Patterico's Pontifications

11/14/2007

Ken Lay is Back in the News

Filed under: Law — DRJ @ 7:01 pm



[Guest post by DRJ]

A Houston federal district judge ruled that the government can proceed with a $13M civil forfeiture proceeding against the estate of former Enron CEO Ken Lay:

“A judge rejected on Wednesday a request from the widow of former Enron Chairman Ken Lay to throw out the government’s bid to seize nearly $13 million from his estate, including the upscale condominium they shared.

U.S. District Judge Ewing Werlein’s ruling allows the government to move ahead with its effort to recover the gains, which it contends are ill-gotten. The judge wrote that prosecutors had provided “ample allegations” of criminal activity by Lay and others to pursue its case.”

The court’s decision overrruled legal objections by Lay’s widow Linda, but she apparently intends to appeal the decision:

“Samuel Buffone, a Washington attorney who represents Linda Lay, the executrix of her husband’s estate, said that she intends to fight.
***
Linda Lay argued that the case should be dismissed because the government is trying to tie tainted funds to money laundering, a crime with which her husband never was charged. She had argued that at the very least, the government shouldn’t be able to seize the dwelling whether or not part of the mortgage was paid off with tainted money.”

The case was unusual because Lay died prior to sentencing, resulting in the dismissal of his pending criminal case and thus preventing the government from pursuing criminal forfeiture proceedings:

“Lay was convicted last year on 10 counts of fraud, conspiracy, bank fraud and lying to banks in two separate cases. He died in July 2006 of heart disease, and a judge later erased his convictions because he hadn’t been sentenced or launched an appeal.

The government had intended to seek seizure of the assets based on his convictions. After the convictions were erased in October last year, prosecutors filed the civil forfeiture case.”

Wealthy criminals aren’t common. Wealthy criminals that die before sentencing are even less common. That undoubtedly presented a problem for the prosecution but the prosecutors did a good job making civil forfeiture work in this case.

— DRJ

41 Responses to “Ken Lay is Back in the News”

  1. I am not a fan of the government’s use of civil forfeiture, but have accepted it.

    JD (33beff)

  2. So, if Ken Lay was not convicted of anything on what basis is the gov’t going for civil forfeiture? Obviously I am not a lawyer, but does this mean I can have my assets seized after I am acquitted of a crime like this? Seems like Ken Lay and the gov’t both got unlucky and they should let it go.

    PeterW (d63e2b)

  3. This is a real stretch, especially since they have some juicy live Enron convicts to bleed dry.

    After they take everything from Linda Lay, will they have the gall to contest her application for welfare when she has no visible means of support?

    Another Drew (8018ee)

  4. Wow. this one’s odd.

    joe (c0e4f8)

  5. AD,

    The article stated that Lay received at least $99M in profits from criminal activity, of which $13M could be directly traced to assets available for recovery. This included $2.5M that Lay used to pay off the mortgage on his condo days after the Enron bankruptcy.

    For assets to be recoverable in forfeiture, I assume that means they are not exempt under federal and applicable state laws. Presumably Lay maintains her principal residence in Texas and, if so, Texas has some of the most generous exemption/homestead statutes in the US. If my assumptions are correct, I doubt we’ll see Linda Lay on welfare anytime soon.

    DRJ (9578af)

  6. As I read this again, it bothers me more. If the civil forfeiture is premised on the underlying conviction, absent the conviction, it seems only logical (I know, logic and the law never shall meet) that the forfeiture should be without merit.

    JD (33beff)

  7. No, JD. This is like the OJ cases. There will be a new trial and the government will need to prove its case although the standard of proof will be preponderance of the evidence instead of beyond a reasonable doubt. I suppose for a defense-oriented person we might complain that there is no Dead Man’s Rule here.

    nk (09a321)

  8. JD,

    It’s not a final decision that the government gets the assets. This decision just lets the government go forward to try to prove it is entitled to the assets under the civil forfeiture provisions.

    It sounds like this might have been a procedural motion to dismiss the proceeding altogether. My guess is it was what is called a 12(b)(6) motion for failure to state a claim for which relief can be granted. Those are filed when the defendant believes the plaintiff can’t prevail as a matter of law because the law doesn’t permit recovery in that situation. It’s also possible the defense filed a summary judgment motion, but either way the point is this was a preliminary proceeding.

