The US Supreme Court on Thursday undercut a key portion of the conviction of former Enron executive Jeffrey Skilling, ruling that the “honest services” fraud statute used to convict him had been interpreted too broadly by the lower courts.
The high court said it was reinterpreting the law more narrowly to criminalize only honest services conspiracies involving bribery and kickbacks. The justices thus avoided having to strike down the statute as unconstitutionally vague.
The 9 to 0 ruling is a major loss to the US Justice Department and federal prosecutors nationwide who have increasingly relied on the broadly-worded statute as a catch-all to beef up corruption indictments and white collar fraud cases.
In addition to vacating a portion of Mr. Skilling’s conviction, the high court also vacated the convictions of former newspaper magnate Conrad Black and a former Alaska state representative, Bruce Weyhrauch. Both men, like Skilling, were charged with failing to provide their honest services.
The government had urged the high court to embrace an expansive view of the honest services law that would criminalize “undisclosed self-dealing by a public official or private employee.”
The court refused. “We resist the government’s less constrained construction absent Congress’ clear instruction otherwise,” wrote Justice Ruth Bader Ginsburg in the court’s main opinion. Instead, the justices adopted a significantly narrower reading of the law.
Bribes and kickbacks covered
“There is no doubt that Congress intended [for the honest services statute] to reach at least bribes and kickbacks,” Ginsburg said. “Reading the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine.”
The honest services statute makes it illegal for an employee to engage in a scheme to deprive his or her employer of the “intangible right of honest services.” Appeals court judges have reached different conclusions about precisely when such dishonesty crosses the threshold to qualify as a federal crime.
Supreme Court Justice Antonin Scalia once observed that the statute was so ill-defined that it might criminalize a mayor using the prestige of his office to secure a table without a reservation at a popular restaurant, or a worker calling in sick to go to a baseball game.
Although the high court’s decision acknowledges these problems with the statute, Scalia objected to the court’s chosen remedy. He said the majority justices were rewriting the statute.
Skilling was convicted in May 2006 after a four-month jury trial. He was charged with directing a massive scheme to inflate and prop up Enron’s stock price by concealing the company’s increasingly poor financial condition from shareholders, potential investors, auditors, and government regulators.
Prosecutors charged that Skilling had a fiduciary duty to Enron shareholders to act in their best interests. He violated his duty to render honest services, they said, when he took actions that concealed the company’s shaky financial status and thus fraudulently inflated Enron’s stock price.
A few months before Enron collapsed in bankruptcy, Skilling sold his Enron stock, earning millions. Shareholders and employees, unaware of the dire circumstances, later lost millions when the Enron stock price plunged.
In Skilling’s appeal, his lawyer said the executive remained loyal to Enron throughout his work at the company. Skilling denies he lied to investors, and said all his actions were lawful and designed to guide Enron back toward prosperity.
There was no attempt by Skilling to place his personal interest above the corporation’s interest or the interests of its shareholders, his lawyer said.
Court: Skilling did not commit honest-services fraud
The high court said that under its new reading of the honest-services fraud statute Skilling had not committed honest-services fraud. “The government did not, at any time, allege that Skilling solicited or accepted side payments from a third party in exchange for making … misrepresentations,” Ginsburg wrote.
The high court ruling does not invalidate Skilling’s conviction or reduce his 24-year sentence. Rather it sets the stage for what promises to be a vigorous fight in the lower courts over whether the use of the broader version of the statute impermissibly tainted his trial and conviction. The decision also sets the stage for a fight over whether the jury verdict encompasses enough wrongful conduct to sustain a conspiracy conviction absent the honest services allegations.
In a second part of its decision, the high court split 6 to 3 on whether Skilling received a fair trial in the face of harsh pre-trial publicity and the high emotions in Houston following the collapse of Enron.
Justice Sonia Sotomayor said she was “doubtful” that Skilling’s jury was free from the “deep-seated animosity that pervaded the community at large.”