HOUSTON – A federal judge Tuesday vacated the conviction of Enron's late founder Kenneth Lay, wiping out a jury's verdict that he committed fraud and conspiracy in one of the biggest corporate scandals in U.S. history.
Lay was convicted of 10 counts of fraud, conspiracy and lying to banks in two separate cases on May 25. Enron's collapse in 2001 wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
Lay died of heart disease July 5 while vacationing with his wife, Linda, in Aspen, Colo.
U.S. District Judge Sim Lake, in a ruling Tuesday, agreed with Lay's lawyers that his death required that his conviction be erased and his indictment dismissed. 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.
"On behalf of his estate, I'm really quite pleased with the ruling and glad this brings to a close the criminal proceeding against Mr. Lay," said Samuel Buffone, the attorney for Lay's estate. "The judge engaged in a fair and reasoned application of 5th Circuit law."
Tuesday's ruling thwarts the government's bid to seek $43.5 million prosecutors allege Lay took by participating in Enron's fraud. The government could still pursue those claims in civil court, but they would have to compete with any other litigants also pursuing Lay's estate.
In his ruling, Lake also denied a request from Russell Butler, who said he was a victim of Enron's collapse and had asked for an order of restitution based on Lay's conviction.
"With this ruling, the criminal case is over. It doesn't end the civil case or the ability of anyone to file or pursue a civil case against the estate," Buffone said.
Kelly Kimberly, spokeswoman for Lay's family, declined comment, referring reporters to Buffone.
A spokeswoman for the Department of Justice did not immediately return a telephone call seeking comment.
Prosecutors offered no counter legal argument in the case, but asked Lake to hold off on a ruling until next week so Congress could consider legislation from the Justice Department that changes current federal law regarding the abatement of criminal convictions. Congress recessed for the elections without considering the legislation.
In their motion to Lake last month, prosecutors Sean Berkowitz and John Hueston wrote that certain provisions of the proposed legislation would apply to Lay's case, including "that the death of a defendant charged with a criminal offense shall not be the basis for abating or otherwise invalidating either a verdict returned or the underlying indictment."
"Although the United States argues that applicable law might change at some unknown future date, the court is bound to follow Fifth Circuit precedent," Lake wrote in his ruling.
Enron, once the nation's seventh-largest company, crumbled into bankruptcy proceedings in December 2001 when years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.
Lay's co-defendant, former Enron chief executive Jeffrey Skilling, is scheduled to be sentenced on Monday.