Supreme Court decision casts doubt on former Enron CEO's conviction

By Robert Barnes
Washington Post Staff Writer
Friday, June 25, 2010; A01

The Supreme Court on Thursday gutted one of federal prosecutors' favorite tools for pursuing corrupt politicians and self-dealing corporate chiefs, casting doubt on the convictions of two prominent executives snared by the law: former Enron chief executive Jeffrey K. Skilling and newspaper magnate Conrad Black.

All nine justices said prosecutors have stretched too far a federal statute that makes it a crime to deprive the public or a company of the "intangible right of honest services." Three justices thought the statute was so vague as to be unconstitutional. But six said it could be saved by limiting its use to those involving bribes or kickbacks, not the self-dealing or conflict-of-interest schemes previously prosecuted.

The decision did not overturn the convictions of Skilling and Black, but it said they can renew their arguments in lower courts.

The honest-services law has been praised by prosecutors and government watchdog groups as the best weapon for penetrating schemes hatched by corrupt politicians and dishonest corporate chiefs. Defense lawyers have denounced it as so vague that almost any activity could be labeled criminal.

Prosecutors relied on the law often in recent years, and legal experts and advocates said that Thursday's decision will reverberate widely. "Previous convictions may be vacated and corrupt officials will have an easier time escaping accountability for their misdeeds," said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.

Tracy Schmaler, a spokeswoman for the Justice Department, said officials were glad that at least part of the law remained.

"The American people are entitled to the honest services of both public servants and corporate executives, and the Department will continue to bring all appropriate cases in order to hold corrupt officials accountable for their actions," she said in a statement. "We are studying the opinions to determine if the court's interpretation leaves us with all the tools we need to ferret out corruption"

Since it was passed in 1988, the honest-services fraud law has been used in the lobbying scandals involving Jack Abramoff, the charges against former Louisiana congressman William J. Jefferson (D-La.) and prosecution of state officials such as the current trial of former Illinois governor Rod Blagojevich (D).

Defense lawyers predicted a rash of litigation from those who have been convicted under the law.

Justice Ruth Bader Ginsburg, writing for the court majority, said that upholding the law meant excluding the "amorphous category of cases" involving conflict of interest and self-dealing. The legislation, she said, "criminalizes only schemes to defraud that involve bribes or kickbacks."

Washington lawyer Robert K. Kelner said that "for those of us who defend public corruption cases, today's Supreme Court decision is a major turning point." Even though Thursday's cases involve primarily corporate wrongdoing, he said "the real significance" of the decision will be to make it harder to prosecute federal lobbyists and members of Congress. Proving bribery requires a difficult showing of quid pro quo, he said.

Although Ginsburg wrote that Skilling could not be convicted of the honest-services charges, she noted that other charges remain.

Miguel Estrada and David Debold, who represented Black, said that because the jury "already decisively rejected the government's attempt to convict Mr. Black for 'traditional' fraud, we are confident the lower courts will quickly conclude that the errors that the Supreme Court has now conclusively found tainted every aspect of this case."

Daniel Petrocelli, Skilling's lead attorney, said the court's decision that he is not guilty of honest-services fraud "is fatal to the government's case."

The honest-services cases represent the court's attempt to look comprehensively at the statute, which was Congress's effort to give federal prosecutors the tools to go after corruption after another adverse Supreme Court ruling in the 1980s.

The justices took three cases, which raised three challenges. Skilling contended that the government needed to prove he was trying to line his own pockets with the fraudulent accounting scheme that brought down Enron in 2001. He said his actions were designed to save the energy company.

Black argued that he should not have been convicted without the government proving that the unusual pay arrangement he had with Hollinger International cheated the company he once headed.

And former Alaska state representative Bruce Weyhrauch (R) said he should not be the subject of federal prosecution, because no state law required him to disclose that he was looking for legal work with an oil services firm at the same time the company was lobbying him on a tax bill.

Ginsburg was joined in narrowing the statute by Chief Justice John G. Roberts Jr. and Justices John Paul Stevens, Stephen G. Breyer, Samuel A. Alito Jr. and Sonia Sotomayor.

Justice Antonin Scalia, who has been the court's chief critic of the law, approved of the outcome of the cases but said he would have gone further, and declared it so vague as to violate the Constitution's due-process clause.

He said the majority's "pose of judicial humility" in trying to preserve the statute by turning it into a prohibition of bribes and kickbacks is really just "wielding a power we long ago abjured: the power to define new federal crimes."

He was joined by Justices Anthony M. Kennedy and Clarence Thomas.

The collapse of Enron, once the nation's seventh-largest corporation, cost 5,000 jobs and $1 billion in employee pension funds. It prompted several criminal investigations, a round of congressional legislation and devastation in the Houston area, where the company was headquartered. Skilling was convicted on 19 charges -- one of which used the honest-services law to support a conspiracy charge -- after lying about Enron's financial health; he sold half a million shares and made a $15 million profit a few months before Enron fell into bankruptcy. Skilling is serving a 24-year sentence at a federal prison in Colorado.

Black is serving a 6 1/2 -year prison term.

Three members of the court -- Sotomayor, Stevens and Breyer -- agreed with how Ginsburg resolved the honest-services question. But they would have granted Skilling a new trial because of his claim that pretrial publicity made it impossible for him to receive a fair trial in Houston.

The cases are Skilling v. United States, Black v. United States and Weyhrauch v. United States.

© 2010 The Washington Post Company