Lay death may wipe out conviction, forfeiture

The Journal News
Jul. 06, 2006

The sudden death yesterday of Enron Corp. founder Kenneth Lay could make him an innocent man and shield his estate from tens of millions of dollars in forfeiture claims filed by federal prosecutors, legal experts said yesterday.

Under a precedent established by the U.S. Court of Appeals for the 5th Circuit in 2004, Lay's conviction may be vacated because he did not get a chance to have the appeals court review the jury's guilty finding.

"It's not like the case is merely dismissed," said Josh Berman, a former federal prosecutor in Manhattan who is now in private practice in Washington, D.C., with a focus on white-collar criminal litigation and securities law. "Everything associated with the case is extinguished. It's like the defendant was never even indicted."

"In the 5th Circuit, it's an easy question," said Ross Albert, a former senior special counsel with the U.S. Securities and Exchange Commission and now a securities lawyer in private practice in Atlanta. "Death wipes out everything."

That would be an amazing and ? for former Enron shareholders and employees ? disheartening turn of events in the case of one of the largest frauds in history, the case that became emblematic of the criminal excesses of the last economic expansion. Shares of Enron, a Houston-based energy-trading company, soared during the late 1990s, but crashed in 2001 amid revelations of accounting fraud.

If Lay's conviction is erased, it would mean that prosecutors' attempts to extract $43 million from Lay's use of a company credit line are also likely thwarted, Berman said. Prosecutors said last week when they filed their motion for the seizure that the assets were ripe for forfeiture because Lay obtained them through criminal activity.

Lay, who died at the age of 64 in Aspen, Colo., was convicted in May on six counts of fraud and conspiracy and four counts of bank fraud, and was free on a $5 million bond while awaiting sentencing. Since each count carried a maximum sentence of 5 to 10 years, Lay could have spent the rest of his life in a federal prison, an astounding fall for a man who once had corporate jets at his beck and call, could move financial markets with a few words and counted President Bush as one of his friends.

Berman said Lay's legal team or a lawyer for his estate may have to file a motion asking that the conviction be wiped out. Prosecutors could then argue that the conviction should stand.

But the prior decision, which came in April 2004 after the death of a man named Andrew Parsons who was convicted of arson, mail fraud and money laundering and died before his appeal was heard, is a powerful precedent for lawyers representing Lay's estate to carry into court, Berman said.

In the Parsons case, the defendant was convicted of two counts of arson and four counts each of mail fraud and money laundering after being accused of burning down his property and collecting on an insurance policy. He was sentenced to 78 months in prison, three years of probation, fined $75,000 fine and ordered to pay more than $1.3 million in restitution to the insurance companies.

He appealed his conviction but died before the appeals court ruled.

In considering Parsons' death, the Fifth Circuit Appeals Court said, in part, "Despite what may have been proven at trial, the trial is deemed not to have taken place. Thus, at least in the eyes of the criminal court, the defendant is no longer a wrongdoer and has not defrauded or damaged anyone."

Jackie Lesch, a spokesman for the government's Enron Task Force, which prosecuted Lay, said yesterday that the office would not comment, out of deference to Lay's family. But she said the office eventually will speak publicly on the legal issues and the future of the case.

Lay's death is also a setback for the U.S. Securities and Exchange Commission and private shareholders who had lawsuits pending against Lay, legal experts said.

It is routine for the SEC to wait until criminal proceedings against an individual are complete before pressing its own lawsuit, Albert said. Then, if the defendant is found guilty of crimes, the SEC files a motion for summary judgment with the court hearing the lawsuit.

The summary judgment motion seeks an immediate ruling from the court in favor of the SEC and against the defendant.

But without a criminal conviction to rely upon, the SEC has a tougher case to prove, Albert and Berman said.

John Nester, an SEC spokesman, said the agency was not commenting on its plans for the Lay lawsuit, other than to point out that there is a "stay" in place on the lawsuit and that stay must be lifted by a judge before the lawsuit can go forward.

Lay's death is unlikely to have an impact on the sentencing of Jeffrey Skilling, who succeeded Lay as chief executive and who was convicted along with him.

Lay's death brought a mixed reaction from local people who heard the news yesterday.

Sean Kilpatrick of Bronxville said he has a friend who lost a lot of money after Enron's stock crashed.

"God thought he should be dead instead of in jail," he said. "I think he found a worse punishment for him." He added: "It's never a good thing when somebody passes, but it couldn't have happened to a better guy."

Peggy McCormick of Palisades said: "He got his justice. He died young."












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