Federal Judge: Kenneth Lay’s Estate Won’t Have to Pay Up

When Kenneth Lay died of heart disease on July 5, many of the people he had defrauded through his corporation were angered that he would not have to face the music for robbing them of their hard-earned pension plans and retirement savings. He had already been convicted of fraud and conspiracy in one of the biggest corporate fraud cases in the history of the United States, but he had not yet been sentenced. He was enjoying a pleasant vacation with his wife in Aspen when he died.

Lay’s company, Enron, collapsed in 2001 and wiped out more than $60 billion in market value and more than $2 billion in pension plans. Lay was convicted by a jury on May 25 of 10 counts of fraud, conspiracy, and lying to banks in two separate cases.

Thanks to a federal judge’s ruling on Tuesday, Lay’s record has been completely wiped clean, as though he were never even charged with a crime. U.S. District Judge Sim Lake agreed with Lay’s lawyers that since he had died before being sentenced, his convictions should be erased. They cited a 2004 ruling from the 5th U.S. Circuit Court of Appeals that stated that if a defendant died pending appeal, his entire case must be extinguished because the defendant hadn’t had a full opportunity to challenge the conviction.

Prosecutors had asked Judge Lake to delay the ruling until Monday, which was Lay’s scheduled sentencing date, so that Congress could consider legislation from the Justice Department that recommends changing federal law regarding the abatement of criminal convictions. "Certain provisions of the [legislation] would be directly relevant to the situation presented by defendant Lay’s death," wrote prosecutors Sean Berkowitz and John Hueston in their motion to the court. "For example ... the (legislation) provides that the death of a defendant charged with a criminal offense shall not be the basis for abating or otherwise invalidating either a verdict returned or the underlying indictment."

However, Congress recessed for the elections without considering the legislation. So now the government’s bid to seek $43.5 million in restitution for Lay’s fraud has been completely invalidated. Tuesday’s ruling said that the government should not be able to punish a dead defendant or his estate. Prosecutors could still pursue those ill-gotten gains in civil court, but they would then be competing with other litigants also pursuing Lay’s estate. And the fact that Lay’s convictions no longer exist may make it even more difficult for any civil litigation to be successful.

Lay's co-defendant, former Enron chief executive Jeffrey Skilling, is scheduled to be sentenced on Monday.