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Death of Kenneth Lay Leaves Questions Unanswered

July 6, 2006 at 6:45 PM EDT
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JIM LEHRER: And finally tonight, the legacy of questions left by the death of Ken Lay.

The founder of Enron died in Aspen, Colorado, yesterday, after suffering a heart attack. He was awaiting sentencing for his conviction on multiple counts of fraud and conspiracy, all related to the collapse of his once high-flying energy company.

Barry Boss is a managing partner at the Washington, D.C., law office of Cozen O’Connor. His work concentrates on white-collar crime and corporate compliance. And Kurt Eichenwald is The New York Times reporter who chronicled the downfall of Enron and Ken Lay. His book on the case is called “Conspiracy of Fools.”

First, Barry Boss, it’s pretty well settled that Ken Lay’s death means his conviction is null and void; is that correct?

BARRY BOSS, Cozen O’Connor: That’s right. It erases the conviction. It takes him all the way back to before the case was started. So, it’s as if the case was never brought.

JIM LEHRER: Now, why is that?

BARRY BOSS: Well, it has to do with the presumption of innocence. The presumption of innocence is very strong. And unless you have had a chance to go all the way through the appellate process and test your conviction, in our country, you’re presumed to remain innocent.

JIM LEHRER: All right. Now, that immediately affects the — the government’s efforts through the criminal conviction route at least to reclaim his so-called ill-gotten gains; is that correct?

BARRY BOSS: I believe it does. I believe it totally eviscerates it.

JIM LEHRER: All right. So, the government could still go on a civil route to try to get whatever money might be available, right, but they couldn’t do it just automatically, as they were doing it before?

BARRY BOSS: Correct. It’s possible they could do it civilly, but, as a practical matter, I’m not sure they can. It’s been a long time since the conduct that led to the charges occurred.

There is generally a five-year statute of limitations for a lot of the civil forfeiture actions, which is probably the statute they would choose to bring. So, they may or may not have remedies available.

What were Ken Lay's assets?

JIM LEHRER: Well, Kurt Eichenwald, just as a practical matter, did the man have any money left? Did he have any assets to go after?

KURT EICHENWALD, The New York Times: I mean, truthfully, the -- the -- the people who have benefited from all this is -- are the banks.

The government, with the forfeiture action, would get to be at the front of the line of any group of people who were owed money. So, all they cared about is, what assets did he have? Now that they are gone -- and they are gone -- any civil action, be it regulatory or whatever, is at -- is at the back of the line.

Lay had secured creditors. Lay had people he owed -- he owed money to. He has about $9.5 million in assets and about $9.5 million in liabilities. Once those liabilities are met, the estate is basically going to have nothing.

There will, however, be a payout of many millions of dollars on the life insurance to -- to the beneficiaries, among them being Linda Lay, which can't be attached by anyone, because that doesn't pass through the estate.

JIM LEHRER: How much is the -- and you said many millions. Can you put a specific figure on that?

KURT EICHENWALD: I believe -- I believe it's $10 million.

JIM LEHRER: Ten million dollars. And that's in addition to the 9.5 you say. Now, that 9.5, what, is it the -- the condo in Houston and a few other things?

KURT EICHENWALD: Well, it's -- there are -- there is $6.5 million in a Goldman Sachs account. There's retirement money. There's the -- the apartment in -- in Houston. There's the house. There's -- there's some other real estate property.

He did not die in his own house. He was at the home of a friend. But, you know, in the end, truthfully, it -- it doesn't matter.

JIM LEHRER: Right.

KURT EICHENWALD: Their -- assets and liabilities balance out. The estate is going to be worth nothing. And there will be -- the -- the Lay family will have a new start with the life insurance policy.

Enron's fall dissolved Lay's money

JIM LEHRER: You have been on this story from the very beginning, Kurt. Where did all the money go? Where did all the Ken Lay money go?

KURT EICHENWALD: You know, people want to think it was spent. People want to think it was -- it was, you know frittered away on -- on a lot of things.

I mean, the man lived very well -- very well, but the vast majority of his money -- and he had some $400 million before this all started -- the vast majority of his money went up in smoke. It -- it went with the collapse of Enron. He had massive investments in this company. And when it went down, there, his -- his surviving stake in the company was worth nothing.

JIM LEHRER: He had all the stock, and the stock was -- was worthless, and so that meant all his holdings were worthless, yes. Yes. Yes.

KURT EICHENWALD: Yes.

JIM LEHRER: Yes.

KURT EICHENWALD: And, so, in -- in the end, in the end, he had, you know -- and -- and -- when he started, he had about $100 million in liabilities and about $400 million in stock -- worth of stock.

Well, at the end, he was, as, famously, everyone knows, he was selling shares to Enron, using that cash to meet some of his liabilities, paying things down, but the value of his -- of his assets was rapidly disappearing. In the end, he ends up the -- the -- he -- basically, his estate ends up being broke.

The influence on the Skilling trial

JIM LEHRER: OK.

Barry Boss, as a practical legal matter now, of course, there was a co-defendant with Ken Lay. And it was Jeffrey Skilling. He was convicted along with Ken Lay. Does Ken Lay's death affect his situation? He's still set to be sentenced in October. Can you give us any feel for what this might -- effect this might have on that?

BARRY BOSS: Well, I think it -- it has in some ways a profound effect and in some ways no effect.

I mean, the sentence will go on just as it -- just as planned. The Skilling ultimate prison time will not be affected, and probably the amount of restitution imposed will not be affected. But he's left carrying the bag by himself. If Lay were...

JIM LEHRER: He's the last Enron man standing.

BARRY BOSS: Exactly, the only one standing. And, so, he's got to -- he will be strapped with that debt, whereas, if Lay were around, Lay might be able to pay some of it and take the burden off of Skilling. But now it's just Skilling.

