Sunday, June 27, 2010

Skilling's Partial Victory

In October 2006, a federal court judge sentenced Jeffrey Skilling, former CEO of Enron, to 24 years and four months in prison. He began serving that sentence later that year, while pursuing his appeal.

The appeal led to a decision by the U.S. Supreme Court Thursday, June 24, in which the Court rejected Skilling's contention that pretrial publicity and community prejudice in the area of Houston, Texas, made it impossible for Skilling to get a fair trial there.

The court did, though, prune the "honest services" statute -- the Byzanrine growth of which has long been encouraged by ambitious prosecutors -- and then determined that if that statute is interpreted as the Court now holds it must be, Skilling did not on the facts on the record commit the crime.

The defense had argued that the court should go further and simply declare the honest-services statute, section 1346, [which criminalizes "a scheme or artifice to deprive another of the intangible right of honest services"] vague for voidness. But the court said that it will not declare a statute void if it can save it by a reasonable construction, which is what it proceeded to do.

As it applies to old-fashioned bribery the "honest services" language seems easy enough to understand. If I accept payment from my employer (i.e. a corporation and its shareholders) to do my job in a careful and lawful way, then accept a payment from a third party to do the job in a careless or illegal way, then follow through on my promises to that third party, one can see how I have cheated my employer.

But the government didn't charge Skilling with taking a bribe from some competitor or speculator who might benefit from Enron's fall. Indeed, the government at one point stiulated that there are no facts supporting such a contention. It accused him of artificially inflating the company's stock price by misrepresentations about its financial condition, and it contended that this was less than the "honest services" his employters were entitled to expect. Since the statute (as the court has now reinterpreted it) doesn't covered that, the convictions that depend on that statute cannot stand.

Skilling's defense team will be entitled to argue on remand that this taints the whole of the case against him, and the government will be entitled to try to sever the counts that it obviously taints from those that (the prosecution will of course argue) it does not affect at all. This litigation will be around for some time yet. With luck, we'll get another Enron trial.

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