Friday, December 04, 2009

At Your (Honest) Service?

The U.S. Supreme Court will hear oral arguments in two "honest services" fraud cases next week. The court has also agreed to review the case of convicted Enron executive Jeffrey Skilling involving similar issues. Skilling's case will be argued early next year.

Skilling was convicted of one conspiracy count which could implicate the honest services provision. The indictment and the government's theory of the case charged that Skilling conspired to commit 1) securities fraud, 2) wire fraud to deprive Enron and its shareholders of money and property and 3) wire fraud to deprive Enron and its shareholders of the honest services owed by its employees. The jury rendered a general verdict of guilty on this count, and did not identify whether the conspiracy involved securities fraud, money and property or honest services. As the 5th Circuit stated, "if any of the three objects of Skilling's conspiracy offers a legally insufficient theory, we must set aside his conviction to avoid the possibility that the verdict rests on the insufficient theory."

In ruling on a motion for post-judgment relief, Circuit Judge Patrick Higgenbotham wrote that there were "serious frailties" in the convictions in light of that court's U.S. v. Brown decision which reversed other Enron-related honest services fraud convictions. However, the judge concluded that Skilling raised "no substantial question" that would result in the reversal of the convictions on all counts. On appeal before a three-judge panel, the 5th Circuit distinguished Brown by pointing out that the defendant employees undertook the specific fraud in question at the direction of the employer, and upheld Skilling's convictions.

The review of a conviction on one conspiracy count may appear somewhat inconsequential given that Skilling was convicted on 18 other substantive charges, including 12 securities law violations. With regard to the conspiracy conviction, the government argued in its brief that the securities fraud counts corresponded to the securities-fraud object of the conspiracy. "Those counts were based on petitioner's own conduct and were supported by overwhelming evidence," argued the government. "Accordingly, the jury's verdict on the conspiracy count would have been the same even without the honest services theory," and according to the government, any error in that theory was therefore harmless beyond a reasonable doubt.

However, Skilling argues that the conspiracy count is linked to the securities charges by the trial judge's use of the so-called "Pinkerton instruction," which provides that If one member of a conspiracy commits a crime in furtherance of a conspiracy, then the other members have also committed that crime. According to Skilling, the jury may have improperly convicted him for conspiracy to commit honest-services fraud, and then used that conspiracy finding to convict him vicariously for securities fraud committed by his co-conspirators.

Skilling is also challenging his conviction on the grounds of jury bias. The cases to be heard by the high court next week involve former Hollinger CEO Conrad Black and former Alaska legislator Bruce Weyhrauch.


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