Prosecutors will oppose wiping Ken Lay's record clean

Wednesday, August 16, 2006

(8/16/06 - HOUSTON) -- Federal prosecutors don't intend to let the late convicted Enron founder Kenneth Lay's record be wiped clean without a fight.

Lawyers for Lay's estate filed court papers Wednesday formally asking a judge to erase Lay's convictions and dismiss the indictment against him because he died before he had appealed. Lay was convicted of 10 counts of fraud, conspiracy and lying to banks in two separate cases on May 25, and died of heart disease July 5.

However, a one-sentence addition to the filing revealed that prosecutors aren't willing to rubber-stamp the request.

The filing noted that Lay's attorney Michael Ramsey had "conferred with (prosecutor) Kathy Ruemmler who indicated the government will oppose this motion."

If U.S. District Judge Sim Lake clears Lay's record, that would thwart the government's bid to seek $43.5 million in ill-gotten gains prosecutors allege he pocketed by participating in Enron's fraud. The government could still pursue those gains in civil court, but they would have to compete with other litigants, if any, also pursuing Lay's estate.

"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," said Justice Department spokesman Bryan Sierra.

Sierra said prosecutors would respond further in court filings.

Philip Hilder, a former federal prosecutor who represents several Enron witnesses, said that likely means prosecutors will look for a way to allow Lay's convictions to stand despite his death before appeal and sentencing.

"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," Hilder said.

Lay's lawyers said in Wednesday's filing that Lay's death "necessitates" erasing his convictions. They cited a 2004 ruling from the 5th U.S. Circuit Court of Appeals that found that a defendant's death pending appeal extinguished his entire case because he hadn't had a full opportunity to challenge the conviction and the government shouldn't be able to punish a dead defendant or his estate.

"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 said.

If Lake agrees to erase Lay's convictions, that action would thwart the government's bid to seize $43.5 million in Lay's alleged ill-gotten gains. However, Lay's remaining assets could still be targeted in civil litigation.

A federal jury in Houston convicted Lay of six counts of fraud and conspiracy in the government's foremost criminal case to emerge from one of the biggest corporate frauds in U.S. history. Lay's co-defendant, former Enron CEO Jeffrey Skilling, was convicted of 19 of 28 counts of fraud, conspiracy, insider trading and lying to auditors. He faces sentencing in October.

Prosecutors sought to show Lay and Skilling repeatedly lied about Enron's financial health when they knew an illusion of success was propped up by accounting maneuvers that hid debt and inflated profits. The defendants countered that no fraud occurred at Enron and they did nothing wrong.

Enron crumbled into bankruptcy proceedings in December 2001, obliterating thousands of jobs and $60 billion in market value.

Lake also convicted Lay of one count of bank fraud and three counts of lying to banks in a separate, non-jury trial related to the company founder's personal banking.

Lay died six weeks later while vacationing with his wife, Linda, in Aspen, Colo.

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