Supreme Court limits use of ‘honest service’ fraud law, sides with ex-Enron CEO Skilling

High court sides with ex-Enron CEO Skilling

WASHINGTON — In a setback for prosecutors, the Supreme Court on Thursday narrowed the scope of a federal fraud law frequently used to go after white-collar crime suspects. The decision could benefit former Enron CEO Jeffrey Skilling and a host of politicians who face charges or have been convicted of “honest services” fraud.

The justices were unanimous in imposing limits on the use of the law, but left it to a lower appeals court to determine whether Skilling’s conviction should be overturned.

The “honest services” law has been criticized as vague, subjecting people to prosecution for mistakes and minor transgressions in the business and political worlds. Skilling asked that it be struck down as unconstitutional.

But the court, in an opinion written by Justice Ruth Bader Ginsburg, said prosecutors may continue to seek honest services fraud convictions in cases where they put forward evidence that defendants accepted bribes or kickbacks.

“Because Skilling’s misconduct entailed no bribe or kickback, he did not conspire to commit honest-services fraud under our confined construction” of the law, Ginsburg said. Three justices, Anthony Kennedy, Antonin Scalia and Clarence Thomas, would have found the law unconstitutional.

Thursday’s decision does not necessarily mean that any of the 19 counts against Skilling will be thrown out, Ginsburg said. At the same time, by a 6-3 vote, the court rejected Skilling’s claim that he did not get a fair trial in Houston because of the harsh publicity surrounding the case in Enron’s hometown.

The new limits on honest services prosecutions also will lead to another hearing for former newspaper magnate Conrad Black and could mean the end of federal prosecutors’ case against former Alaska lawmaker Bruce Weyhrauch.

The government argues that both Skilling’s and Black’s convictions should be sustained, even with the court’s ruling Thursday.

Lawyers for the two men say that the entire case against them should be thrown out.

The ongoing prosecution of former Illinois Gov. Rod Blagojevich and the convictions of former Alabama Gov. Don Siegelman and ex-HealthSouth CEO Richard Scrushy also could be affected.

Melanie Sloan, executive director of the government watchdog group Citizens for Responsibility and Ethics in Washington, said the decision “deprives prosecutors of an important tool in their efforts to fight public corruption. Previous convictions may be vacated and corrupt officials will have an easier time escaping accountability for their misdeeds.”

Donald Ayer, a Washington lawyer who represented Wehyrauch, said the ruling will put the brakes on prosecutors’ increasingly aggressive and creative efforts to win convictions under the 28-word fraud law that makes it a crime “to deprive another of the intangible right of honest services.”

Skilling was convicted in 2006 on 19 counts of conspiracy, securities fraud, insider trading and lying to auditors for his role in the downfall of the once-mighty Houston-based energy giant. The company collapsed into bankruptcy in 2001 under the weight of years of illicit business deals and accounting tricks. Skilling is serving a sentence of more than 24 years at a minimum security prison outside Denver, although a federal appeals court had ordered a re-sentencing even before Thursday’s decision.

Justices Sonia Sotomayor, Stephen Breyer and John Paul Stevens also would have held that Skilling did not get a fair trial in a case in which “passions ran extremely high,” Sotomayor said in her dissent.

Black, serving a 6 1/2-year prison term, and two other former executives were convicted of depriving the Hollinger International media empire of their faithful services as corporate officers. The company once owned the Chicago Sun-Times, the Daily Telegraph of London, the Jerusalem Post and hundreds of community papers across the United States and Canada.

Central to the case is $5.5 million that the defendants say were management fees they were owed and were trying to collect in such a way that they would not have to pay Canadian income tax. The government says the money belonged to the company’s shareholders.

Miguel Estrada, who represented Black at the Supreme Court, said, “We are confident the lower courts will quickly conclude that the errors that the Supreme Court has now conclusively found tainted every aspect of this case. We look forward to helping Mr. Black regain his freedom.”

Weyhrauch wants charges against him dropped. Prosecutors allege that he failed to disclose he was in job negotiations with an oil-field operations company at the same time the state legislature was also considering an oil bill. But Weyhrauch says disclosure was not required by Alaska law. He wants the court to bar a federal honest services fraud prosecution without an allegation of a violation of state law as well.