By Jonathan Stempel
NEW YORK (Reuters) - The widow of former Enron Corp Chief Executive Officer Kenneth Lay has settled long-running litigation brought by an entity that has been seeking money for creditors of the failed energy company.
Linda Lay and Enron Creditors Recovery Corp agreed to split two annuity contracts, the primary assets in dispute, to settle the eight-year-old case following mediation, according to papers filed Friday with the U.S. bankruptcy court in Manhattan.
Enron sued the Lays over alleged fraudulent transfers that preceded the company's December 2, 2001 bankruptcy: loans that Enron made to Kenneth Lay that he repaid with company stock, and Enron's agreement to buy the annuities from the Lays for $10 million. It is unclear what the annuities are worth now.
In Friday's filing, Enron Creditors Recovery Corp, a successor to Enron, called the settlement fair. It said continuing to litigate might not be best because Kenneth Lay's estate is insolvent and Linda Lay has "extremely limited" assets.
Approving the settlement "would allow ECRC to maximize its potential recovery by having a tangible asset in hand, rather than the potential for future recovery contingent on a finding of liability and the solvency of the defendants," it said.
The Lays were once worth several hundred million dollars, mostly tied to Enron stock. That sum evaporated as Enron's accounting fraud became known, resulting in the Houston-based company's bankruptcy. Other family assets have also been sold.
Lawyers for Linda Lay and Enron did not immediately return calls on Monday seeking comment. The settlement requires court approval. A hearing before U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan is set for July 7.
A Houston federal jury in May 2006 found Kenneth Lay guilty of fraud and conspiracy related to Enron's collapse, but his death two months later led to his conviction being thrown out.
Another former CEO, Jeffrey Skilling, was also convicted and awaits resentencing. Former Enron Chief Financial Officer Andrew Fastow, considered the mastermind behind Enron's fraud, entered prison in September 2006 and is expected to be released from a halfway house on December 17.
The case is The Official Committee of Unsecured Creditors of Enron Corp et al v. Lay et al, U.S. Bankruptcy Court, Southern District of New York, No. 03-ap-02075.
(Reporting by Jonathan Stempel; Additional reporting by Tanya Agrawal in Bangalore; Editing by Lisa Von Ahn)