Jan. 6 (Bloomberg) -- A U.S. appeals court upheld ex-Enron Corp. Chief Executive Officer Jeffrey Skilling’s fraud conviction while ordering him resentenced due to a procedural mistake, a decision some experts said is unlikely to significantly change his 24-year prison sentence.

A three-judge panel of the U.S. Court of Appeals in New Orleans today rejected all of Skilling’s arguments to throw out his conspiracy and fraud convictions. The court granted Skilling a new sentencing hearing, holding that the trial judge misinterpreted federal guidelines.

“The underlying modifications may not bring about a change in a sentence,” said Christopher Bebel, a former U.S. Securities and Exchange Commission lawyer in Houston, about Skilling’s new sentencing. “The net effect will be relatively minimal.”

A Houston jury found Skilling and former Enron Chairman Kenneth Lay guilty in 2006 of deceiving investors, analysts and employees about Enron’s deteriorating financial condition through the use of fraudulent accounting and off-books partnerships that concealed billions of dollars in debt and losses. Skilling’s lawyers said he will appeal.

The Houston-based company’s 2001 bankruptcy wiped out more than 5,000 jobs and $1 billion in employee retirement funds. Investors sued seeking to recover more than $40 billion.

Those suits were eventually thrown out by the 5th U.S. Circuit Court of Appeals, the same court that upheld Skilling’s convictions today. Lay died before the appeal of his conviction could be heard.

Skilling’s Arguments

On appeal, Skilling argued U.S. District Judge Sim Lake in Houston erroneously instructed jurors on the law used to weigh his guilt. He also accused prosecutors of using flawed legal theories to convict him and hiding evidence that may have exonerated him.

“Skilling failed to demonstrate that the government’s case rested on an incorrect theory of law or that any reversible errors infected his trial,” U.S. Circuit Judge Edward Charles Prado said in the 105-page decision.

“Today’s ruling is a victory for all those harmed by Jeff Skilling and his co-conspirators,” Acting Assistant Attorney General Matthew Friedrich said in an e-mailed statement.

“It’s a win for the government in that all the convictions were upheld,” said Cliff Stricklin, one of Skilling’s original prosecutors, now with Holland & Hart in Denver.

Honest Services

Jacob Frenkel, a former SEC attorney, said the ruling is the first time the New Orleans court didn’t overturn an Enron indictment based on the government’s theory that the defendant deprived a company of his “honest services.”

“The Fifth Circuit, which had been hostile to the honest- services theory in all the other Enron cases, has embraced it and upheld it in its application to this senior executive,” Frenkel said. “It’s where the buck stops in a public company. The Fifth Circuit has said shareholders can be deprived of honest services.”

In June, the federal appeals court in Chicago upheld the conviction of Conrad Black, the former Hollinger International Inc. chairman serving a 6 1/2-year prison term for fraud and obstruction of justice, who argued the government’s honest- services theory was flawed.

“There’s been an expectation, if you look at all the other Fifth Circuit rulings in Enron, that it could have come out another way,” said Frenkel, now of Shulman, Rogers, Gandal, Pordy & Ecker in Rockville, Maryland. “So there could have been a split in the circuits.”

‘Deeply Disappointed’

Skilling’s lawyer, Daniel Petrocelli, said the decision is “a big setback, certainly,” and that he and his clients will seek to have it reversed by the full New Orleans appeals court or the U.S. Supreme Court.

“There’s clear and conflicting divergence of views on honest services” in the federal courts, said Petrocelli, of O’Melveny & Myers in Los Angeles. “We’re not by any means prepared to throw in the towel.”

Skilling, who’s currently in a low-security prison in Englewood, Colorado, also argued that Lake misapplied federal guidelines in enhancing his sentence, partly by saying the former CEO had endangered a “financial institution” with his conduct by damaging the value of Enron’s retirement plans. The court found the plans weren’t a financial institution.

‘Modest Reduction’

“If that’s the only basis of resentencing, it would be a modest reduction,” said Kirby Behre, a partner at Paul Hastings Janofsky & Walker in Washington and co-author of “Federal Sentencing for Business Crimes.” “It might be more than modest, but it’s not going to get him down to 10 or 12 years.”

In the 2000 guidelines under which Skilling was sentenced, the financial-institution factor brought his offense level to 40 from 36 and his range to between 292 and 365 months in prison. Lake imposed 292 months, or 24 years and four months.

Dropping the offense level back to 36 brings a range of 188 to 235 months, or 15 2/3 years to 19 years and seven months, said A. Jeff Ifrah, Behre’s co-author on the sentencing book, consulting the 2000 guidelines.

Because the Supreme Court made the guidelines voluntary in January 2005, in a case called U.S. v. Booker, Skilling may be given the same sentence.

“You have to use enhancements correctly,” said Ifrah, a partner at Greenberg Traurig in Washington. “You can only impose the sentence once you’ve correctly calculated the guideline. They’re not saying what the sentence should be.”

Other experts said the judge may reduce Skilling’s sentence to the lower range.

‘Technicality’

“It was a technicality, but it likely could result in a lower sentence for Skilling, as much as a five-to-seven-year reduction,” said Stricklin, the former prosecutor. “But that will result in him spending 15 to 19 years in prison.”

Lake is likely to use the guidelines again when he resentences Skilling, said Paul Cassell, a former federal judge who’s now a law professor at the University of Utah in Salt Lake City.

“Most federal judges in the system follow the guidelines, particularly in a case where they’ve used them before,” Cassell said in a phone interview.

The case is U.S. v. Skilling, 06-20885, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net and; Thom Weidlich in New York at tweidlich@bloomberg.net.

Last Updated: January 6, 2009 18:03 EST