partnerships were one tool--among many that Enron employed--to conceal the ugly reality of the company's true financial condition.

The federal charges against Lay accuse him of doing just that during 2001--misleading investors, analysts, and Enron employees, repeatedly insisting that all was well even when he knew that it was not. The criminal case against Lay (who also faces SEC civil charges of fraud and insider trading) will be a complex and challenging one in a court of law. But in commonsense terms, Lay bears enormous responsibility for the substance of what went wrong at Enron. The problems ran wide and deep, as did the deception required to cover them up. The company's culture was his to shape.

On these fronts, Lay does seem clueless--even now. "It is amazing," he declared at his press conference, oblivious to the irony, "the amount of damage that can be done by a very few people." --Peter Elkind and Bethany McLean

Elkind and McLean are the authors of The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, published by Portfolio.