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Enron's Skilling Loses Appeal

But a federal court's ruling could lead to a reduction in the former Enron CEO's 24-year prison sentence

A federal appeals court has upheld the conviction of former Enron CEO Jeffrey Skilling for his role in the energy firm's spectacular collapse. The court did, however, order that Skilling be resentenced, opening up an opportunity to reduce his sentence from its current 24 years.

Under federal guidelines, Skilling could see the recommended range of his sentence drop as much as 10 years, though U.S. District Court Judge Simeon Lake III, who presided over the trial, will have substantial discretion. A jury convicted Skilling in May 2006 for conspiracy, securities fraud, insider trading, and lying to auditors.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit rejected all of Skilling's arguments to have his conviction overturned. In part he had pinned his hopes on the argument that the government relied on the invalid legal theory of "honest-services fraud." Based on a federal statute, that charge has been levied against executives who allegedly put their own interests ahead of their company's.

The Old Nigerian Barge Scam

At one time that statute "was almost unlimited in its potential application and prosecutors were using it in a wide array of cases," notes Alan Vinegrad, a white-collar defense lawyer and former U.S. Attorney in New York. But a series of court rulings have pared back its use.

One of those rulings involved another Enron prosecution related to sham Nigerian barge deals. In that case, the Fifth Circuit overturned the honest-services fraud conviction of Merrill Lynch executive James Brown, and Skilling contended his case was analogous. But the Fifth Circuit rejected that comparison, noting that Brown was acting with the approval of his employer.

"No one at Enron sanctioned Skilling's improper conduct," the court wrote in its 104-page ruling. Skilling also argued that the Houston jury that heard his case was not impartial, that jury instructions were improper, and that prosecutors intimidated witnesses.

Maybe a Decade Less

One potential piece of good news for Skilling was the court's order that he be resentenced. Judge Lake had increased Skilling's sentence under a federal sentencing guideline that calls for an "enhancement" for those convicted of "jeopardizing the safety and soundness of a financial institution." Judge Lake had concluded that Enron's retirement plans were financial institutions, a finding the appeals court rejected.

While judges are not bound to follow the guidelines, they provide an initial basis for calculating a range of prison time, and for Skilling, that range would drop about 10 years.

Skilling has already begun serving his sentence at a federal prison in Minnesota. His attorney did not respond to an e-mail request for comment on the Fifth Circuit's ruling.

Orey covers corporations for BusinessWeek.

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