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Enron’s Skilling Seeks Retrial; Government Objects

Former Enron Corp ECO Jeffrey Skilling
Jeffrey Skilling , the former Enron Corp. chief executive officer convicted of leading a fraud that destroyed the world’s largest energy trader, is seeking a new trial over government objections. Photographer: F. Carter Smith/Bloomberg

Jeffrey Skilling, the former Enron Corp. chief executive officer convicted of leading a fraud that destroyed the world’s largest energy trader, is seeking a new trial over government objections.

A three-judge panel of the New Orleans appellate court is reviewing verdicts today against Skilling after the U.S. Supreme Court determined in June that prosecutors used an invalid legal theory to convict him.

Skilling is serving a 24-year sentence in a Colorado federal prison after he and former Enron Chairman Kenneth Lay were found guilty of deceiving investors about the company’s true financial condition.

“The court doesn’t act as a 13th juror” to decide Skilling’s guilt or innocence, his lead lawyer Daniel Petrocelli told the panel. “If the trial record contains evidence on which a rationale juror could’ve acquitted, that count must be reversed. Here, the record is filled with acquittal evidence.”

Prosecutors, who obtained 19 verdicts against Skilling at a 2006 jury trial in Houston federal court, told the appellate court that jurors likely convicted Skilling under an alternate legal theory presented during the trial.

“Skilling and his co-conspirators engaged in a conspiracy to manipulate Enron’s earnings to satisfy Wall Street’s expectations,” Paul Pelletier, Principal Deputy Chief of the Justice Department’s criminal fraud section, said in court papers. “No rational jury could have failed to find that Skilling conspired to commit securities fraud.”

Widespread Fraud

Justice Department lawyer Douglas Wilson described the case to the panel today as “a single conspiracy that incorporates securities fraud and incidentally honest services fraud.”

U.S. Circuit Judge Jerry Smith replied, “It seems to me you’re stretching when you used the word incidentally to describe honest services” role in the case.

“It was a scheme to deprive Enron investors of information they needed to know.” Wilson replied. “That is securities fraud.”

Skilling’s wife, brother, sister, daughter and former secretary attended today’s arguments, as did many of the FBI agents who led the Enron investigation. After the session, Petrocelli told reporters Skilling was “very anxious” for a ruling, which the lawyer said could be “weeks or months” in coming. He said the jailed executive had been “very involved” in crafting his appeal.

Legal Test

Petrocelli said he believes the panel’s questions helped delineate the legal test at stake in Skilling’s case.

“There was a very serious error, and the government has a very high burden” to prevent Skilling’s verdicts from being scrapped, he said. “We are entitled to reversal of all counts.”

Wilson declined comment and left without speaking to reporters.

More than 5,000 jobs and $1 billion in employee retirement funds were wiped out when Enron plunged into bankruptcy in December 2001 after widespread accounting fraud was uncovered. Investors sued to recover more than $60 billion in market losses.

Skilling and Lay were convicted of using off-balance sheet entities to hide billions in debt and losses, which prosecutors claimed allowed Enron to report falsely inflated earnings. Lay died before he had a chance to appeal, and his conviction was erased.

Vicariously Responsible

Skilling’s lawyers have argued that he didn’t commit any crimes and relied upon the advice of his accountants and lawyers, who approved Enron’s accounting and shareholder disclosures. The lawyers claim prosecutors used “honest services fraud” to criminalize aggressive business practices, and allow jurors to convict Skilling for crimes committed by alleged co-conspirators, many who testified against him under plea agreements.

“Mr. Skilling is being held vicariously responsible for the acts of others,” Petrocelli said.

Wilson disagreed. “The evidence is that Skilling committed these crimes himself,” the prosecutor told the judges.

After Skilling’s trial, the Fifth Circuit declared the so-called “honest services fraud” theory legally invalid in an appeal by four Merrill Lynch & Co. bankers, who were convicted in a related Enron case. The appellate court said the bankers didn’t deprive Enron of their honest services because they’d acted in Enron’s best interest and didn’t personally profit.

Skilling’s Favor

The Supreme Court this year ruled in Skilling’s favor, finding that “honest services theft” only applies to instances of bribery or kickbacks, which weren’t at issue in Enron. The high court ordered the lower appellate court to review Skilling’s convictions in light of this finding.

While the Fifth Circuit appellate court originally upheld Skilling’s verdicts in 2009, U.S. Circuit Judge Patrick Higginbotham said prosecutors’ use of the “honest services fraud” theory created “serious frailties” in 14 verdicts against him.

These included his convictions for conspiracy, securities fraud and insider trading. Skilling’s convictions on five counts of lying to auditors were not affected, Higginbotham said in a December 2006 opinion denying the former executive bail during his appeal. Skilling’s lawyers claim those counts are also tainted by the invalid theory and must also be retried.

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

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