Convictions of two U.S. former executives set aside

Date: Friday, June 25, 2010
Author: Reuters

The Supreme Court on Thursday set aside some convictions of former Enron Corp Chief Executive Jeffrey Skilling and former media baron Conrad Black, a setback for the U.S. Justice Department in some of its biggest corporate fraud prosecutions of the last decade.

In the main ruling, the high court limited the reach of a federal fraud law that Justice Department prosecutors have used in a number of cases targeting alleged public corruption by government officials and fraud by corporate executives.

The ruling comes at a time when the administration of President Barack Obama has been under intense pressure to bring some major cases against corporations or top executives stemming from the global financial crisis.

The Obama administration suffered a setback last year when two former Bear Stearns hedge fund managers were acquitted of fraud charges. But last week the former chairman of a now-defunct major mortgage lender was charged for allegedly leading a multibillion-dollar fraud scheme.

In the court's unanimous opinion, Justice Ruth Bader Ginsburg said the law at issue only covered bribery and kickback schemes, and that Skilling's alleged misconduct did not involve a bribe or kickback.

In the other case, the court set aside the convictions of Black and two former colleagues for defrauding shareholders of one-time newspaper publishing giant Hollinger International Inc. That ruling was narrow, based on the jury instructions about the fraud law.

The Supreme Court did not definitely resolve whether the fraud convictions of Skilling and Black should be overturned.

Both Skilling and Black had been convicted on other charges as well, and the justices sent the cases back to lower courts for further proceedings to decide if the convictions must be tossed out completely.

SKILLING'S OTHER CONVICTIONS AN 'OPEN QUESTION'

Ginsburg said that whether the potential reversal of Skilling's conspiracy count touches any of Skilling's other convictions "is an open question."

Skilling as chief executive led Enron's transformation from a sleepy natural gas pipeline company into a global energy trading powerhouse.

Both Skilling and former Enron Chairman Ken Lay were convicted in 2006. Lay later died of a heart attack, and his convictions were set aside because he died before his appeals had been exhausted.

Their convictions were part of the Justice Department's crackdown early in the decade targeting top executives for their role in corporate fraud and accounting scandals in such companies as Enron and WorldCom.

Skilling is serving a prison sentence of 24 years at a minimum security facility in Littleton, Colorado.

The Canadian-born Black, who had been a member of Britain's House of Lords, has been in a U.S. prison since March 2008, when he began serving a 6-1/2-year sentence for fraud and obstruction of justice.

Black unsuccessfully had sought a pardon before President George W. Bush left office in January 2009.

In the first part of its ruling, the high court rejected Skilling's argument that his conviction should be overturned completely because his Houston jury had been tainted by prejudice and anger over the energy trader's collapse.

The court said he received a fair trial.

In the second part of the ruling, the court focused on a law used by Justice Department prosecutors in Skilling's case.

At issue in the case is a 28-word law that the U.S. Congress adopted in 1988 that makes it illegal for public officials and executives to commit fraud by depriving those they work for of the right to "honest services."

His attorneys said Skilling did not breach his honest services duty because he never was dishonest to his employer, he always acted in Enron's interest and prosecutors never showed he personally benefited from his allegedly fraudulent acts.

Daniel Petrocelli, Skilling's lead lawyer, said the high court's ruling will prove "fatal" to the government's case.

"Our position will be that every count of conviction is undermined because the government relied so prominently on the honest services theory at trial," he said.

The Supreme Court's ruling stemmed from an appeal by Black after he was found guilty by a jury in Chicago of stealing millions of dollars from Hollinger by fraudulently paying himself bogus fees. Hollinger was once the world's third-largest publisher of English-language newspapers.

Miguel Estrada, Black's attorney, said, "We are obviously pleased that the Supreme Court rejected the government's argument that Conrad Black engaged in honest services fraud."

"We look forward to helping Mr. Black regain his freedom," he added.

The ruling was another setback for the Justice Department stemming from its investigation into Enron's collapse.

In 2005, the Supreme Court overturned Arthur Andersen LLP's conviction for obstructing a government investigation into Enron.

The Supreme Court cases are Jeffrey Skilling v. United States, No. 08-1394 and Black v. United States, No. 08-876.