    I’m sorry I didn’t make that clear. What I found interesting was that the government didn’t just give up when Ken Lay died and the criminal proceedings were dismissed. Instead, the government has clearly investigated the Lay’s assets and how forfeiture proceedings work.

    DRJ (9578af)

  9. I 2nd JD on this. No conviction, What tainted money? And, does the gov’t now contend that every part of Ken Lay’s compensation from Enron was the result of criminal activity? Did they prove that in court? What about the losses on his stock holdings? Just when in 3-years of law school do they schedule the operation to remove the ethical bones from your body?

    Another Drew (8018ee)

  10. I should have read NK’s response before I posted, JD. Sorry to double up like that.

    As for ethics, Another Drew, I can’t speak for every lawyer but my ethical bones were gone by the end of my first year of law school … but I got the AmJur in my ethics class so maybe I lost mine early.

    Seriously, though, I don’t think lawyers lose their ethics. Instead, we are taught to look at issues from a legal standpoint when most people view them from a pure logic, common sense or emotional position. One may not be more “right” than the other, but if there’s one thing you learn in law school it’s that having a legal process is far better than not having a process at all. Once you accept you need a process, it’s easy to devote yourself to making that process work as precisely and well as possible.

    DRJ (9578af)

  11. Thanks DRJ for the answer. But, some of us still hang onto an “anti-deluvian” concept of ethics –
    It’s not what is legal, it’s what is right.

    Another Drew (8018ee)

  12. DRJ & nk – Thanks for clearing that up for me. I figured this was a failure to state a claim or summary judgment finding. It still does not set really well with me. If the government is going to take something from me, I damn well expect them to need a unanimous jury, and proof beyond a reasonable doubt. Also, it is just a personal pet peeve, but I do not like the comingling of the Criminal and Civil law systems. To me, this is the fucntional equivalent of a criminal matter, and should bear the same burden of proof.

    JD (33beff)

  13. Hey, DRJ #10,

    Whachoo sayin? About ethics, I mean. Who enforces ethics? And how do they enforce them? The best’s the law. And legal process. Imperfect tools imperfectly used. But still the best there is.

    nk (09a321)

  14. But then again, I am not a lawyer, though I am the spawn of 2 lawyers, so I tend to view these issues like Drew described.

    At work, we routinely have to defend employers and employees on claims that have no basis in the civil court system, and are clearly criminal in nature. For example, a remodeling company is doing work for a homeowner. After the remodeling is done, the homeowner notices that some money and a valuable piece of jewelry is missing. She believes, with all of her heart, that one of the employees of the remodeling company stole from her, but there is no evidence of that, except that they happened to be working there around the time that she noticed them missing. She presses this to the company, they investigate, and find nothing. She presses this to the DA, who also investigates, and lacks evidence to bring any charges. So, she files in civil court against the employer, employees, etc … We have to defend the employer and the employees, in their capacities as such, and have to go through all sorts of hoops to disavow coverage for criminal activities even though the legal system could not find a criminal activity in the underlying matter. This lady is beautiful, well spoken, middle aged lady, and any jury will love her. The individuals against whom the allegations are made are good, hard working, middle class guys, with not a blemish on their record, but from here on out, when they are asked if they have been involved in litigation and the results, they may very well have to say that a civil jury found them liable for the theft of money and jewelry, even though the criminal system refused to even bring charges. They will have the spectre of a criminal charge without the burden of proof. I know this would benefit dirtbags like Lay, Simpson, etal. but that I could live with.

    JD (33beff)

  15. nk – You just hit on my other pet peeve. Legal ethics are the responsibility of the indvidual. However, it is my understanding that they are governed and regulated by the Bar, and ultimately in the Court system. I see far too many unethical claims made and actions taken under the auspices of advocating for their clients, that are simly ignored, or looked past, but their brethren at the Bar. Were there more internal vigilence in policing oneselves, it would certainly be seen as a positive by us non-lawyer types.

