Skilling, Black Get Partial Victories From Court

The U.S. Supreme Court scaled back a favorite tool used by prosecutors in fraud cases, ruling in favor of Jeffrey Skilling on his conviction for leading the Enron Corp. accounting fraud while stopping short of granting him a new trial.

The court also sided with former Hollinger International Inc. Chairman Conrad Black, telling a lower court to reconsider his corporate fraud conviction. The ruling doesn’t necessarily mean freedom for either man, instead sending the cases back to the lower court level.

Skilling’s lawyers say the ruling gives them grounds to seek reversal of the entire conviction, along with his 24-year sentence. The government has said even the conspiracy verdict that was directly before the high court might not have to be overturned.

“We’re back in the game,” Daniel Petrocelli, Skilling’s lead lawyer, said in a telephone interview. He said today’s ruling would be “fatal to the government’s case.”

Tracy Schmaler, a Justice Department spokeswoman, said in an e-mailed statement that the government will “vigorously defend the Skilling and Black cases on remand” to the lower court.

Black was convicted of mail fraud and obstruction of justice and sentenced to 6 1/2 years in prison. As with Skilling, his lawyers will have a chance to seek invalidation of the entire verdict, while the government can argue that the entire conviction should stand.

Intangible Right

Writing for the court, Justice Ruth Bader Ginsburg said the law, which covers fraud schemes to “deprive another of the intangible right to honest services,” could be used only in cases involving bribery or kickbacks. The ruling raises questions about potentially hundreds of other convictions and pending prosecutions.

“There are going be a lot of people who serve less time or don’t go to prison because of this decision,” said Andrew Stoltmann, a Chicago lawyer who represents investors with claims against financial companies.

The justices were unanimous in saying the honest-services law couldn’t be applied to Skilling and Black. Three justices -- Antonin Scalia, Clarence Thomas and Anthony Kennedy -- would have gone further and struck down the law even for bribery and kickback cases.

Ruling With Nuance

The ruling “has nuance” and should leave federal prosecutors “breathing a sigh of relief,” said Douglas Berman, a professor at Ohio State University’s Moritz College of Law. Even so, he said, the ruling may apply retroactively and will let people with enough money challenge their convictions.

Schmaler said the Justice Department, while disappointed the court narrowed the statute, is “pleased that the court upheld many of the core provisions that have been used for decades to prosecute corrupt public officials and corporate executives who have breached their duties to their constituents, clients and investors.”

Skilling, Enron’s former chief executive officer, was convicted on 19 counts. The honest-services ruling directly concerns only one of those: for conspiracy to commit fraud.

He was convicted in May 2006 alongside Kenneth Lay, the former Enron chairman who died less than two months later. A federal appeals court upheld the conviction. Skilling is serving his sentence in a federal prison in Colorado.

Seeking Fair Trial

The Supreme Court on a 6-3 vote rejected Skilling’s contentions that he couldn’t get a fair trial in Houston and that the trial judge who oversaw the case didn’t adequately explore indications that some jurors were biased against him.

Skilling’s lawyers argued that the atmosphere in Houston when the trial began in January 2006 was one of hostility toward him, fed by unrelenting, negative media coverage.

The federal government countered that the trial judge, after questioning the jurors, was satisfied that each could assess the evidence impartially. The high court today agreed with that reasoning.

Bloomberg LP, the parent company of Bloomberg News, joined a brief filed by media companies urging the court not to adopt the legal standard sought by Skilling. The brief argued that press coverage alone shouldn’t be grounds for transfer of a trial.

Largest Energy Trader

Enron was the world’s biggest energy-trading company, with a market value of as much as $68 billion, before it collapsed, wiping out more than 5,000 jobs and $1 billion in employee retirement funds.

The bankruptcy spawned criminal charges against 34 defendants, including Arthur Andersen LLP, the now-defunct accounting firm whose conviction the Supreme Court overturned in 2005.

Black, 65, was accused of taking part in a $6.1 million theft from Hollinger, a Chicago-based newspaper publishing company. The case centers on payments to Black that were structured to reduce his Canadian taxes. A U.S. appeals court upheld the conviction.

Chief Financial Officer John A. Boultbee and former Corporate Counsel Mark S. Kipnis joined Black in pressing the Supreme Court appeal. Boultbee was sentenced to two years and three months in prison and Kipnis, convicted of a lesser offense, to six months of home detention.

The honest-services statute is being used against former Illinois Governor Rod Blagojevich, now on trial on an indictment that includes allegations that he tried to trade the U.S. Senate seat vacated by President Barack Obama for campaign cash or personal favors.

U.S. District Judge James Zagel, presiding over Blagojevich’s trial, said the high court ruling “may not offer a lot of hope” for the former governor, the Associated Press reported.

The case is Skilling v. United States, 08-1394.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

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