Enron's Skilling to Seek Release

The Wall Street Journal

 

What will likely be the last, best chance for former Enron Corp. President Jeffrey Skilling to get out of prison soon is scheduled to be heard in a Houston federal court on Monday.

A three-judge panel of the Fifth U.S. Circuit Court of Appeals will hear arguments about how many, if any, of the 19 felony counts on which Mr. Skilling was convicted in 2006 should be overturned as a result of the landmark Supreme Court decision in his case.

The Supreme Court in June found that the Justice Department had been misapplying a crime theory, known as "honest services" fraud, in Mr. Skilling's case and others. The court held that honest-services fraud could only be used when someone failed to live up to his fiduciary duties as a result of taking a bribe or kickback, which wasn't alleged in the Skilling case.

The ruling raised immediate hopes among his defenders that Mr. Skilling, who is incarcerated at a federal facility in Colorado and has served nearly four years of a 24-year sentence, might soon be released.

The Supreme Court's Skilling decision sparked a wave of defense requests to throw out cases that used the honest-services fraud theory, and some have been dropped. At the same time, observers believe that the fate of Mr. Skilling, an emblematic figure of this century's first big wave of corporate scandals, remains in doubt.

The Supreme Court decision "could turn out to be a major victory for the defense bar but a pyrrhic one for Mr. Skilling," says Jacob Frenkel, a former federal prosecutor and enforcement attorney for the Securities and Exchange Commission who is now in private practice in Potomac, Md.

Mr. Frenkel believes the appellate panel could uphold much and possibly all of the case against Mr. Skilling on the theory that prosecutors had proven their case on grounds other than honest-services fraud.

Rather than ruling on the validity of Mr. Skilling's conviction—which included conspiracy, securities fraud and insider trading counts—the Supreme Court sent the matter back to the same Fifth Circuit panel that had previously upheld his conviction with the instruction to determine whether its honest-services decision required the dismissal of any or all of the 19 counts.

One potentially bad sign for Mr. Skilling came when a member of his three-judge panel recently turned down his request for bail following the Supreme Court decision. Legal observers say that decision suggests the panel doesn't yet believe the Supreme Court decision will knock out enough of the case to result in Mr. Skilling's immediate release.

Mr. Skilling's lawyers argue that all 19 counts were tainted by the use of honest-services fraud theory and thus should be overturned and their client given a new trial.

Mr. Skilling's "convictions are presumptively invalid" and there isn't any way for the government to prove that jurors didn't rely on the honest-services fraud theory to reach their verdicts, one defense court filing says. The filing also notes that one Fifth Circuit judge in a 2006 ruling wrote that use of the honest-services fraud theory created "serious frailties" in 14 of the 19 counts. However, that jurist isn't a member of the current three-judge panel.

In a recent interview, Daniel Petrocelli, Mr. Skilling's lead defense attorney, said "the law requiring reversal is extremely favorable to our position given the record of our case."

For Mr. Skilling, he added, the upcoming hearing and subsequent decision are "crucial to the rest of his life."

A government court filing counters that none of the counts needs to be overturned. Prosecutors at the 2006 trial sufficiently proved their case under the still-valid criminal theory of securities fraud and therefore any use of honest-services fraud was a "harmless" error, the filing says.

The 2006 trial, the filing says, "overwhelmingly demonstrated that Skilling participated in a conspiracy to commit securities fraud by manipulating Enron's earnings…and deceiving the investing public."

A Justice Department spokesman declined to comment.

The appellate panel could take several weeks or months to hand down a decision.

Enron's Skilling to Get His Day In Supreme Court

Story from the Wall Street Journal

The one clear-cut courtroom victory from the Justice Department's Enron Corp. investigation was put into question Tuesday when the Supreme Court agreed to hear the appeal of former company Chief Executive Jeffrey Skilling, who is trying to overturn his 2006 fraud conviction and 24-year prison sentence.

The justices agreed to look at two issues in the Skilling appeal. Both could have broader repercussions in criminal cases, say legal observers. One has to do with the government's contention that Mr. Skilling violated his legal obligation of providing "honest services" to Enron shareholders because he lied to the public about the company's financial condition. Enron collapsed into bankruptcy in December 2001. The second issue involves Mr. Skilling's claim that he wasn't able to get a fair trial in Houston, Enron's headquarters, because of anger in the community over the company's collapse.

Daniel Petrocelli, Mr. Skilling's lead attorney, said Tuesday that the Supreme Court's decision means the defense "will finally get an opportunity for a full, frank and fair hearing" of issues that led to "Jeff's wrongful conviction."

The Justice Department declined to comment.



The Supreme Court has already accepted for review another appeal related to corporate honest services fraud. That case involves the conviction of former Hollinger International Inc. Chairman Conrad Black. Oral arguments in Mr. Black's Supreme Court case are scheduled to take place in December. No date has yet been set for oral arguments in the case of Mr. Skilling, who is currently in federal prison in Colorado.

The question of what constitutes honest-services fraud has been a topic of debate in legal circles. "The lack of clear guidance" on the statute "has been a problem in this area of criminal law for years," says Mark Biros, a former federal prosecutor and now a partner in the Washington office of Proskauer Rose LLP. "It would be helpful to everyone if the Supreme Court steps in and gives more guidance." Mr. Biros says the court might be considering treating the Skilling and Black appeals as "companion" cases. The justices could use the two cases "to write a broader opinion," he says.

The court's agreement to hear Mr. Skilling's arguments regarding the location of his trial surprised Columbia Law School professor John Coffee. "The area of venue is something the Supreme Court hasn't touched for a long, long time," says Mr. Coffee. If the court agrees with Mr. Skilling, whose attorneys vociferously argued for a venue change before the 2006 trial, it could have a wide impact. "Once you say that there might be a constitutional right to get change of venue because of notoriety," then a number of people might make such a claim, he says.

Aside from the possible broader legal repercussions, the court's decision to accept the Skilling appeal provides another moment of drama in the Enron saga. Following the company's 2001 collapse, the Justice Department set up a special task force of prosecutors and investigators to look for crimes at the company. Over the next four years, the Enron Task Force engaged in what has widely been viewed as the biggest federal criminal investigation ever into a single company.

The probe resulted in more than a dozen guilty pleas from former Enron officials. However, prosecutors had a decidedly mixed record when they took defendants to court. Convictions of some lower-level officials were thrown out by an appellate court that ruled the government had misapplied the honest-services statute. That decision wasn't appealed to the Supreme Court.

The Supreme Court, however, did in 2005 unanimously overturn the conviction of Arthur Andersen LLP, Enron's outside auditor. The accounting firm, the collapse of which was sparked by the criminal case, was charged with hindering investigators by destroying large amounts of Enron-related documents.

In the 2006 trial, Mr. Skilling and former Enron Chairman Kenneth Lay were convicted of fraud and conspiracy. Mr. Skilling was also convicted of insider trading. Shortly, after the trial, Mr. Lay died of heart-related problems and, as a result, his conviction was vacated.