U.S. sues Lay estate for ill-gotten gains

October 25, 2006|By BLOOMBERG NEWS

HOUSTON -- The government sued the estate of Enron Corp.'s deceased founder Kenneth L. Lay on Monday, seeking to strip it of ill-gotten gains from an accounting fraud that investors claim cost them $30 billion.

Prosecutors linked the suit to the Oct. 17 voiding of Lay's conviction on 10 counts of conspiracy, securities fraud and bank fraud. U.S. District Judge Simeon T. Lake III tossed out the May verdict on grounds that Lay hadn't had a chance to appeal it before he died of heart disease in July. His ruling blocked the government's effort to seize the estate's assets in the criminal case.

The suit is "a civil forfeiture action to recover property that constitutes proceeds of the fraud proven in the criminal case against Lay," Assistant U.S. Attorney General Alice Fisher said.

The government seeks to seize Lay's River Oaks condominium in Houston, property associated with a family investment partnership, and a Bank of America account with more than $22,000, "all proceeds obtained directly or indirectly as a result of various federal crimes," Fisher said.

Prosecutors claim that $2.5 million of the current market value of Lay's condo and $10 million in the family partnership's property are traceable to Lay's illegal activity. The government will have to prove those claims at trial.

Michael Ramsey, Lay's lead trial lawyer, could not immediately be reached for comment yesterday. Samuel J. Buffone, Lay's appellate lawyer, declined to comment on the government's suit.

To support the government's request, the lawsuit includes a 26-page affidavit by an FBI agent who said he traced proceeds from Lay's stock trading activity, including his use of a private Enron line of credit.

During Lay's trial, former corporate secretary Paula H. Rieker testified that an Enron board member accused Lay of using his private line of credit "like a damn ATM machine" to sell Enron shares back to the company without public disclosure as its financial crises worsened during 2001.

Lay was Enron chairman and chief executive officer. Under him, the world's largest energy trader plunged into bankruptcy in December 2001, eliminating more than 5,000 jobs and $1 billion in employee pensions virtually overnight. It filed the second-largest bankruptcy in U.S. history, after that of WorldCom Inc.

Lay was convicted alongside former Enron Corp. CEO Jeffrey K. Skilling, who was sentenced to 24 years and 4 months in prison Monday for his conviction on 19 counts of conspiracy, fraud, lying to auditors and insider trading.

The government hasn't filed its appeal of the voiding of Lay's criminal conviction. Justice Department spokeswoman Jaclyn Lesch had no comment on yesterday's suit.

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