HOUSTON — It’s a 28-word word law that federal prosecutors have used for more than two decades to send high-profile public officials and corporate executives, including former Enron Corp. CEO Jeff Skilling, to prison.
But the law’s future could be in doubt as Skilling’s appeal of his criminal convictions — in which he challenges the statute’s constitutional validity — is set to be heard by the U.S. Supreme Court today.
Skilling’s challenge of the law is one of three the high court is hearing in its current term, and legal experts say it has the best chance of convincing the justices to strike down the statute.
Unclear, though, is whether a successful challenge would overturn some of Skilling’s convictions or all of them, possibly resulting in a new trial.
If successful, Skilling’s challenge could also affect convictions in other cases involving prominent defendants.
Skilling was convicted in 2006 on 19 counts of conspiracy, securities fraud, insider trading and lying to auditors for his role in the downfall of the once-mighty Houston-based energy giant.
The company collapsed into bankruptcy in 2001 under the weight of years of illicit business deals and accounting tricks.
Skilling is serving a sentence of more than 24 years at a minimum security prison outside Denver.
The law at issue is a short addendum to the federal mail and wire fraud statute that makes it illegal for officials, executives and others to scheme to deprive those they serve and possibly others of “the intangible right to honest services.”
Skilling’s lawyers say the law is unconstitutionally vague.
Daniel Petrocelli, Skilling’s main lawyer, said in his Supreme Court brief that prosecutors have given it “whatever meaning is necessary to prosecute whatever defendant happens to be in the government’s sights” and that the law “facilitates opportunistic and arbitrary prosecutions.”
But federal prosecutors argued that the law is appropriate for cases involving bribes, kickbacks or conflicts of interest.
They argued that Skilling feigned loyalty to Enron and its shareholders and intended to deceive them, hiding the sale of large chunks of company stock.
By participating in a scheme to disguise Enron’s true financial condition, Skilling “deprived shareholders of the information they needed to make informed decisions and thereby defrauded them of his honest services,” prosecutors wrote.
Skilling, 56, was the highest-ranking executive to be punished for Enron’s downfall. Company founder Kenneth Lay’s similar convictions were vacated after he died of heart disease less than two months after trial.
Enron’s collapse put more than 5,000 people out of work, wiped out more than $2 billion in employee pensions and rendered worthless $60 billion in Enron stock.
Its aftershocks were felt across the city and the energy industry.
In December, the court heard arguments in the two other cases challenging the honest services law: former newspaper mogul Conrad Black, convicted of depriving the Hollinger International media empire of his faithful services as a corporate officer, and former Alaska legislator Bruce Weyhrauch, indicted for allegedly soliciting future work from an oilfield operations business in exchange for taking steps on legislation that would benefit the company.
Skilling’s case is more of a “frontal attack” on the law and would provide the high court with an avenue to void the statute, said Ellen Podgor, a law professor at Stetson University College of Law in Gulfport, Fla.
In the December hearing, several justices seemed to agree the law is vague and has been used to make a crime out of mistakes and minor transgressions.
“I hope for the sake of my students the court invalidates the statute,” said Kelly Strader, a law professor at Southwestern Law School in Los Angeles. “My students always end up tearing their hair out because they don’t know what it means.”
Jack Sylvia, a Boston-based attorney and expert on securities and financial fraud litigation, said the skepticism expressed by justices in December suggests prosecutors are in trouble.
“Those in criminal defence believe it’s time the Supreme Court takes a look at it,” he said.
While honest services is only mentioned in the conspiracy count, Petrocelli argues that all of Skilling’s convictions have been tainted by the argument and thus should be overturned.
Prosecutors contend the jurors would have found Skilling guilty on the conspiracy count even without the honest services argument because they convicted him on the securities fraud counts based on many of the same claims.
Tom Curran, a New York-based defence lawyer and former state prosecutor who dealt with securities fraud cases, said he believes the justices might strike down the honest services statute but leave some of Skilling’s convictions intact. Sylvia and Podgor hesitate to predict what the high court will do.
Before Skilling’s case made it to the Supreme Court, an appeals court upheld his convictions but ordered his prison term be reduced because a sentencing guideline was misapplied.
Petrocelli also is arguing that Skilling didn’t get a fair trial because the massive publicity over the company’s collapse tainted the jury pool, and that any Houston jury would have members who were affected, either directly or indirectly, by Enron’s demise.
Legal experts say Skilling faces an uphill battle in winning a new trial on these claims.
“It’s uphill if you are thinking of Everest as your hill,” Curran said.
Rod Jordan, 71, a former Enron project manager and chairman of the Severed Enron Employee Coalition, said he thinks Skilling’s convictions should stand.
“It would be another slap in the face ... to Enron employees” if the convictions were overturned, said Jordan, who now lives near Fort Worth.