In yet another bizarre twist to the Enron saga, the sudden death of Kenneth L. Lay on Wednesday may have spared his survivors financial ruin. Mr. Lay's death effectively voids the guilty verdict against him, temporarily thwarting the federal government's efforts to seize his remaining real estate and financial assets, legal experts say.
"The death of Mr. Lay in all likelihood will render the government's hard-fought victory null," said Christopher Bebel, a former federal prosecutor based here who specializes in securities fraud.
But while the death of Mr. Lay may have limited government efforts in his criminal case, he remains the subject of civil lawsuits by the Securities and Exchange Commission and former investors and Enron employees. Those lawsuits could still proceed, with the aim of taking control of some of Mr. Lay's remaining assets.
Mr. Lay and Jeffrey K. Skilling, the two chief executives who guided Enron through its rise and fall, were found guilty in May of fraud and conspiracy, and were free on bail pending their sentencing.
Just last Friday, the Justice Department had moved to seize a total of $183 million in assets belonging to the two men.
The bulk of those assets belong to Mr. Skilling. Five years ago, Mr. Lay's personal fortune was valued as high as $400 million. But a large part of that was tied to the value of Enron's stock, which is now virtually worthless.
Mr. Lay testified at his trial that his net worth had declined to liabilities of $250,000, hampered by mounting legal bills and poor-performing investments. But his finances were apparently not so dire. According to legal documents filed at the federal courthouse here Friday, Mr. Lay had holdings in an investment account at Goldman Sachs valued at $6.3 million.
In addition, prosecutors said that Mr. Lay's full-floor luxury apartment in this city's River Oaks district had at least $1.5 million in value that could be forfeited to the United States.
The government's forfeiture effort ahead of the planned sentencing of Mr. Lay and Mr. Skilling this fall, however, has been thrown into doubt, at least in relation to Mr. Lay's assets since the death of a criminal defendant before his sentencing and the appeal process may void the criminal case against him.
"Technically, he was found guilty, but that's extinguished as of today," said Joel M. Androphy, a prominent defense lawyer in Houston.
A person involved in the government's action against Mr. Lay, who did not want to be identified because of the sensitivity of the case, said that Mr. Lay's death did not necessarily rule out proceeding with forfeiture actions, explaining, "The family at the end of the day cannot sit on the fruits of the fraud." But, this person said: "Even if the verdict is nullified, he paid for his actions with his life. That is more tragic."
The civil lawsuits against Mr. Lay may continue with efforts to seize his remaining assets, but even those moves may be complicated by his death since technically there was no conviction of Mr. Lay in the criminal case to rely upon as proof.
Still, lawyers in the civil lawsuits may proceed against Mr. Lay's remaining assets through motions inspired by admiralty law. Under that law, the government or a private party can take action against property (or the ship) without going after the owner (the captain), legal experts said.
Lawyers involved in the civil lawsuits, however, have already signaled that they were more interested in seeking compensation from institutions with deeper pockets that may have profited from improper dealings with Enron, like Wall Street investment banks, rather than focusing on Mr. Lay. Shortly after Enron filed for bankruptcy protection in late 2001, Mr. Lay still had extensive real estate holdings, including three beachfront homes in Galveston, Tex., and two luxury homes in Aspen, Colo., one with five bedrooms and the other with four bedrooms. All those properties have since been sold.
Any life insurance policies bought by Mr. Lay may also be shielded from federal seizure efforts since state laws normally cover such payments. While jurors found Mr. Lay guilty, his death may also complicate any efforts to go after life insurance proceeds, even if the original policies were acquired with ill-gotten gains.
Attention now shifts to Mr. Skilling, Mr. Lay's protÃ©gÃ©. The sentencing of Mr. Skilling is now set for October instead of September at the request of his Los Angeles-based lawyer, Daniel Petrocelli, who had a previously scheduled trial involving the rock band The Eagles.
Mr. Skilling has more assets open to federal seizure than Mr. Lay had, including more than $50 million in cash and securities in a Charles Schwab account, $4.6 million in value at his 9,000-square-foot home in Houston and a condominium worth nearly $580,000 in Dallas, according to the government's forfeiture documents.
Mr. Petrocelli said the government's efforts to go after the assets of his client and those of Mr. Lay illustrated an overreaching of federal authority. "The issue is the recklessness and overzealousness with which the government has pursued the Enron case right from the inception," Mr. Petrocelli said.
At issue, too, are Mr. Skilling's obligations to his lawyers. Mr. Petrocelli's law firm, O'Melveny & Myers, is awaiting more than $20 million of payments from its client for work carried out since last September. "Jeff wants to pay his lawyers, to whom he owes tens of millions of dollars," Mr. Petrocelli said, "and would like to satisfy family obligations including child support."
Lawyers for Mr. Lay may also be left with unpaid invoices. Michael Ramsey, a lawyer for Mr. Lay who experienced his own heart problems during the trial, declined to comment on Wednesday, saying simply, "I am not well."
For Mr. Skilling, an even more pressing concern may be his sentencing before Judge Simeon T. Lake III, with sentencing experts saying Mr. Skilling could get more than 20 years of jail time in a medium- or maximum-security prison, in line with federal sentencing guidelines. If anything, Mr. Lay's death may warrant even harsher scrutiny of Mr. Skilling's crimes by Judge Lake.
"Jeff Skilling is quite literally the last man standing in the Enron scandal," said Robert A. Mintz, a former federal prosecutor now in private practice in New Jersey.
Alexei Barrionuevo contributed reporting for this article.
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