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.
Showing posts with label Jeffrey Skilling. Show all posts
Showing posts with label Jeffrey Skilling. Show all posts
Sunday, June 27, 2010
Tuesday, March 2, 2010
Skilling's arguments
The Supreme Court of the United States yesterday heard arguments on an appeal by Jeffrey Skilling, of Enron infamy.
You'll remember, although in the world of business/financial scandals this already seems a long time ago, that in October 2006, Skilling was sentenced to 24 years and 4 months in prison, and fined $45 million, and he began serving that sentence that December.
There are two questions before the court on appeal. First, was it constitutional that this case was tried in Houston, Texas, where the rest of that city's economy had been closely intertwined with Enron's fate, and where the bitterness over its failure was strong? Skilling's lawyers contend that "given the widespread community hostility toward Skilling, the [trial] court should have presumed the jurors to be prejudiced, and therefore changed venue to obtain jurors from a community that was not itself a direct victim of Enron's devastating collapse."
Second, the defense contends that section 1346, which defines "honest services" fraud, is unconstitutionally vague. That is the section of Title 18 of the US Code that criminalizes "a scheme or artifice to deprive another of the intangible right of honest services."
As it applies to old-fashioned bribery this 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 there exists a much more specific anti-bribery statute, against both offering and receiving. And that doesn't appear to apply to Skilling. So what does the honest-services language accomplish? Anything specific? This is what the lawyers and Justices were thrashing out yesterday.
You'll remember, although in the world of business/financial scandals this already seems a long time ago, that in October 2006, Skilling was sentenced to 24 years and 4 months in prison, and fined $45 million, and he began serving that sentence that December.
There are two questions before the court on appeal. First, was it constitutional that this case was tried in Houston, Texas, where the rest of that city's economy had been closely intertwined with Enron's fate, and where the bitterness over its failure was strong? Skilling's lawyers contend that "given the widespread community hostility toward Skilling, the [trial] court should have presumed the jurors to be prejudiced, and therefore changed venue to obtain jurors from a community that was not itself a direct victim of Enron's devastating collapse."
Second, the defense contends that section 1346, which defines "honest services" fraud, is unconstitutionally vague. That is the section of Title 18 of the US Code that criminalizes "a scheme or artifice to deprive another of the intangible right of honest services."
As it applies to old-fashioned bribery this 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 there exists a much more specific anti-bribery statute, against both offering and receiving. And that doesn't appear to apply to Skilling. So what does the honest-services language accomplish? Anything specific? This is what the lawyers and Justices were thrashing out yesterday.
Monday, March 2, 2009
Dan Marino's sentence upheld
The 2d circuit court of appeals has denied an appeal by former Bayou principal Dan Marino of the 20 year sentence he received for his role in that fiasco.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
The 2d circuit noted, parenthetically, that the trial judge might have been a bit more harsh than she had to be, but she was within the range of her discretion on such a matter.
We pause to note that we might ourselves have given greater weight than apparently did the district court to Marino's plight — his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel — and his assistance to the government detailed in its “5K1 Letter” (noting his aid to the government in understanding the fraud, his immediate contrition and taking of responsibility upon discovery, and his contribution to the guilty pleas of his co-conspirators). But it is not for us to substitute our judgment for that of the district court, whose sentence was procedurally and substantively proper.
Jeffrey Skilling of Enron infamy, had somewhat better luck recently with his appeal. The circuit judges there found that the sentencing had been improper, and Skilling will get a new hearing. These things do have a lottery-like aspect to them.
Wednesday, December 19, 2007
Thinking Again About Enron
A story I was working on for my day job yesterday got me thinking about Enron again.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
The story involved Amaranth,the natural-gas concern that went bust a little more than a year ago.
Both FERC and the CFTC have commenced proceedings against FERC, as have the managers of the San Diego County employees' pension fund. The two agencies claim Amaranth manipulated natural gas prices. The pension managers claim it lied about how risky its portfolio was.
Anyway, the story on which I was working yesterday involved FERC, which contracted with a professor at Rice University, in Texas, to study the natural gas market for them as a consultant, and tell them whether Amaranth had a large enough share of that market to have manipulated the prices. He said that they did.
The name of that consultant? Vincent Kaminski.
To fellow Enron-scandal nerds that name will ring a bell. He was Enron's "risk manager" when some of the decisions were made (over his protest) to take risks that proved disastrous.
Here's a news report on the Kaminski testimony at the Lay and Skilling trial last year: http://www.cfo.com/article.cfm/5623848
While my stream of consciousness flows back toward Enron, I'm also reminded of my own impression, as it unravelled, that the decisive internal battle at that company was the one in which Rebecca Mark lost out, the battle over whether Enron would be an asset-lite or an asset-heavy company.
Jeffrey Skilling believed in an asset-lite business model. Ownership of old-fashioned physical assets was a burden best shrugged off the shoulders of an up and coming new-economy company. Who needs pipelines and power plants? Less tangible assets ... contracts, trading positions, trading systems ... those were the gleam inhis eye.
Mark believed in those old-fashioned tangible assets, though. And her division was in charge of building them around the globe, including an especially controverial power plant in Dabhol, India.
Here's the URL for a rather admiring profile of Mark, post-Enron, http://www.fastcompany.com/magazine/74/enron_mark.html
And here's a less admiring view:
http://www.swaminomics.org/articles/20020216_rebeccamark.htm
The obvious truth (though even to state it would probably sound absurdly philosophical to a Jeffrey Skilling) is that physical assets ultimately back all the less tangible sorts of wealth that the Skilling's admire. If there aren't power plants, tankers, port facilities, and pipelines, then what possible good is a bright new idea of the more efficient trading of energy futures? Can it be a great business model to fob off those assets on 'somebody else' somewhere else?
Another obvious truth: lenders want collateral. Tangible assets are very good for this purpose, so they help ensure the continued solvency of any operation that possesses them.
When I've written about this subject, I've gotten a range of responses. One line of thought has been: the asset that matters most isn't the kind that Mark was in charge of. It's simply cash in the bank. Her projects were draining Enron of that asset, not building it.
But I think that's wrong. There is such a thing as being too liquid for one's own good. LTCM was dramatically tooliquid for its own good and that should have been a valuable lesson at precisely the moment that Lay was encouraging the Skilling/Mark rivalry.
But that's enough of a trip down memory lane for today. My head hurts already.
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