Kenneth Lay's sudden death could prove to be an unexpected legal bequest to Jeffrey Skilling, his co-defendant in the landmark Enron Corp. fraud case.
Mr. Skilling's legal team will almost certainly invoke Mr. Lay's demise to try to reverse his own fraud and conspiracy conviction or demand a retrial, legal experts said yesterday.
That's because Mr. Lay's death Wednesday of an apparent heart attack effectively voids the entire case against the Enron founder, including the guilty verdict. Mr. Skilling, the former Enron chief executive officer who is appealing his own conviction, could now argue that much of the evidence against him stems from a case that no longer exists, argued lawyer Jacob Frenkel, a former federal prosecutor and white collar crime specialist.
"This is the first time this has happened in such a high profile case," Mr. Frenkel said. "Everybody is scrambling to see what the law says on this."
How it all plays out could set a legal precedent, he added.
Federal prosecutors may be stymied in their bid to seize Mr. Lay's assets. A recent appeals court ruling in the U.S. Fifth Circuit, where Mr. Skilling and Mr. Lay were tried, determined that when a defendant dies before he has exhausted all his appeals "everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted."
And that, Mr. Frenkel said, could arguably include any evidence used to convict Mr. Skilling.
Both men were free on bail, awaiting sentencing following their May 25 criminal conviction on fraud and conspiracy for their role in the spectacular 2001 collapse of Enron, a Houston-based energy trader.
And in another bizarre twist, Mr. Lay's death is likely to shield his wife, Linda, and the couple's children from a federal forfeiture of his assets.
The U.S. Justice Department's Enron Taskforce filed a motion last week asking U.S. District Court Judge Sim Lake to force Mr. Lay to pay $43.5-million (U.S.) and Mr. Skilling to pay $139.3-million.
But legal experts said the Lay family could still face efforts to seize those assets by plaintiffs in several civil suits, including the U.S. Securities and Exchange Commission, former Enron employees and Enron shareholders.
But at least one plaintiff in an Enron class-action suit said this week it would not pursue Mr. Lay's estate. A spokesman for the Regents of the University of California said this week they would not pursue "what's left."
Nor is it clear if Mr. Lay has any assets to seize. Before he died, Mr. Lay had claimed at his trial that mounting legal bills and bad investments had left him with debts of $250,000. Federal prosecutors have disputed that, saying he still has a $1.5-million condo in Houston and a $6.3-million investment account.
Before Enron's collapse, Mr. Lay had amassed a fortune estimated at more than $400-million and the couple lived a lavish lifestyle. He owned several homes, including the vacation property in Aspen, Colo., where he suffered his heart attack, along with 13 vehicles, including three Mercedes Benzes and five Jeeps.
But much of his wealth was tied up in Enron stock, which is now worthless. By the time his trial began earlier this year, Mr. Lay's net worth had dwindled to $50-million.
The plaintiffs in the class-action lawsuit have found it considerably more lucrative to go after Enron's roster of bankers and financial advisers, including the Canadian Imperial Bank of Commerce and Royal Bank of Canada. So far, those defendants have settled claims by agreeing to pay more than $7.3-billion.
And yesterday Merrill Lynch & Co. joined the list, agreeing to pay $29.5-million to settle investor claims that it helped the company commit fraud.
Enron, at one time the world's largest energy trader, said Merrill will also effectively give up $73.7-million in claims against Enron, but will collect on $10-million of claims. Merrill Lynch did not admit liability or wrongdoing, and both parties agreed to settle the litigation to avoid the costs and uncertainties of further proceedings, according to a statement.
Enron has yet to settle with several other major bankers in the so-called "MegaClaims" litigation, including Citigroup Inc., Deutsche Bank AG, Barclays PLC and Fleet National Bank.
Enron emerged from Chapter 11 protection in November, 2004, and exists only to liquidate assets and pay debts. Its bankruptcy is the second largest in U.S. history, after that of WorldCom Inc.
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