Long before Enron Corp. founder Ken Lay died last week, Joseph Daniluk had given up hope that his lawsuit against Lay would recoup any of the money he lost in the company’s spectacular collapse.
“I wrote that off a few years back,” he said. “I put it behind me and went on. I believe the only people that are going to benefit from this mess are the attorneys.”
Daniluk, along with a handful of other Coloradans, sued Enron and all its officers and directors in federal court in Denver.
That suit is one of many that have been consolidated and await hearing in U.S. District Court in Houston.
Lay’s death in Aspen will likely result in his fraud and conspiracy convictions being erased from the record and thwart government efforts to seize his assets.
If the government is unable to seize whatever assets remain in Lay’s estate, there may be more left for shareholders to pursue, some shareholder lawyers say.
“That may be one ironic result of his demise,” said William Lerach, attorney for the lead plaintiff, the University of California.
The question is how many assets remain in Lay’s estate.
The government wanted $43.5 million from Lay. Yet during his criminal trial, Lay said his net worth – which reached about $400 million before Enron failed – had fallen to a negative $250,000 and he still owed legal bills. Any money from life insurance policies that goes to his family wouldn’t be up for grabs.
At the time of his death, Lay owned a condo worth more than $5 million and had other known assets of about $6 million.
His assets could have been depleted to the point that they aren’t worth going after, said Ted Fiflis, a securities-law professor at the University of Colorado at Boulder.
“If he has $500 million, they might go after it, but the public is being told he is broke,” he said.
And an effort to wrest what remains of the estate could be a public relations disaster for the plaintiffs, he said. The public could see the legal battle as a fight between Lay’s widow, Linda, and children, and the shareholders.
Cash-fat defendants like banks named in the lawsuits are a better target than Lay’s estate, lawyers say.
So far, the litigation has secured $7.3 billion in settlements, with interest, mostly from banks, but the money has not been distributed to shareholders such as Daniluk, of Aurora.
“The important thing to keep in mind is in civil litigation our job is to recover money for victims; it is not to tilt at windmills,” Lerach said. “Ken Lay is a relatively small tree in a very big forest.”
Lerach’s client, the UC Regents, lost $144.7 million on Enron.
UC will decide whether to pursue the estate after emotions subside, Lerach said.
“You have to make a determination (regardless of) whether the person is living or dead whether the cost to the plaintiff to recover the money is worth it. There might be some efforts not worth being made,” said Trey Davis, director of special projects for the UC system.
Daniluk thinks individual defendants in the case – including former Enron CEO Jeff Skil ling, who was convicted with Lay – have placed their assets in trusts where they won’t easily be found. “You would never have penetrated all the veils that were set up to protect those assets.”
The $35,000 that Daniluk lost might seem insignificant in a case that led to claims totaling more than $70 billion.
But Daniluk was already teetering on the edge of financial ruin when Enron collapsed.
In 1999, when Daniluk worked for an Oklahoma-based drilling equipment company called Pier Drillers Inc., he fell from a flatbed railroad car while loading a drilling rig. He broke his ankle in three places, an injury that took six surgeries and two years of rehabilitation to repair, he said.
Since he could no longer do the heavy work that led to his injury, Daniluk and his wife, Audrey, were planning to start an online business that would have offered coupons to customers.
The money the couple had invested in Enron was supposed to be seed money for the business, but it vanished when the energy giant collapsed, Daniluk said.
“It took me about six months to get over it. I was just sick,” said Daniluk, who has formed a company called SuperLoads that moves heavy equipment.
Daniluk may be too pessimistic about his prospects for recovery, said Fiflis.
“He will get something. They have already settled for $7 billion. If they get no more money than that, people would get about 8 cents on the dollar after laywers’ fees,” said Fiflis.
The Associated Press contributed to this report.
Staff writer Tom McGhee can be reached at (303)820-1671 or tmcghee@denverpost.com.
