Lay's death undermines Enron asset recovery

The sudden death of Kenneth Lay has thrown into confusion attempts by the US government and former Enron shareholders and employees to recover millions of dollars they claim he acquired unlawfully.

Prosecutors last week filed a motion to seize $43.5 million they say Lay obtained through criminal activity and Enron shareholders and employees have filed class action suits seeking the recovery of millions from Lay and his successor as Enron chief executive, Jeffrey Skilling.

Lay (64), who was awaiting sentencing after his conviction alongside Skilling for conspiracy and fraud in connection with Enron's collapse into bankruptcy in 2001, faced decades in prison after his sentencing in October.

Lay and Skilling both appealed their convictions for fraud and conspiracy and, under American law, Lay's death before his appeal has been heard means that his conviction is erased.

This principle, known as the "abatement doctrine", was upheld as recently as 2004 in the same circuit in which Lay was convicted in May. In United States v Estate of Parsons, the court explained that "the appeal does not just disappear, and the case is not merely dismissed. Instead, everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted".

In the 2004 case, the court vacated a forfeiture order, suggesting that that the US government's claim against Lay for $43.5 million will also be dismissed.

The precedent could also affect class action suits against Lay because plaintiffs will no longer be able to justify their claims on the basis of his conviction or even his indictment.

Lay's death does not mean, however, that all legal action to recover his assets must end because plaintiffs can use laws inspired by admiralty law to sue his estate. This means that the government or a private party can take action against property without targeting its owner, just as a ship can be targeted without its captain.

Lay claimed that his assets had dwindled to $250,000 in liabilities but prosecutors said last week that he had an investment account at Goldman Sachs worth $6.3 million and that his Houston apartment is worth at least $1.5 million.

Skilling presents a more promising prospect for prosecutors, with more than $50 million in cash and securities, a $4.6 million home in Houston and an apartment in Dallas worth almost $600,000.

The impact of Lay's death on Skilling's appeal remains unclear but most legal experts suggested that it would be insignificant.

This could change if Skilling wins a retrial, during which he could attempt to blame Lay for his own misdeeds, confident that the dead man cannot defend himself.

The forensic pathologist, who performed the autopsy on Lay, said yesterday that "there was no evidence of foul play". Dr Rob Kurtzman, the forensic pathologist who performed the autopsy in Colorado, said: "The cause of death is coronary artery disease." - (Additional reporting, Reuters)