    JD (33beff)

  16. I forgot to close my soapbox tags. Sorry.

    JD (33beff)

  17. I was only saying that for lawyers ethics are law. Not just something Aristoteles made up.

    nk (09a321)

  18. Civil forfeiture proceedings do not depend on an underlying criminal conviction.

    Civil forfeiture is “in rem” — its an action against the property, not against a person.

    The property, if proven to be the proceeds of criminal activity, cannot be lawfully owned by anyone but the government.

    The legal fiction is that upon commission of the criminal act that produced the asset, title to the asset, as ill-gotten gains, vests in the government even if the criminal has possession.

    A criminal conviction of the person is not necessary, just proof that the person came into possession of the property via conduct that is judged by the jury to have been criminal in nature.

    The holder of the property holds in it “constructive trust” until the government comes for it, which it does in the form of a civil forfeiture action against the property — in which what the government is saying is “this property belongs to the government and has since the date of the criminal activity that produced it.”

    wls (a6fede)

  19. wls – Thank you. I think I understand the legalities of it a little better. In the case DRJ blogged about, obviously the property is available, and known to the parties. In the one I described, the whereabouts of the property are not known, and the plaintiff is demanding to be compensated for the property.

    Are any of you lawyers familiar with sanctions cases in federal civil court?

    JD (33beff)

  20. NK #13 – I’m saying the same thing you are. You just said it more clearly.

    DRJ (9578af)

  21. Good night, all. It has been a pleasure.

    DRJ, nk & WLS – Thank you. I always learn something from you.

    JD (33beff)

  22. Whoa, whoa, whoa.

    Ken Lay steals millions from little investors. He is convicted. His conviction is reversed on a technicality. And you guys are crying tears over the ethics of using the law to obtain forfeiture of stuff he stole?

    ???

    Patterico (bad89b)

  23. Not me. Forgive my incoherence in my last two comments. I suppose the federal rule which does not make a verdict of guilty a judgment of guilty until sentencing and the Dead Man’s Rule (or rather its absence here) balance out in the late Mr. Lay’s case.

    nk (09a321)

  24. Also, it is just a personal pet peeve, but I do not like the comingling of the Criminal and Civil law systems.

    So, you’re against the writ of habeas corpus?

    dave (793962)

  25. dave – Since I made no mention of habeus corpus, your assumption could not be more unfounded. I was referencing how I do not agree with civil matters being brought on clearly criminal matters. I do poorly enough with the English language. I do not need you help in putting additional words in my mouth.

    JD (707046)

  26. JD: Writs of Habeas Corpus are civil proceedings challenging the incarceration of criminal prisoners. Don’t worry about it — I was just having fun at your expense. :)

    dave (793962)

  27. Patterico:

    I’m not a bankruptcy lawyer myself, but is there some reason the state couldn’t have filed a complaint in bankruptcy court for the non-dischargeability of the claims of the state on the grounds that the funds were acquired fraudulently?

    Sean P (e57269)

  28. Our esteemed host chimed in …

    Ken Lay steals millions from little investors. He is convicted. His conviction is reversed on a technicality. And you guys are crying tears over the ethics of using the law to obtain forfeiture of stuff he stole?

    I don’t like the government abusing the process, taking “second bites at the apple”, and otherwise skirting due process. Things like the filing of Federal charges after state charges are dismissed, “civil rights violations”, “hate crimes”, and the piling on of multiple charges for a single act strike me as abusive of power and a violation of due process, in spirit if not in law. Civil forfeiture is a particularly odious example of this.

    We (citizens) generally like the outcome of such procedural two steps, but they smell of abuse of power, over-zealousness on the part of prosecutors, and “piling on”.

    Now this situation doesn’t totally fall into that category simply because the first “bite” was never completed due to the passing of Mr. Lay.

    It does however, seem vengeful and mean-spirited. Mr. Lay used death to escape his just desserts; if they can’t get Mr. Lay they will get his wife and kids. The guy is dead, the money is gone. Enron isn’t coming back. The government should be worrying about things that can make a difference. This really can’t.

    tomjedrz (562284)

  29. Oh, give it a rest! Lay stole this money. If civil forfeiture laws are illegal it’s news to the USSC and congress. If his wife finds herself short of money, she can sell her personal property or, gasp, get a job. My mother has to work and has never lived the high life off of illegal gains. As to his kids, they are well into their adulthood. They can get a job, too. If you want to go on and on about morals and ethics, consider that allowing thieves to keep their stolen money is both immoral and unethical.

    dave (793962)

  30. Sean P,

    That could be done but I don’t think the Lays ever filed bankruptcy. Enron filed bankruptcy.