JIM LEHRER: And that's over $100 million, right? Right? Isn't it over $100 million, Kurt, that the government was going after, 140 against the two of them, $143 million?

KURT EICHENWALD: Well, $130 million -- $130 million. But, at the end of the day, the government has to prove that every dollar they're seeking from Jeff Skilling is in fact a proceed of the crime that he's been convicted of.

So, they can't -- they can't just come in and say, he's been convicted. Give us all his money.

They have got to establish a case that traces the money to the crime.

JIM LEHRER: And you believe, Mr. Boss, that that will have some residual effect, the fact that Ken -- he's there by himself, and Ken Lay is gone, will have some effect on this, right?

BARRY BOSS: Well, there's -- there's two aspects.

What Kurt is talking about is forfeiture...

JIM LEHRER: Forfeiture. Right. OK.

BARRY BOSS: ... where there does have to be that link.

Restitution is a different story. And the restitution would have been sort of what was a joint and several, meaning that one or both are responsible for it. And, if Skilling paid it down, then that's less that Lay would have to pay.

But, with Lay out of the picture, it means Skilling is totally responsible for any restitution that is ordered. So any disgorgement...

KURT EICHENWALD: Well -- well...

JIM LEHRER: Yes, go ahead, Kurt.

KURT EICHENWALD: But -- but -- but the -- the difference is that, once -- once you go through -- I mean, you can only get, you know, blood out of a body once.

Once you go through the forfeiture proceedings with -- with Jeff Skilling, there's not going to be very much left. There's not going to be the opportunity to come back and say, now let's get additional money for forfeiture. There's -- there's -- there -- or -- or for restitution. There's -- the forfeiture proceedings, in and of themselves, are probably going to leave him with nothing.

JIM LEHRER: Yes. Skilling with nothing?

KURT EICHENWALD: Skilling with nothing.

JIM LEHRER: Yes. Yes.

You agree with that?

BARRY BOSS: Yes.

I -- I assume that -- that, I mean, with -- not only the United States criminal case, but all of the civil plaintiffs that are going after him, I assume, at the end of the day, there won't...

JIM LEHRER: Won't be anything.

BARRY BOSS: There will be nothing left.

Information that Lay withheld

JIM LEHRER: Kurt Eichenwald, back to you on Ken Lay.

He maintained publicly that he had done nothing wrong. It was -- and you -- you talked to him. You were around him a lot through the years. Is it your impression that he really believed that?

KURT EICHENWALD: I actually think so.

And what's interesting is, there are a number of people I have spoken with in the government who actually think so. You have a circumstance -- you know, the -- the -- the popular conception of what Ken Lay did is -- is pretty off-track.

There -- there's this belief that, you know, he was indicted for insider trading. There's this belief that he was indicted for what happened in California. And, in fact, he was charged with lying about the state of the company in the final 12 weeks of the company -- of -- of its existence, to employees, to shareholders, and -- and to accountants.

And, ultimately, those statements -- you know, he has a history of always talking about the upside, always seeing the positive. Well, under the federal securities laws, you're not allowed to ignore the negative. You're not allowed to sidestep the negative.

And what the jury found here is that he had a lot of information of problems at Enron that he basically sidestepped. Now, when we talked about the company's condition in the fall of 2001, he painted a very rosy and cheery picture, which ultimately proved not to be true.

So, his crime was in that time frame. And, in the end, you know, did he believe what he was saying was true? To a large extent, he did. Now, there's something I spoke with yesterday who was very close to Lay who said that -- who had spoke with Lay last week. And they had had a discussion about this very thing.

And Lay told this man that he recognized why the people of the country thought there was someone who needed to be punished. He recognized that he had personally made some very serious mistakes, and he understood why people wanted to punish him. He just thought the jury was wrong.

JIM LEHRER: Mr. Boss -- and I will come back to you on the same question, Kurt, before we go -- is, did -- is there one question, essential, crucial question that Ken Lay took to his grave with him that would be -- that you would be curious to know about, that you think he would know that nobody else would know about this whole thing?

BARRY BOSS: Well, I think the -- the -- the big question is what you were just focusing on, which is, you know, what -- did he believe his own propaganda, or was he just trying to pull one over on the shareholders and on the -- on his friends and colleagues?

JIM LEHRER: That would be it.

Kurt, is that -- would that be the big question, you think, that he -- if you had one last question to ask him, what would it be, and you knew he was going to tell you the truth?

KURT EICHENWALD: The problem is, I have -- I have had the opportunity to ask him so many questions over the years...

JIM LEHRER: Yes.

KURT EICHENWALD: ... that -- that I probably asked them all.

JIM LEHRER: But there's nothing there that he took to the grave?

Yes.

KURT EICHENWALD: Well, the one thing I -- I would want to know, because he's never actually said it, is, what are his thoughts about Jeff Skilling?

JIM LEHRER: OK.

KURT EICHENWALD: Jeff Skilling was a man who transformed Enron. He -- he took it from, you know, a -- a fairly successful pipeline company to this huge financial enterprise.

And Lay turned over a lot of responsibility to -- to -- to Skilling. It was because of Jeff Skilling that Andy Fastow, the chief financial officer...

JIM LEHRER: OK.

KURT EICHENWALD: ... who proved to be a criminal, came in.

JIM LEHRER: All right.

KURT EICHENWALD: He was the one who...

KURT EICHENWALD: ... who pushed for this man to be CFO.

KURT EICHENWALD: I just -- I would be curious to say, truthfully...

JIM LEHRER: OK.

KURT EICHENWALD: ... what do you think of Jeff Skilling?

JIM LEHRER: What do you think of him?

All right. We have to leave it there. Thank you both very much.

BARRY BOSS: Thank you.