Risk & Compliance

Ken Lay’s Record Cleared of Convictions

Because he died before he could appeal his conviction, all record of the former Enron chairman's indictment and conviction is erased.
Tim ReasonOctober 17, 2006

Former Enron chairman Kenneth Lay’s conviction for criminal charges related to the company’s spectacular collapse was vacated by a federal judge in Houston Tuesday.

Lay died on July 5th of a heart attack, six weeks after being found guilty of 10 criminal counts. On that day, CFO.com broke the news that that under a legal principle known as the abatement doctrine, Lay’s death would allow his attorneys to wipe both his conviction and indictment from the record because he had not been able to exhaust his efforts to appeal.

According to a report from the Washington Post, U.S. District Judge Simeon T. Lake III issued a short order on Tuesday noting that “The indictment against Kenneth L. Lay is dismissed.”

Last August, government attorneys indicated that they intended to fight efforts by Lay’s attorneys to clear his conviction, which now will complicate efforts by the Securities and Exchange Commission to take disgorgement action against Lay’s estate. Civil suits against Lay will be similarly hampered.

Apparently less than confident that efforts to maintain Lay’s conviction would succeed, government prosecutors also indicated in August that they wanted former Enron CEO Jeffrey Skilling to pay Lay’s share of the restitution they sought. In June, prosecutors had asked U.S. District Judge Sim Lake to order Skilling to pay $139.3 million, and his co-defendant, Ken Lay, to pay $43.5 million as restitution for their convictions on fraud and conspiracy charges. After Lay died, prosecutors indicated that Skilling is “liable for all the proceeds attributable to all co-conspirators, indicted or unindicted, including Lay,” because they participated in the same scheme, the AP reported at the time.

The decision this week to clear Lay’s record wouldn’t seem to bode well for Skilling, who is scheduled to be sentenced on Monday. Last month, former Enron CFO Andrew Fastow received a six year sentence — a substantial reduction from the 10 year sentence he had agreed to with prosecutors under a plea bargain. Although other former Enron executives, notably chief accounting officer Richard Causey, remain to be sentenced, Skilling is the most prominent.

The abatement doctrine that clears Lay’s name 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.”

In Parsons, the court vacated a forfeiture order, suggesting that that the Department of Justice’s claim against Lay for $43.5 million will also be dismissed. “The implication [of Lay’s death] is that civil suits against him cannot claim that they are entitled to summary judgment,” James Sanders, a criminal attorney with McDermott Will and Emery told CFO.com last July.

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