Defense attorneys laud Supreme Court ruling that casts doubt on CEO convictions

While former chairman Ken Lay has passed away, former chief executive Jeffrey Skilling and former financial officer Andrew Fastow are both in prison.
By David S. Hilzenrath
Washington Post Staff Writer
Friday, June 25, 2010

White-collar defense lawyer Robert S. Bennett said he will be raising his wine glass to the Supreme Court after it issued a decision weakening one of the tools in the arsenal of federal prosecutors but cautioned that the ruling is not cause for a champagne celebration.

The opinion in favor of fallen corporate titans Jeffrey K. Skilling and Conrad Black is "not a get-out-of-jail-free card," but "it will be very helpful to the white-collar bar in defending companies and individuals," Bennett said.

Where evidence is thin, he said, the decision "will probably stop some prosecutions from going forward."

The Justice Department suffered another in a string of white- collar enforcement setbacks Thursday when the Supreme Court sent the convictions of Skilling, the former chief executive of Enron, and Black, a disgraced publishing magnate, back to lower courts for reconsideration.

In winning verdicts against the executives, the government had used a broadly worded law that makes it illegal for employees to deprive businesses of their "honest services." The law says the public is entitled to the same standard of conduct from government officials.

But Skilling and Black, who are in prison, argued that the law was too vague, and the court agreed. In the future, prosecutors relying on the "honest-services" law will have to prove that bribes or kickbacks were involved.

Lawyers interviewed Thursday said the decision will make more of a difference in the prosecution of public officials than it will in cases against executives. In corporate cases, prosecutors can usually fall back on other charges, such as securities fraud or insider trading, lawyers said.

Only one of the 19 charges on which Skilling was convicted involved the honest-services law.

Prosecutors have used the honest-services fraud statute "when all else fails . . . whenever they encounter something that looks sleazy, corrupt, unethical and other statutes don't clearly apply," said John C. Coffee Jr., a professor at Columbia Law School.

For example, a charge of securities fraud would fail if the conduct at issue did not have enough of an impact on shareholders to be considered material, he said. Invoking honest services also could be the only option when there is undisclosed self-dealing but no bribe -- for example, a mayor steering a contract to a company that his family co-owns, Coffee said.

The convictions of Skilling and Black were among the bright spots in a federal enforcement record marked by some high-profile defeats over the past several years. The conviction of the Arthur Andersen accounting firm, which audited Enron, was overturned on appeal, and the conviction of former senator Ted Stevens (R-Alaska) was thrown out based on prosecutorial misconduct. Last year, in one of the biggest cases to emerge from the financial crisis, two former Bear Stearns employees were acquitted of deceiving investors.

Thursday's decision compounds the challenge for federal prosecutors, said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.

"They're going to have to step up their game," she said.

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