Skilling puts legal theory to test

Federal prosecutors and attorneys for former Enron CEO Jeff Skilling will argue before an appeals court panel today over whether a recent Supreme Court ruling means the 19 convictions from his 2006 trial should be upheld, thrown out or retried.

The hearing in Houston before a three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals follows a June decision by the U.S. Supreme Court.

The high court ruled that prosecutors in Skilling’s case improperly used a legal theory that executives owe their companies “honest services.”

Honest services prosecutions can only be applied to cases involving bribery or kickbacks, the court ruled, and no such claims were made against Skilling.

The appeals court must now decide which — if any – of Skilling’s convictions should be thrown out or retried.

For this hearing the burden of proof lies with the government. It must prove that the faulty use of the honest services theory in one part of the indictment against Skilling didn’t taint all the other convictions, said Peter Henning, a criminal law professor at Wayne State University.

“In a way, they’re trying to prove a negative: Was there enough of a case around the government’s other charges that it’s unlikely the bad charge would affect the jury’s decision?” Henning said.

Skilling was found guilty of one charge of conspiracy to commit securities fraud, 12 counts of securities fraud, five counts of making false statements to auditors, and one count of insider trading.

He is nearly four years into a 24-year federal prison sentence.

Harmless error?

In court filings prosecutors argue that the use of the honest services theory in the conspiracy charge was “harmless error” because the jury’s conviction on the 12 securities fraud charges “overwhelmingly demonstrated that Skilling participated in a conspiracy to commit securities fraud.”

“Accordingly, the inclusion of the flawed honest services fraud object in the conspiracy count was harmless beyond a reasonable doubt because no rational jury could have failed to find that Skilling conspired to commit securities fraud,” the government argues.

The Skilling team argues that the conspiracy conviction must be overturned, however, because the government’s case in the securities fraud charges was not as compelling as prosecutors claim.

“Any suggestion that the government’s securities fraud case against Skilling was so overwhelmingly one-sided that a rational juror could only have voted to convict is indefensible,” the Skilling team wrote. “A full review of the complete record – which the government utterly ignores – shows that Skilling offered a persuasive, evidence-based explanation for every single alleged securities-fraud act.”

Skilling’s team says that the flawed honest services theory taints the securities fraud convictions a second way, because jurors were told they could convict Skilling on those counts even if they didn’t believe he directly committed the acts but believed co-conspirators did.

And they argue jurors were told they could use the conspiracy charge to support the false statement charges and insider trading charge, thus tainting those convictions.

Speculating about jury

The court is trying to answer questions that will involve a great deal of speculation about how jurors made decisions on the conspiracy charge, said Sam Buell, a Duke University law professor who was part of the government team that initially indicted Skilling.

“Given that there’s that speculation involved, it gives room for the final decision to go either way,” Buell said.

The Skilling and government teams will have 30 minutes each to make their arguments before the panel.

The full range of their arguments are contained in the filings already made with the court, so the lawyers likely will spend most of the time taking questions from the judges.

The hearing won’t cover broad issues of justice but rather will involve “hard-core lawyering” over the specifics of the case, said Henning.

The hearing won’t cover broad issues of justice but rather will involve “hard-core lawyering” over the specifics of the case, said Henning.

“It will be nirvana for people who really liked the minutiae of Enron,” he said.

Justices could let all the convictions stand, throw out just some of them or send them back to U.S. District Judge Sim Lake for retrial or other action – possibly including resentencing to take into account any dismissed or dropped charges.

Government lawyers declined comment in advance of today’s hearing.

Dan Petrocelli, who will argue Skilling’s case, said the former executive has been deeply involved in preparing for this stage of the appeal and that he remains hopeful. Skilling won’t be in the courtroom and remains in a federal prison outside Denver.

“We look forward to the argument and to the court’s consideration of this very important issue,” he said.

Recent case is similar

On Friday an appeals court in Chicago ruled on a similar case tied to the flawed use of honest services, throwing out two fraud charges against media mogul Conrad Black. That panel upheld two other convictions for fraud and obstruction of justice, however, saying they weren’t linked to the theory.

The appeals court is most likely to throw out Skilling’s conspiracy charge, or send it back for retrial, since it was directly tied to the honest services theory, Henning said.

But in its June decision, the Supreme Court said the 5th Circuit was mistaken when it concluded previously that it would have to set aside Skilling’s conspiracy conviction if any of the prongs of that conviction, honest services being only one, was legally insufficient.

The single conviction on insider trading seems less likely to be affected, Henning said, since it dealt with trades Skilling made after he left the company and was no longer an officer.

tom.fowler@chron.com