Erasing Enron: Federal Judge Vacates Lay’s Conviction

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On Tuesday, U.S. District Judge Simeon T. Lake III, in Houston, vacated the convictions of late Enron Corp. founder Kenneth Lay. Although the action clears Lay's criminal record, it is unlikely to erase his reputation as one of the nation's foremost corporate fraudsters.


Lay was found guilty of 10 criminal charges related to the collapse of Enron Corp. but died of a heart attack in July before exercising his right to appeal his convictions. In vacating the convictions, Judge Lake followed decades of legal precedent but dealt a blow to the government's efforts to collect more than $43 million from Lay's estate.

The government had opposed the vacating of Lay's conviction, arguing that “the Lay Estate should not be unjustly enriched with the proceeds of fraud that would otherwise be subject to forfeiture and distribution to Lay's victims.” The Justice Department lawyers also asked that Judge Lake delay issuing a ruling on the motion to vacate until October 23, in order to give Congress time to consider a proposal to change the law and allow prosecutors to seize millions of dollars in assets, including investments Lay allegedly controlled. During his trial, Lay told the jury he had a negative net worth of $250,000. Congress recessed for the election season without considering the Justice Department's proposal.

Russell P. Butler, who claims he is a victim of the crimes Lay was found guilty of, also opposed vacating the convictions and asked the court to order restitution from Lay's estate. Judge Lake denied Butler's request to order restitution, a decision particularly worrisome to former employees and shareholders.

Enron filed for bankruptcy protection in 2001, leaving the government, former employees and investors to compete with other creditors for the company's assets. Vacating Lay's conviction does not prevent the Securities and Exchange Commission (SEC) from pursuing a pending civil case against Lay's estate. It does, however, require the SEC to prove Lay's culpability all over again, since his convictions can not be used as evidence.

The Associated Press reports that lawyers for the Lay family have asked the court to release the $5 million bond secured by the homes of several Lay children. Judge Lake's ruling vacating the convictions does not address the issue of the bond.

The decision to vacate also thrusts Lay's co-defendant, Jeffery Skilling, back into the spotlight as the only member of Enron's management team available to pay the price for the company's failure. Employees and shareholders, who lost billions of dollars in the energy company's collapse, are likely to call for a stiff prison sentence for Skilling, who faces decades in prison when he is sentenced on Monday.

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