Enron Collects on Lay’s Life Policy

November 3, 2006

Enron Corp. struck a deal to collect $250,000 on a life insurance policy covering its founder, Kenneth Lay, who died just weeks after he was convicted of fraud charges related to the company’s collapse.

At a hearing Thursday, U.S. Bankruptcy Judge Arthur Gonzalez was scheduled to consider the settlement. In documents filed with the U.S. Bankruptcy Court in Manhattan, Enron said Transamerica Occidental Life Insurance Company agreed to pay the money out of an $11 million death benefit owed under the policy.

Enron was one of the world’s biggest energy companies until 2001, when it collapsed into bankruptcy amid allegations that it inflated profits and filed false financial statements. Lay, who founded the company in the mid-1980s, was convicted in May on charges of securities fraud and conspiracy. The conviction was voided after he died of a heart attack in July.

According to court documents, a Texas partnership bearing the initials of Lay and his wife, Linda, obtained a life insurance policy for Lay. But under a deal with the company in 1996, the partnership granted Enron the right to a portion of the insurance proceeds in the event of Lay’s death.

The documents, filed by Enron, say that the assignment was intended “to secure the amounts due to (Enron)” under a deal with the partnership, KLL & LPL Partnership Ltd. Neil Berger, an attorney representing Enron, wasn’t available for comment on the transaction Tuesday.

In October 2001, just two months before Enron collapsed into bankruptcy proceedings, the company made a $250,000 premium payment to Transamerica involving Lay’s insurance policy, according to court papers. Under bankruptcy law, payments made by a company within 90 days before its bankruptcy filing can be reversed on the grounds that they may be unfair to other creditors.

Enron sued Transamerica in 2003 to get back the premium payment. After Lay died, the company said Transamerica agreed to pay it 100 percent of the October 2001 premium payment owed under Lay’s policy. Transamerica has separately also paid Enron $1.25 million from the policy under the terms of the 1996 agreement with the Lay partnership, Enron said.

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