Death Puts Lay Conviction in Doubt

HOUSTON â€”  The death of Enron Corp. founder Kenneth L. Lay early Wednesday raises the possibility that his conviction could be erased, complicating the federal government’s effort to close the books on one of its most ambitious corporate fraud prosecutions.

Lay, who at age 64 succumbed to a massive heart attack at a rented Colorado vacation home, was found guilty by a federal jury in May along with former Enron Chief Executive Jeffrey K. Skilling of conspiracy and fraud. The two were star defendants in the notorious business scandal, which vaporized more than 4,000 jobs and billions of dollars in stockholders’ investments.

But when a defendant who pleaded not guilty dies before sentencing, as Lay did, in most cases the conviction is wiped out on the 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 Wednesday, referring to the federal region that includes Houston.

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

Only last week, federal 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 that Lay’s death might pose obstacles to that effort but that they expected the government to pursue restitution.

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

The Justice Department declined to comment Wednesday. “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 effect on the pending civil fraud lawsuit brought by the Securities and Exchange Commission, or on the massive consolidated lawsuit brought by former Enron employees and shareholders, scheduled for trial in Houston on Oct. 16, said Patrick J. Coughlin of San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins, lead counsel in the case.

Coughlin said the main thrust of the case was 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 material dent, Coughlin said.

Skilling’s sentencing probably will go forward as scheduled, his lead lawyer, Los Angeles-based Daniel M. Petrocelli, said Wednesday.

“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, President George H.W. Bush. White House spokesman Tony Snow on Wednesday sought to downplay any intimacy between the president and the disgraced former Enron head.

“The president has described Ken Lay as an acquaintance, and many of the president’s acquaintances have passed on during his time in office,� Snow said in a morning news briefing.

Lay’s death ended his personal pursuit of one of his last publicly stated goals: clearing 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 website soon after the May 25 verdict. He added: “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.

According to the Pitkin County, Colo., coroner’s office, coronary artery disease was the cause of the attack that killed Lay at a vacation home near Aspen. An autopsy showed evidence of a previous heart attack.

However, friends left no doubt that the stress and humiliation of Lay’s 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.�

Outgoing and courtly, Lay was expected to make a more positive impression on jurors than Skilling, a hard-driving executive whose own lawyer described him as “antisocial.�

But on the witness stand, a testy and impatient side of Lay emerged. He sparred vigorously with federal prosecutor John C. Hueston and even showed flashes of irritation under questioning by his own defense lawyer.

Two jurors said during a post-trial news conference that Lay’s credibility was damaged by evidence that he quietly sold $70 million of Enron stock back to the company during 2001, while allowing the public to think he was a buyer.

“That just defined the word ‘intent’ for many of us,� juror Doug Baggett said.

The jurors found Lay guilty of all the charges he faced: one count of conspiracy and five counts of fraud. They convicted Skilling of one count of conspiracy, 12 counts of fraud, five counts of making false statements and one count of insider trading. He was acquitted of nine other insider-trading counts.

In addition, after a separate three-day nonjury trial, U.S. District Judge Sim Lake found Lay guilty of one count of bank fraud and three counts of making false statements to banks while arranging bank lines of credit.

When the federal jury trial began in late January, many Houstonians said the city had moved beyond the feelings of anger and betrayal that accompanied the downfall of what had once been one of its biggest business success stories.

But beneath the surface, hard feelings continued to fester, as shown by the reaction of some callers to news radio KTRH-AM (740) in Houston scant hours after Lay’s death. More than one caller expressed doubts that Lay really was dead and wondered whether the reports of his demise weren’t part of an insurance scam.

Next to Houston, where thousands lost their jobs and life savings when Enron collapsed, the West Coast -- and California in particular -- was ground zero for the anti-Lay backlash. The company was accused of worsening California’s energy crisis of 2000-01 by using trading schemes that drove up prices and pinched supplies.

“We cannot allow his death to rehabilitate his image,� said state Sen. Joe Dunn (D-Santa Ana), who headed a special committee that investigated the charges of market manipulation. “This is a man who is responsible for damaging millions of lives.�

It was a bitter legacy for a rural Missouri preacher’s son who had long been known as an essential player in Houston’s important civic and philanthropic projects.

Lay, more than any other individual, was credited as the driving force behind passage of the referendum to build the curved-steel stadium originally named Enron Field and now known as Minute Maid Park, home of Major League Baseball’s Houston Astros.

Enron’s name was supposed to grace the ballpark for 30 years. But it did so only for two. After the company’s bankruptcy made Enron’s name synonymous with corporate scandal, the Astros canceled the deal.

“Ironically, we had to buy the rights back from the bankruptcy court,� team owner Drayton McLane Jr. said.

Steve Wende, pastor of Lay’s church, First Methodist Church in Houston, said he learned of his friend’s death from Lay’s family before dawn Wednesday.

Wende said the two had spoken last week and that Lay understood he was probably going to prison. “Though there was an appeals process, he was not naive,� the minister said.

“What was noteworthy about Ken Lay was that at the height of his wealth and fame, he used it to lift other people up,� Wende said.

“The Lays lived well. But when you get down to it, there are a lot of wealthy people who live well in America, and there are not too many who go out of his way to help others the way he did. He was always the pastor’s son.�

*

Mulligan reported from New York and Bustillo from Houston. Staff writers Nicholas Riccardi in Denver and Martin Zimmerman in Los Angeles contributed to this report.