Ken Lay: R.I.P.

Ken Lay, R.I.P. at 64. A few thoughts.

1. I’m not running for office, and I don’t think this blog counts as journalism, so I must be a fool. I think that Lay deserved prison time. (Whether or not Lay would have been sentenced to a life term, as Larry Ribstein claims here, or its functional equivalent is unclear). Now, did he deserve as much time as a murderer? (Assuming that murder was a federal crime). It is a tough question, as I admitted in January. Ribstein describes Lay’s crimes as follows:

He was convicted for lying about [Enron being a Ponzi scheme] at the tail end. Some people bought in at that point because they didn’t know the truth, and maybe that was partly Lay’s fault. But others (not Lay) got out – the gains and losses of these traders net out.

Alot of the people who feel hurt here simply hung onto their stock too long. But did they get hurt by Lay? If he had told the truth at his first opportunity, or even just remained conspicuously quiet, they just would have gotten hurt sooner.

Let’s put aside the factual disputes [But note: weren’t the locked-in employees owed some sort of duty by their boss?], and also put aside the point on timing [But note 2: if the truth had been revealed earlier, perhaps JKS wouldn’t have quit, or the firm would have been saved, etc. Lies fester.] Larry’s argument would seem to prove too much – there will often be non-wrongdoer “winners” from fraud, as there are winners from murder, theft, etc. Does this mean that fraud ought not be criminal in the ordinary case?

The punishment point is more troubling to me. Is fraud as bad as murder? On considered reflection, of course not. But that doesn’t mean that fraudsters ought not be punished like murderers. Ordinary deterrence intuitions suggest that punishment needs to be ratcheted up as enforcement goes down. Thus, murder is almost always prosecuted. Stock market manipulation and lying to banks to secure loans almost never are. Larry would have punishment in corporate law instantiate lex talonis. But punishment in this arena dances to Becker’s drum, not Markel’s. To make the laws against securities fraud work, we need tough penalties, or many more prosecutions. I’d rather the former than the latter.

2. Peter Henning says that the criminal conviction has now been expunged,and that “the plaintiffs cannot rely on it as proof in their case, if my dim memory of collateral estoppel serves me right.” My memory of CE is also obscure, and I wonder if any of our regular and/or expert commentators care to weigh in on this civil procedure problem. Separately, can the civil plaintiffs use Skilling’s conviction against either Skilling or the Lay estate before it becomes final? It is hard to believe that the civil trial has to be stayed for the pendency of the coming appeals, but such would seem to be the consequence of the rule that Henning has unearthed.

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13 Responses

  1. Peter Henning says:


    I was less-than-clear in my blog post about the effect of the abatement of Lay’s criminal conviction, the problem with writing before thinking things through. While the conviction is gone, and therefore the SEC and securities class action plaintiffs cannot use it to establish a violation, they can use all the evidence from the trial, including Lay’s testimony, in a case against his estate. These would be party admissions because Lay is a predecessor of his estate, and so the evidence should come in at trial (so says my evidence guru, Professor Dave Moran). That still means the SEC and plaintiffs have to prove their case. But any civil award could face collection problems that would not have been as significant as those prosecutors would have faced if there was a criminal forfeiture order. Death makes life more complicated.

    I very much enjoy reading Concurring Opinions, I check it daily and find the discussions interesting.

    peter henning

  2. Larry Ribstein says:

    I said “anybody who thinks that he deserved to spend the rest of his life in jail is either a fool, a politician or a journalist.” I did not at any time argue that fraud shouldn’t be criminal, though you would get that impression from reading Hoffman’s post. I address the deterrence argument in a later post (, where I point out, among other things, that “this deterrence argument doesn’t justify the moral indignation of the less articulate commenters.” And that’s important, because I was responding to that moral indignation (based on just deserts), not to a deterrence-based argument. For the record, I disagree strongly with the deterrence argument, as I’ve argued extensively elsewhere.

  3. Matt says:

    “To make the laws against securities fraud work, we need tough penalties, or many more prosecutions. I’d rather the former than the latter.”

    Why? Isn’t this the opposite of what people usually think about criminal prosecution? Certainly it’s the opposite of fair: rather than a system where everyone who commits fraud is punished in proportion to their crime, we have a system where most of the guilty go free but an unlucky few are given far greater punishments than they deserve. That, of course, is what was in store for Lay.

  4. Dave Hoffman says:


    I don’t think that folks would get the impression that you said that fraud shouldn’t be criminal, but rather that was the end result of your argument. The basis for criminal liability has to be a sense of moral culpability, and you suggest that culpability here is reduced (or even de minimis) because there were stock market winners from the concealment.

    As for the deterrence argument, you ask (in the post that you and I both link to) “[H]ow much deterrence is too much? And how effective is this example going to be the next time the market and enthusiastic executives get carried away?” I don’t see how these questions of tailoring square with your claim that a high sentence necessarily means that its proponent is a fool, politician, or a journalist. That is, you aren’t arguing (here, but you may have elsewhere) that deterrence is necessarily a foolish position, are you?

