You won't believe this
Lay's death has legal ramifications
Updated 7/5/2006 11:33 PM ET
By Greg Farrell, Elliot Blair Smith and Edward Iwata, USA TODAY
Former Enron CEO Ken Lay, 64, whose sunny optimism and Ph.D. smarts enabled him to convert a sleepy Texas pipeline company in the mid-1980s into a global powerhouse, died Wednesday of a heart attack just over a month after his rags-to-riches career ended in a criminal fraud conviction.
As sudden and unexpected as Lay's death was, government prosecutors were studying the possibility that legal precedent might require the indictment against him to be dismissed, and his conviction erased. Under that scenario, the government could not collect the $44 million it demanded he forfeit in a court filing last week.
Former prosecutor Ellen Podgor, a law professor at Stetson University College of Law, said, "It's a very strong precedent, as clear as it could be. In the Lay case, it will mean he does not die as a convicted felon. It will be as if his conviction does not exist."
In a saga that lifted Lay from a small town in the Missouri Ozarks to the heights of Houston's wealthy oil-and-gas society, with, at one time, a welcome at the White House, his life took a tragic turn in late 2001.
That is when Lay — forced to retake the CEO's job after his replacement, Jeff Skilling, abruptly quit — presided over one of the most spectacular business collapses in history, wiping out a market capitalization that had peaked at $65 billion.
Former Merrill Lynch energy analyst John Olson, who was fired after challenging Lay's optimistic assessments of Enron's stock, said Wednesday, "It's a sad ending to a man who flew so high and fell so low."
But the ending may not be precisely what it appeared after Lay and Skilling were convicted of criminal securities fraud May 25 in Houston.
In April 2004, the appeals court for the 5th Circuit — the same jurisdiction as the Enron trial — reviewed a jury's conviction of Waco businessman Andrew Parsons, who allegedly set fire to his property and was charged with arson, fraud and money laundering.
Parsons died during his appeal. The appeals court then ordered the lower court to vacate Parsons' conviction, sentence, indictment and $1.3 million in restitution to defrauded insurance companies, though it allowed the government to keep $1 million Parsons had forfeited. The judges found that after his death, "Everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted."
While Lay was pursuing an appeal of his own conviction, Stephen Wende, senior pastor of Houston's First Methodist Church, where Lay regularly worshipped, said Wednesday that he was "not nave" and realistically believed that he would be sent to prison. "He did not think the jury understood his case, but he did not bear the jury any ill will."
Mike Ramsey, Lay's lead attorney, would not comment on his client's death, saying he preferred to allow Lay's family to "say grace over it," before speaking.
A family spokeswoman, Kelly Kimberly, said Lay's five children and 12 grandchildren were being informed of his death. "We will release further details at a later time," Kimberly said.
The deregulator
A former economist who worked at the Pentagon, Lay embraced the concept of energy deregulation and made it the cornerstone of his career.
At Enron, he transformed a company that shipped natural gas across North America into a buyer and seller of futures contracts in gas deliveries. That transformation, the brainchild of Skilling, vaulted Enron ahead of its competitors in the natural gas industry and turned Lay into a visionary who preached a gospel of deregulation and innovation.
In the 1990s, as more states embraced the concept of energy deregulation, Enron's fortunes grew, and so did Lay's reputation. He was a confidant of the first President Bush and a featured speaker at prestigious conferences such as the annual Davos summit of global business executives. When George W. Bush was elected president in 2000, Lay was considered to be on the short list of candidates to serve as Energy secretary.
In a statement, the elder Bush said Wednesday, "I was sad to hear the news of the death of someone I considered a friend."
In early 2001, Lay decided to step down as Enron's CEO and turn the job over to Skilling. But Skilling lasted only six months on the job, quitting in August 2001. In a move he later testified he regretted, Lay reclaimed the CEO title at the board's urging. But in October, a third-quarter loss that surprised Wall Street, combined with revelations that the company was conducting transactions with partnerships controlled by chief financial officer Andrew Fastow, sent investor confidence plummeting.
More than two years later, government prosecutors charged Lay and Skilling with securities fraud, saying they hid Enron's true financial condition from investors. The trial began in January. On May 25, both men were convicted. They were scheduled to be sentenced Oct. 23.
Dan Petrocelli, the lead attorney for Skilling, said his client was "distraught" by the news of Lay's death. He added, "I got to know Ken under more difficult and trying circumstances. There wasn't any day when Ken didn't hold his head up high and show great strength and resolve."
Lay had coronary artery disease, according to autopsy results announced Wednesday afternoon. Scott Thompson, chief deputy coroner in Pitkin County, said he died "of natural causes."
According to a statement from the Pitkin County Sheriff's Office, Lay was taken from his Aspen, Colo., home by ambulance to Aspen Valley Hospital, where he was pronounced dead at 3:11 a.m. Wednesday.
Kenneth Lee Lay was born April 15, 1942, in Tyrone, Mo., a small town in the Missouri Ozarks. His father was a Baptist minister who held a second job as a farm machinery parts manager to support a family of five. His mother was a housewife. Lay said that as a boy, he held up to three newspaper routes at a time to make extra money.
After graduating from Hickman High School in Columbia, Mo., in 1960, Lay attended the University of Missouri, earning undergraduate and master's degrees in economics. In 1965, he went to work for Humble Oil and Refining, a predecessor to Exxon, taking night courses at the University of Houston toward a Ph.D. in economics.
From naval school to Washington
As the Vietnam War escalated, Lay enlisted in naval officer school in Newport, R.I., in 1968, in a move that took him to Washington, D.C., and the Pentagon, where the young lieutenant obtained a "top secret" security clearance and worked on cost-and-performance analyses of major weapons systems.
At the time, Lay believed Washington was only a temporary detour from his career at Exxon. But upon his departure from the Navy, a former academic adviser tapped him for a staff job at the Federal Power Commission, now the Federal Energy Regulatory Commission.
In 1974, after six years in Washington, Lay returned to private industry as a vice president of Florida Gas, a pipeline company run by Jack Bowen, who became his mentor. "I've always liked Ken, admired his intelligence and abilities," Bowen, 84, said Wednesday.
Lay followed Bowen to Houston, and Transco Energy, in 1981. Three years later, he represented Transco as a "white knight" that came to the aid of a much larger pipeline company, Houston Natural Gas, which at the time was fending off an aggressive investment play by legendary dealmaker Oscar Wyatt.
As a reward, Lay was hired as CEO of Houston Natural Gas, where he oversaw a restructuring that laid the groundwork for a lucrative future while producing many detractors. "Within six weeks after his arrival at Houston Natural Gas, people of integrity started leaving, or were forced out," said longtime critic Barbara Shook, a senior analyst at the Energy Intelligence Group, who followed Lay's career for 22 years.
But the ambitious executive's makeover of Houston Natural Gas also was the precursor to its July 1985 merger with Internorth in Omaha. Lay, in the right place at the right time, as he often was, quickly moved up from the No. 2 to the No. 1 job at the combined company that became known as Enron.
Over the next two decades, Lay built an energy colossus and emerged as a pillar of Houston society, who, in private moments, liked to kick off his shoes, drink a bloody Mary and chew on macadamia nuts, recalls his former speechwriter, Gretchen Weis.
After Lay's criminal indictment, he and his wife, Linda, all but disappeared from the social circuit. Lay's former mentor, Bowen, said he'd lunched with Lay about six months ago. At the time, Lay seemed upbeat. Said Bowen: "He enjoyed life. He played golf and tennis. He kept himself in great physical shape. I was surprised to hear about this. Of course, he was under great stress."
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