June 25 (Bloomberg) -- The fates of Jeffrey Skilling and Conrad Black rest in the hands of lower court judges after U.S. Supreme Court rulings gave both men grounds to overturn at least part of their corporate fraud convictions.
The high court yesterday used an appeal by Skilling, the former chief executive officer of Enron Corp., to scale back a favorite prosecutorial tool, a federal law aimed at so-called honest services fraud.
Lawyers for both men say they will seek to overturn their entire convictions. Skilling was sentenced to 24 years in prison on 19 counts stemming from his role in the accounting fraud that led to Enron’s collapse. Black, the former Hollinger International Inc. chairman, was sentenced to 6 1/2 years for fraud and obstruction of justice for his role in the skimming of $6.1 million from the company as it sold off community newspaper holdings.
“We’re back in the game,” Skilling’s lead lawyer, Daniel Petrocelli of O’Melveny & Myers LLP in Los Angeles, said in a telephone interview. “That ruling is fatal to the government’s case.”
Black’s Supreme Court lawyer, Miguel Estrada of Gibson Dunn & Crutcher LLP in Washington, said he will move quickly to seek bail for his client. Estrada contends that, even if a lower court upholds Black’s conviction for obstruction of justice, the sentence should be reduced to no more than 24 months -- less than Black has already served.
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 courts.
The Supreme Court said the honest-services law couldn’t be applied to either case. 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,” applied only to instances of bribery or kickbacks.
The question now will be the extent to which prosecutors relied on the honest services prohibition in convincing juries that considered the two cases.
Prosecutors said Skilling and other Enron officials deceived investors about the value of the company by issuing fraudulent accounting statements.
The government has said that even the conspiracy count against Skilling that was directly before the Supreme Court might survive.
Ginsburg said the court’s decision “does not necessarily require reversal of the conspiracy conviction.” She said prosecutors could argue that their reliance on the honest-services provision was “harmless” because jurors would have convicted Skilling of conspiracy, regardless. Prosecutors offered evidence that Skilling had conspired to engage in securities fraud, in addition to honest-services fraud.
Ginsburg also said the high court wasn’t ruling on Skilling’s contention that the entire conviction hinged on the conspiracy count and must be thrown out. Skilling, now 56, was convicted of securities fraud, insider trading and making false representations to auditors, in addition to conspiracy.
Skilling’s attorneys point to a 2006 opinion written by a judge on a New Orleans-based federal appeals court as an indication that at least some of the other counts are now invalid.
Relying on a recent appeals court decision that had scaled back the honest-services law, Judge Patrick Higginbotham said there were “serious frailties” in 14 of the 19 counts against Skilling.
‘No Substantial Question’
At the same time, Higginbotham wrote that Skilling “raises no substantial question that is likely to result in the reversal of his convictions on all of the charged counts.” His ruling rejected Skilling’s bid for bail while he appealed his conviction.
Winning a reversal on other counts will be crucial if Skilling is to see a significant reduction in his sentence, said Kirby Behre, a partner at Paul Hastings Janofsky & Walker in Washington and co-author of “Federal Sentencing for Business Crimes.”
“He didn’t win a get-out-of-jail-free card,” Behre said. “Most likely the conviction on this charge had little if no impact on his ultimate sentence. Defense lawyers say all the time the government overcharges. If you take out one of the 19, it doesn’t make all that much difference.”
A federal trial judge in Houston was already preparing to resentence Skilling for unrelated reasons.
Ginsburg similarly said the high court wasn’t deciding what impact the Black ruling would have on his conviction.
Estrada said the government will bear a heavy burden when a Chicago-based appeals court revisits the case. Jurors acquitted Black on most charges, including some of the allegations that he stole money from Hollinger, a Chicago-based newspaper publishing company.
“The government cannot come remotely close to showing that not a single juror relied on honest-services fraud,” Estrada said.
Overturning the single obstruction of justice count likely will pose a higher hurdle. In rejecting Black’s bid for bail during Supreme Court review, a federal trial judge in Chicago wrote that Black “has failed to establish that a ruling in his favor on the issues before the Supreme Court is likely to result in a reversal of his obstruction of justice conviction.”
One of the lawyers who prosecuted Black, Jeffrey Cramer, said the conviction may stand. Cramer, now the managing director of Kroll Inc. in Chicago, pointed to the 2008 ruling by the 7th U.S. Circuit Court of Appeals upholding the conviction.
“The 7th Circuit had no problem saying this was fraud,” Cramer said.
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