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The death last week of Kenneth Lay, the founder and former chairman and CEO of Enron Corp., means any restitution in the criminal case will probably be vacated and the future of the Securities and Exchange Commission and civil cases will be more difficult to pursue, according to attorneys following the case. “It’s a tragic end to a tragic story,” says Kirby Behre, a former federal prosecutor and now a partner at Paul, Hastings, Janofsky & Walker in Washington. “You don’t have to be a doctor to know that he was under a lot of stress. The sentencing won’t go forward, mooted by his death, but the more interesting issue will be seizure and now forfeiture of the assets — do they transfer to his wife? Even if they pass to a spouse or family, they’re still attachable and still forfeitable to the government.” Jacob Frenkel, a defense attorney at Shulman Rogers Gandal Pordy & Ecker in Rockville, Md., who worked at the SEC and is also a former federal prosecutor, says that while Lay’s death is sad and shows the “human soul” of the case, there will be a lot of pressure on the government to pursue Lay’s assets. “But whether it can be done through a criminal proceeding, that’s the unanswered question. It’s not a case against an entity, it’s a case against him, and he’s no longer here. Then there’s the SEC case and civil litigation. Those seeking to pursue his assets may or may not be able to find recovery.” Lay’s pastor, Steve Wende of First United Methodist Church of Houston, said in a statement that the 64-year-old died unexpectedly of a “massive coronary” while in Colorado for the week. “Apparently, his heart simply gave out,” Wende said. According to a statement from the Pitkin County Sheriff’s Office, deputies and an ambulance were dispatched to Lay’s house in Old Snowmass, Colo., at 1:41 a.m. Mountain time on July 5 for a medical emergency. Lay was taken to Aspen Valley Hospital, where he was pronounced dead at 3:11 a.m. Lay was scheduled to be sentenced Oct. 23 after being convicted in late May on six counts of conspiracy, wire fraud, and securities fraud related to Enron’s 2001 collapse into bankruptcy. He faced a maximum of 45 years in prison and was free on a $5 million bond backed by his children’s homesteads. Prosecutors in Lay’s trial declined to comment on his death and their efforts to seek a $43.5 million judgment from him, representing what they claim he pocketed as part of the conspiracy. The government recently asked Judge Simeon Lake III in Houston to order that Lay and former Enron CEO Jeffrey Skilling forfeit $183 million as a consequence of their conviction. Barry Boss of Cozen O’Connor in Washington says the development might delay the sentencing for Skilling, who was convicted of 18 counts of conspiracy, securities fraud, and making false statements to auditors, along with a single count of insider trading, and faces a maximum of 185 years. He’s free on a $5 million cash bond.
• Big Mouths (June 5, 2006)• Enron’s Lay and Skilling Found Guilty (May 25, 2006)• Enron Trial Goes to the Jury (May 17, 2006)• Witness Slams Vinson & Elkins’ Role (March 20, 2006)• Enron Team Looks to Bolster Its Record (February 6, 2006)

Lay established Enron in 1985 when he helped orchestrate the $2.3 billion acquisition of Houston Natural Gas Corp., of which he served as CEO, by the Omaha, Neb.-based natural gas pipeline operator InterNorth Inc. — itself a collection of electric and gas utilities. The company eventually moved its headquarters to Houston, and Lay became chairman in 1986. Through the 1980s and early 1990s, Lay expanded Enron by constructing power plants and pipelines. In the mid-1990s the company began to trade derivative instruments based on energy and broadband assets. At its peak the company employed more than 20,000 and claimed more than $100 billion in annual revenues, with the goal of becoming the biggest company in the world. In February 2001, Lay turned over the reins of the company to Chief Operating Officer Skilling. But Skilling’s tenure lasted only a few months, and Lay returned to Enron in August. By then, company executives had begun questioning Enron’s accounting practices. In October 2001 the company announced that it would reduce shareholder equity by more than $1 billion due to errors in accounting for dealings by Chief Financial Officer Andrew Fastow. From that point, the company’s decline accelerated quickly. In November, Enron’s European businesses filed for protection from creditors. And on Dec. 2, 2001, after the collapse of a $9 billion deal with white knight Dynegy Inc., Enron itself filed what was then the largest bankruptcy in U.S. history. Lay quit as CEO in January 2002 and was indicted by federal authorities in July 2004. Throughout four years of government investigations into the Enron scandal and during his 16-week trial, Lay insisted he had done nothing wrong. Testifying in his own defense, Lay maintained that all of his public comments about Enron’s financial health were based on information gathered by others and vetted by internal and external accountants and attorneys and that he believed they were true at the time. He said the company was in good health when he took it over and blamed Fastow, an organized group of short sellers, and The Wall Street Journal for causing a run on the bank. After five days of deliberation, the jury convicted Lay and co-defendant Skilling. Jurors later said documentary evidence and the sheer number of former employees who testified led them to the verdict. Lay began his career in the industry working for Humble Oil & Refining Co., a forerunner of Exxon Mobil Corp., as an economist in corporate planning, from 1965 to 1968. He then served in the Navy, including at the Pentagon, from 1968 to 1971. He then taught economics at George Washington University at night while working at what is now the Federal Energy Regulatory Commission and later as an undersecretary for energy in the Department of the Interior. In 1974, Lay left government work and took a job as vice president of corporate development at Florida Gas Co. The utility later merged with Continental Resources Co., where he eventually became president. He later became president and chief operating officer of Transco Energy Co., from 1981 to 1984, and then chairman and CEO of Houston Natural Gas, from 1984 to 1985, before it merged with InterNorth to become Enron.

Claire Poole is a reporter for The Deal , an ALM affiliate in which this article first appeared.

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