    DRJ (9578af)

  31. tomjedrz,

    I don’t think the money is gone. The government found at least $13M that was traceable to criminal activity. This report details far more and suggests the Lays structured their finances to shield anywhere from $75,000 to $900,000 in annual income for life.

    This is no different than expecting a dead bank robber’s family to give up the stolen money (or things they bought with stolen money) that the robber hid at his home.

    DRJ (9578af)

  32. What’s with the attitude that thieves get to keep the money? Is this part of the libertarian platform?

    dave (793962)

  33. DRJ:

    Good point, but the non-dischargeability claim could still have been made against Enron, followed up by a Fraudulent transfer action against the Lays and everyone else who obtained any ill-gotten funds from Enron.

    Sean P (e57269)

  34. Sean,

    Corporations can’t get a discharge so I’m not sure (procedurally) how it could have been raised in that case but I agree that the state fraudulent transfer laws would apply. That may even be one of the laws used here.

    DRJ (8b9d41)

  35. Why is the government getting this money. Maybe I am hopelessly naive, but shouldn’t it go back to the owners/investors in Enron?

    JD (33beff)

  36. Shareholder claims against Enron are handled in bankruptcy court because it filed bankruptcy. There may be claims against the Lays in the bankruptcy proceeding, too.

    DRJ (8b9d41)

  37. The $13 million is a tiny fraction of overall loss, and real recovery after costs will be a fraction of that. I don’t see it being worth the effort.

    So, if not for the money, why is the government doing it?

    The tenor of the responses demonstrates my point. The pound of flesh has to come from somewhere, and if it can’t be from Ken Lay then it will be from his wife and kids. It just seems mean and nasty, not constructive, and focused on the past rather than the future.

    tomjedrz (562284)

  38. Yes, but it’s legal!

    Another Drew (8018ee)

  39. Yes, but it’s legal!

    Another Drew (78ab82)

  40. The $13 million is a tiny fraction of overall loss, and real recovery after costs will be a fraction of that. I don’t see it being worth the effort.

    It may be a tiny fraction of the overall amount he stole but it is hardly insignificant. In fact, it’s a very significant amount.

    So, if not for the money, why is the government doing it?

    It is for the money and the reason is because criminals should not benefit from their crimes.

    The tenor of the responses demonstrates my point. The pound of flesh has to come from somewhere, and if it can’t be from Ken Lay then it will be from his wife and kids. It just seems mean and nasty, not constructive, and focused on the past rather than the future.

    The tenor of your response is that crime should pay. These are stolen assets. The government has the duty to retrieve them. I bet you believe possession is 9/10ths of the law, too. lol

    p.s.: You’d make a lousy defense attorney.

    dave (30198f)

  41. Dave wrote in response to my comment ..

    It may be a tiny fraction of the overall amount he stole but it is hardly insignificant. In fact, it’s a very significant amount.

    Standing alone, $13 million is a lot. But not in the context of the likely collection and the high cost to litigate.

    The tenor of your response is that crime should pay.

    Nonsense. The tenor of my response is that the government is wasting time and resources to pursue a (relatively) small amount of money. You and I disagree whether the money is worth it.

    The government should worry about other things, and let those wronged by Mr. Lay sue to get their own money back.

    These are stolen assets. The government has the duty to retrieve them.

    Are you sure of that? Even if true, the duty is not absolute. The government is not required to litigate on my behalf to retrieve the car that was stolen from me last week.

    I think the Justice Department is doing it for the headlines, or because some lawyer or bureaucrat has some ego involvement.

    I bet you believe possession is 9/10ths of the law, too.

    You can’t interpret my specific statements correctly, yet you insist on reading my mind.

    “p.s.: You’d make a lousy defense attorney.”

    Perhaps. At least I am not an arrogant jerk.

    tomjedrz (562284)


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