Enron founder Kenneth Lay won’t settle in for a long wait when 12 jurors begin deliberating in the conspiracy and fraud case against him and former Chief Executive Jeffrey Skilling.
He’ll be back on trial, without a jury, on charges in a separate case stemming from his personal banking.
If convicted, those charges alone could translate into a life sentence for the 64-year-old Lay. The counts, which include one for bank fraud and three for false statements, each carry a maximum sentence of 30 years.
In the case, expected to last two to three days, prosecutors allege Lay obtained $75 million in loans from three banks and then reneged on an agreement with the lenders that he wouldn’t use the money to carry or buy margin stock. The indictment does not specify what stock was carried or bought on margin.
The banking case was originally part of the conspiracy indictment, but U.S. District Judge Sim Lake ruled in October 2004 that it would be tried separately.
The case’s Enron connection is that the $75 million in loans were collateralized by Lay’s company stock. Those lenders issued margin calls as Enron’s share price fell throughout 2001, which he said prompted him to tap the company for cash and repay the energy giant with Enron stock.
Deliberations in the conspiracy case are expected to begin Wednesday after jurors hear a dozen hours of closing arguments beginning Monday. Lay’s legal team tried last week to persuade Lake to hold off on starting the bank fraud case until May 22, citing the hardship of having to prepare without lead Lay lawyer Michael Ramsey. Ramsey is helping to make the closing argument for the defense in the conspiracy trial.
The 66-year-old Ramsey has been sidelined from the trial since early April, recovering from stents inserted in two arteries to relieve blockage.
But Lake was unsympathetic because the banking case was no surprise, having been pending against Lay since he was indicted in July 2004. The judge said that trial will begin Thursday.
“These are not complicated charges,” Lake told attorneys.
The judge has not said when he will issue his verdict in the banking case. But attorneys on both sides doubt he will do so before the conspiracy jury delivers its verdicts to ensure that the panel cannot learn of the banking case’s outcome. Skilling faces 28 criminal counts, while there are six against Lay.
Lay’s team has called the bank charges “tag-alongs” to the conspiracy case to give the government an alternate path to convict Lay of a crime, should he be acquitted in the larger case. They have also complained that that no one else has ever been charged with the crime.
“Based on research by my legal team, in the 70-year history of these laws, we can find no record of these provisions ever being used against a bank customer until they were used against me,” Lay told Houston business and academic leaders in a December speech.
James Cohen, a professor at Fordham Law School, said such charges are unusual, but not so unusual to automatically infer that the bank case is a backup if jurors acquit Lay in the conspiracy case.
The key is whether Lay intended to break his promises after he signed the documents that specified how he could use the money, Cohen said.
“It’s possible that at the time Lay made those statements, he believed them to be true, and then his circumstances changed,” Cohen said. “Then he may have thought he could repay the loans and not think it was a big deal.”
Lay repaid all the bank loans. That could help steer Lake toward a more lenient sentence if Lay is convicted, but it doesn’t matter if jurors find Lay intentionally skirted the law, said Dan Alonso, a former federal prosecutor in New York.
“It’s not a defense to fraud that restitution was made at some point, as long as the person intended to defraud during the time of the alleged crime,” Alonso said. “The allegation is that Lay misrepresented the purpose of the loans.”
Lay faces a maximum of 45 years in prison if convicted of all six fraud and conspiracy counts pending against him in the case alongside Skilling. Combined, a conviction on the banking charges would add 120 years to that.
But Cohen noted maximum sentences are “quite illusory,” particularly in light of how the U.S. Supreme Court last year said federal sentencing guidelines that can call for harsh prison terms are strictly advisory.
When Lay was indicted, he pressed for a separate trial on all counts against him, and offered to forgo a jury and leave his fate in Lake’s hands if that would help gain him a speedy trial in the fall of 2004.
Lake granted his request on the banking charges, but ruled he would remain alongside Skilling in the conspiracy case.
Lay then asked Lake to begin the banking trial two months after the conspiracy case ended. That prompted prosecutors to push for the banking trial — with or without a jury — to start in the spring or early summer of 2005.
He ended up agreeing to Lake’s suggestion of a bench trial during deliberations in the conspiracy case. Lake then questioned Lay to ensure he understood he was giving up his right to a jury trial.
“We have confidence in your honor and think a bench trial is the most appropriate way for it to be decided,” Lay told the judge last year.