The high court decided the case, Black v. US, by applying its ruling in the case of former Enron CEO Jeffrey Skilling, also announced on Thursday,
Under the Skilling decision, to convict a defendant for violating the honest services fraud statute jurors must find that an employee’s fraud against his employer involved a bribery or kickback scheme.
The decision narrows the scope of the honest services fraud statute, forcing prosecutors to tie their cases to bribes or kickbacks. It will no longer be enough to argue that the defendant did not tell the whole truth or otherwise acted deceptively.
Prosecutors across the country have been anxiously awaiting the court’s decisions in a trio of honest services fraud cases handed down today. The action will trigger legal challenges in pending corruption or white-collar fraud prosecutions, with many cases likely to be overturned, according to MaryJeanette Dee, a lawyer with Richards Kibbe & Orbe in New York.
Mr. Black is the former chief executive officer and chairman of Hollinger International, a media company that at one time guided one of the world’s largest newspaper empires. Its holdings included The Daily Telegraph in London, the Jerusalem Post, and the Chicago Sun Times.
The Supreme Court case stems from Black’s conviction in July 2007 of charges that he illegally diverted $6.1 million in proceeds from the sale of various newspaper businesses for his personal use. Each of the money transfers was portrayed officially as a payment to guarantee that he and others would not compete with the sold newspaper for a period of time. But the transfers were made without the knowledge of the Hollinger board of directors or the company’s audit committee.
Black later said the transfers were designed to secure tax benefits in Canada via his Canadian-based holding company, Ravelston. He said the movement of the money in that fashion did no harm to Hollinger International.
Prosecutors argued that it didn’t matter whether Hollinger was harmed or not. Black violated the honest services fraud statute when he failed to fully disclose to Hollinger officials all the details of the transferred funds, they said.
At issue before the Supreme Court was whether jurors deliberating in the Black case should have been required to consider the issue of whether Black’s alleged scheme would cause some form of economic harm to Hollinger.
Black was convicted of three counts of violating the honest services fraud statute and one count of obstruction of justice for attempting to remove boxes of documents from his office. He is serving a 6-1/2 year sentence in a federal correctional facility in Florida.
The government argued at the high court that honest services fraud does not require proof that the defendant intended to cause economic harm to an employer or company to whom the defendant owed a duty of loyalty.
It is enough to prove that the employee disregarded his fiduciary duty of loyalty by engaging in deceptive conduct, the government said.
The justices rejected that position, just as they did in their Skilling opinion.
“Our decision in Skilling makes it plain that the honest-services instructions in this case were indeed incorrect,” wrote Justice Ruth Bader Ginsburg for the court.
“As in Skilling, we express no opinion on the question whether the error was ultimately harmless, but leave that matter for consideration on remand,” she said.
That means a lower court must now decide how the ruling will affect Black's case and sentence.