The ruling worried employees and investors who lost billions of dollars when the Houston energy-trading company filed for bankruptcy protection in December 2001. It also came more than a week after Congress recessed for the November elections without acting on a last-ditch Justice Department proposal that would have changed the law to allow prosecutors to seize millions of dollars in investments and other assets that Lay controlled.

With the judge's order, Lay's conviction on 10 criminal charges will be erased from the record. "The indictment against Kenneth L. Lay is dismissed," U.S. District Judge Simeon T. Lake III wrote in a spare, 13-page order.

Legal analysts said Lake's ruling closely hewed to a long-held doctrine called abatement, which allows a conviction to be vacated if defendants die before they are able to exercise their right to appeal. Courts typically rule that defendants' constitutional rights to challenge their convictions outweigh other considerations, and the law hesitates to punish the dead, the analysts said.

Samuel J. Buffone, a Washington-based lawyer for Lay, said the family was pleased with the ruling. "As far as we're concerned, this is the last step," Buffone said. "It's as if the indictment never occurred."

But governance experts said Lay's name forever will be linked with the era's most complex and far-reaching corporate fraud.

"A lot of lives were ruined, both the perpetrators' and the victims,' " University of Tennessee corporate governance expert Joseph V. Carcello said. "This happened on his watch. Even if he's not legally culpable, he's culpable as a manager."

Regulators at the Securities and Exchange Commission still may pursue their civil case against Lay's estate, but their task will be more difficult because they can no longer introduce the fact of his conviction and instead must prove again, in a resource-intensive trial, that he broke the law. The SEC case has been stayed pending resolution of the status of Lay's criminal conviction. The agency's five commissioners must decide in the weeks to come whether to proceed against Lay's estate.

The court ruling shifts the spotlight onto former Enron chief executive Jeffrey K. Skilling, 52, who is to be sentenced Monday on 19 fraud, conspiracy and false-filings charges. Skilling, Lay's protégé and fellow defendant, handled day-to-day operations at Enron until his resignation in the summer of 2001 and faces more than two decades in prison.

Skilling is the sole survivor from Enron's top management ranks and the one most likely to pay a heavy price for his decision to vigorously fight the charges against him. Earlier this month, Skilling laid out several avenues for appeal, including jury bias, faulty instructions by the judge and what he called overreaching by prosecutors that infringed on his constitutional rights.

Former finance chief Andrew S. Fastow, whom Skilling has painted as the man most responsible for the company's downfall, pleaded guilty to two conspiracy charges and gave damaging testimony against his onetime patrons. A separate federal judge in Houston last month sentenced him to six years in prison, a 40 percent reduction from the seemingly iron-clad deal his defense team had struck with the government. The leader of an Enron employees group later called the benefit to Fastow "a slap in the face."

The lead plaintiffs in a separate shareholder lawsuit against former Enron executives and other advisers accused of helping the company conceal its financial problems already have said they intend to focus their attentions not on Lay's family, but on investment banks with deeper pockets.

Days before Lay's death, prosecutors had filed court papers seeking to extract $43.5 million from his financial holdings, including $6 million in a recently matured investment and at least $1.5 million more that Lay used to cover part of the mortgage on a luxury apartment in Houston. The government said it intended to set aside the money in a special fund for Enron investors and employees. Now, federal prosecutors are seeking to hold Skilling responsible for Lay's share, over Skilling's objections.