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The Honolulu Advertiser
Posted on: Thursday, July 6, 2006

Enron founder's death could nullify conviction

By Thomas S. Mulligan and Miguel Bustillo
Los Angeles Times

HOUSTON The death yesterday of Enron Corp. founder Kenneth L. Lay complicates the federal government's effort to close the books on one of its most ambitious corporate-fraud prosecutions.

Lay, who at age 64 succumbed to a massive heart attack at a rented Colorado vacation home, was found guilty by a federal jury in May along with former Enron Chief Executive Jeffrey K. Skilling of conspiracy and fraud. The two were star defendants in a trial resulting from the notorious business scandal, which vaporized more than 4,000 jobs and billions of dollars in stockholders' investments.

But when a defendant who pleaded not guilty dies before sentencing, as Lay did, in most cases the conviction is wiped out on the grounds that the defendant did not have the opportunity to appeal, legal experts said.

"Fifth Circuit law in particular is clear on this point," Stanford University law professor Robert Weisberg said yesterday, referring to the federal district that includes Houston.

Lay and Skilling were scheduled to be sentenced Oct. 23 and were expected to get prison terms of more than 20 years. They were convicted of lying to Enron employees and the public as part of a conspiracy to cloak the deteriorating financial condition of a company that claimed $101 billion in revenue at its 2000 peak and ranked No. 7 on the Fortune 500.

Only last week, prosecutors filed a motion with the Houston trial court seeking to recover $43.5 million that they said Lay had illegally obtained through Enron bonuses and a line of credit extended by the Houston energy company. Weisberg and other experts said that Lay's death may pose obstacles to that effort but that they expected the government to pursue restitution.

"I foresee them fighting tooth and nail," Houston lawyer Philip H. Hilder said.

Lay's death will have little impact on the pending civil-fraud lawsuit brought by the Securities and Exchange Commission, or on the consolidated lawsuit brought by former Enron employees and shareholders, scheduled for trial in Houston Oct. 16, according to Patrick J. Coughlin of the San Diego law firm of Lerach Coughlin Stoia Geller Rudman & Robbins, lead counsel in the case.

Coughlin said the main thrust of the case was to obtain hundreds of millions of dollars of additional compensation from the large banks and investment firms that remain defendants. Any assets retained by individual defendants such as Lay and Skilling were too small to make a material dent, Coughlin said.