  5. Dave Hoffman says:

    Matt, I think the regime you identify is an inevitable consequence of a (practically exclusive) federal prosecution system for securities fraud.

  6. Seth R. says:

    In a world where a drunk who holds up a 7-Eleven for $200 gets more time in prison than a middle-aged “pencil pusher” who embezells $50,000 from her company (and is 3 times more likely to get caught)…

    No, I don’t think it was too harsh.

    The fact that other culpable parties got off scott-free is, of course, completely irrelevant to anything here.

  7. Ted says:

    The drunk who forcibly holds up a 7-Eleven for $200:

    1) is committing a crime of violence;

    2) is committing a crime that is more likely to lead to personal injury;

    3) is committing a crime with considerable externalities on the rest of society; and

    4) has considerably less opportunity cost and social penalties incurred by prison time than a white-collar criminal, and thus needs a harsher penalty to achieve the same level of deterrence.

    Of course he should be punished more harshly than the white-collar fraudster, who’s never going to find work again, unless he starts a blog-lobbying business for Democrats.

  8. Matt says:

    “I think the regime you identify is an inevitable consequence of a (practically exclusive) federal prosecution system for securities fraud.”

    But you said that you *prefer* that system to a system where more fraud was prosecuted and penalties were lighter. And I asked why (and pointed out its gross unfairness). Saying that it is inevitable under the current system doesn’t strike me as an explanation for why you prefer it. Am I missing something?

  9. Estoppel says:

    Actually, issue preclusion (collateral estoppel) may well still operate notwithstanding Lay’s death before the entry of final judgment. The most recent Restatement on Judgments states:

    “The rules of res judicata are applicable only when a final judgment is rendered. However, for purposes of issue preclusion (as distinguished from merger and bar), “final judgment” includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded preclusive effect. See Restatement (Second) of Judgments S 13 (1982).

    Moreover, the comments to this section emphasize that issue preclusion applies when “the decision to be carried over was adequately deliberated and firm, even if not final in the sense of forming the basis for a judgment already entered.” Id., Section 13 comment g.

    Hardly a slam dunk, to be sure, but there is a respectable, persuasive argument that issue preclusion should apply under the circumstances.

  10. Dave Hoffman says:

    Matt, you are right that I didn’t meet your point head-on. I prefer fewer prosecutions with higher penalties because prosecution is expensive, flawed, and prone to abuse. The fewer prosecutors, the better, all other things being equal. To keep the enforcement bang constant, you need higher penalties. This argument has special force in teh WCC context as the offenders are more likely to be rational and deterrable, I’d think.

  11. Please visit, an informative website devoted to tracking the movements of the “late” Kenneth L. Lay, convicted felon and former CEO of Enron Corporation.

    You may send all of your reports to

    Americans for Equal Justice is providing this site as a public service for all of those who demand that Ken Lay and other white-collar criminals be brought to justice. We welcome and will publish any and all relevant information on the whereabouts of Kenneth L. Lay. Americans for Equal Justice strongly suggests that you not only report your findings to us, but most importantly, to your local news outlets. Please send any links to news outlets reporting your sightings to our organization as well.

    You may send all of your reports to

    We here at Americans for Equal Justice feel strongly that the possibility exists that Mr. Lay, like Hitler, Elvis, and Tupac before him, has faked his own death in order to avoid any more unwanted public scrutiny. If this is true, then it is our responsibility as good Americans to bring this criminal to justice by reporting his whereabouts to the proper authorities.

    Thank you for your support,

    Americans for Equal Justice

  12. Eh Nonymous says:

    Ted: I’ve seldom seen you so partisan (and so bitter about partisan politics). We weren’t even discussing tort reform! 🙂

    You may be right about finding work after committing a crime of dishonesty. Look at what happened to the last handful republican appointees who were discovered to have

    – taken Abramoff money

    – attended parties with Duke Cunningham

    – elevated cronies over lifetime dedicated (competent) bureaucrats

    – lied about their resumes

    – fraudulenly “returned” items with a receipt, for the second time on the same item.

    Why, I’d be surprised if any of them even wound up with cushy jobs at thinktanks, with that kind of smear on their reputation!

    At least the NASA appointee (the resume-fudger I was referring to) has a long career ahead of him, with the Discovery Institute. They don’t have any problem with lying on the record and under oath about what the facts are, so I imagine creative re-imagining of the fossil^H^H educational record is par for the course.

  13. j says:

    Mr. Lay is in the Phillipines Alive and Well …

    Ken lay got there by means of Mr. Karl Rove and a new name and a new passport compliments of Mr. George W. Bush who is a very close friend who got Mr. Lay out of a Jamb scott free! It pays to have friends in Washington and the Carlyle group …I mean even the Past President of the Philippines who is also in the Carlyle group welcomes Mr. lay and his Wife Linda with open arms as long as he stands on his wallet! Mr. Kenneth lay has paid contributions to the past President of the Phillines as well as other influencial people to get where Enron has gotten only to fall hard …So the crook and the money is sitting in the Phillipines sucking down Harvey Wallbangers and laughing about it!

    How do I know … check it out …he is there in the rich section of Manilla, Phillipines.