Risk Management

Lay Innocent? No Way, Feds Say

Government plans to pursue Ken Lay into the grave; will fight his attorney's plans to let death clear his name.
Tim Reason and Stephen TaubAugust 17, 2006

Attorneys representing Kenneth Lay’s estate are moving toward erasing the convictions and dismissing the indictment against the former Enron Corp. chairman, who died on July 5, of heart failure. However, Federal prosecutors are determined not to let this happen.

Prosecutors made it clear that they will not rubber-stamp the request by Lay’s lawyers, said the Associated Press, citing a court filing. The filing reportedly noted that Lay’s attorney Michael Ramsey had “conferred with (prosecutor) Kathy Ruemmler who indicated the government will oppose this motion.”

At stake is $43.5 million in restitution that Lay was ordered to pay for his conviction on fraud and conspiracy charges linked to Enron’s collapse. If U.S. District Judge Sim Lake clears Lay’s record, the government will suddenly be unable to recover the money.

The government has already shown signs that it lacks confidence in its legal ability to collect from Lay’s estate. CFO.com previously reported that on August 14, prosecutors announced that they were trying to force Jeffrey Skilling, Enron’s former CEO and Lay’s convicted co-defendant, to pay Lay’s share of the restitution. Separately, Skilling was ordered to pay $139.3 million for his role in the fraud scheme.

Prosecutors in the Skilling case claim that the former CEO is “liable for all the proceeds attributable to all co-conspirators, indicted or unindicted, including Lay,” because they participated in the same scheme, noted AP at the time.

Regarding efforts to collect directly from Lay’s estate, government spokesman Bryan Sierra told the AP that, “The Department of Justice remains committed to pursuing all available legal remedies and to reclaim for victims the proceeds of crimes committed by Ken Lay.” But Lay’s attorneys are arguing that their client’s record should be wiped clean because their client died before his appeal and sentencing.

“Mr. Lay died prior to his ability to complete an appeal. He had planned an appeal and retained counsel to pursue it on his behalf,” the filing reportedly said. According to the report, Lay’s lawyers said in Wednesday’s filing that Lay’s death “necessitates” erasing his convictions, citing a 2004 ruling from the 5th U.S. Circuit Court of Appeals.

The legal doctrine being applied by Lay’s attorneys is known as the abatement doctrine. “If you’re on appeal and you die before that appeal is decided, it’s like stepping into the way-back machine,” says law professor Peter J. Henning of Wayne State University. “It’s as if Lay were never charged.” Henning, the editor of the White Collar Crime Prof Blog, says he was aware of the abatement doctrine, but was surprised to discover that it would even void Lay’s indictment.

The abatement doctrine is well-established among all courts, but also was reaffirmed in 2004 by a court in the circuit where Lay was convicted. In United States v. Estate of Parsons, the court explained that “the appeal does not just disappear, and the case is not merely dismissed. Instead, everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted.” The reason for this, the court explained, is that “the state should not label one as guilty until he has exhausted his opportunity to appeal.”

The abatement doctrine is also likely to complicate many of the civil suits against Lay, since plaintiffs will no longer be able to point to his conviction — or even his indictment.

“I think it’s quite clear what the government’s signaling, that they’re not quite throwing in the towel and they’re looking to be creative in trying to hold on to that verdict,” Philip Hilder, a former federal prosecutor who represents several Enron witnesses, told the AP.

If his indictment is overturned, Lay’s $5 million bond, which is backed by his children’s homes, also would be canceled, reported AP. In addition, if his conviction is vacated, the government will be unable to seize Lay’s property.

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