Lay's death at 64 means snarls for Enron legal case

July 06, 2006|By THOMAS S. MULLIGAN AND MIGUEL BUSTILLO | THOMAS S. MULLIGAN AND MIGUEL BUSTILLO,LOS ANGELES TIMES

HOUSTON -- The death early yesterday of Enron Corp. founder Kenneth L. Lay complicates the federal government's effort to close the books on one of its most ambitious corporate-fraud prosecutions.

Lay, who died at age 64 of a massive heart attack at a rented Colorado vacation home near Aspen, was found guilty of conspiracy and fraud by a federal jury in May, along with former Enron Chief Executive Officer Jeffrey K. Skilling.

Their trial resulted from the far-reaching scandal at the Houston energy company, in which more than 4,000 jobs and billions of dollars in stockholders' investments disappeared.

In most cases, when a defendant who has pleaded not guilty dies before sentencing, as Lay did, the conviction is wiped out on grounds that the defendant did not have the opportunity to appeal, legal experts said.

"Fifth Circuit law in particular is clear on this point," Stanford University law professor Robert Weisberg said yesterday, referring to the federal district that includes Houston.

Lay and Skilling were scheduled to be sentenced Oct. 23 and were widely expected to receive prison terms of more than 20 years. They were convicted of lying to Enron employees and the public as part of a conspiracy to conceal the deteriorating financial condition of a company that claimed $101 billion in revenue at its 2000 peak and ranked No. 7 on the Fortune 500.

Last week, prosecutors filed a motion with the Houston trial court seeking to recover $43.5 million that they said Lay had illegally obtained through Enron bonuses and a line of credit extended by the Houston energy company. Weisberg and other experts said Lay's death could pose obstacles to that effort but that they expect the government to pursue restitution.

"I foresee them fighting tooth and nail," Houston lawyer Philip H. Hilder said.

The U.S. Department of Justice declined to comment yesterday. "We'll make a statement at the appropriate time, and the only thing we know is the appropriate time is not today," spokesman Bryan Sierra said.

Lay's death will have little impact on the pending civil-fraud lawsuit brought against him by the Securities and Exchange Commission, or on the huge consolidated lawsuit brought by former Enron employees and shareholders, which is scheduled for trial in Houston Oct. 16, said Patrick J. Coughlin of the San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins, lead counsel in the case.

Coughlin said the main purpose of the case is to obtain hundreds of millions of dollars of additional compensation from the large banks and investment firms that remain defendants. Any assets retained by individual defendants such as Lay and Skilling were too small to make a significant dent, Coughlin said.

Skilling is likely to be sentenced as scheduled, his lead lawyer, Los Angeles-based Daniel M. Petrocelli, said yesterday.

"Jeff was distraught over Ken's passing," Petrocelli said. "Jeff and Ken go back over 20 years. They were close friends. Jeff is going to miss him dearly."

Lay had been a confidant and political contributor to President Bush and his father, former President George H.W. Bush.

"The president has described Ken Lay as an acquaintance, and many of the president's acquaintances have passed on during his time in office," White House spokesman Tony Snow said during a morning press briefing.

Lay's last publicly stated goal was to clear his name.

"I firmly believe that I am innocent of the charges against me, as I have said from day one," Lay said in a statement posted on his Internet site soon after the May 25 verdict. "I will continue to work diligently with my legal team to prove that."

A ruling wiping out Lay's conviction would leave him with a clean legal record, technically speaking, but it probably would do little to erase the taint of scandal.

The Pitkin County, Colo., coroner's office said coronary artery disease caused the heart attack that killed Lay, but friends said the stress and humiliation of his ordeal played a role in his death.

"Some people will say he was as guilty as sin and this is God's judgment, but I for one will choose to remember the positive things about Mr. Lay," said the Rev. William Lawson, 78, founding pastor of Wheeler Avenue Baptist Church in Houston.

"He lost everything he had, and he took that very hard," said Lawson, who testified as a character witness for Lay during the four-month trial. "I think he had this heart attack because he internalized all of this stress."

Lay, long known as an important force in Houston's civic and philanthropic projects, was credited as the main force behind passage of the referendum to build Minute Maid Park, home of baseball's Houston Astros.

As the Astros took batting practice yesterday evening, team owner Drayton McLane Jr. met reporters inside the ballpark - which was called Enron Field before the company's name became linked to scandal - and talked about Lay.

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