Enron's Jeffrey Skilling Will Get Rough Justice

Former Enron CEO Jeffrey Skilling, center, at the federal courthouse in Houston, on Oct. 23, 2006 Photograph by David J. Phillip/AP Photo

Jeffrey Skilling’s get-out-of-jail-early gambit illustrates the rough nature of white-collar justice in America.

As a result of an elaborate deal with the Justice Department, the convicted former Enron chief executive may get out of prison in as little as four years. Understandably, victims of one of the biggest corporate frauds in U.S. history are going to object, and I’m not here to offer Skilling any sympathy. A jury determined he spearheaded an epic fraud that destroyed the world’s largest energy-trading company in 2001 and cost 5,000 employees their jobs. About $1 billion in worker retirement funds were wiped out. Skilling has been in federal prison since December 2006. Under the new deal, which requires a judge’s approval, he could get out as early as 2017 or 2018, assuming he continues to behave himself behind bars.

Outrageous as it may seem that Skilling would be shown any lenience, his case was never as simple as one in which the bad guy is caught red-handed sticking a pistol in the face of a 7-Eleven clerk. His arrogance and greed were never illegal. And the actual statutes under which he was convicted are not straightforward. The judge and prosecutors made mistakes that, had they surfaced before Skilling was issued his jumpsuit, might have gotten him off altogether.

In the end, if he serves a dozen years and forfeits serious money, that seems like something approaching a suitable punishment.

To review: U.S. District Judge Sim Lake of Houston originally sentenced Skilling, now 59, to 24 years behind bars. The ex-CEO and Enron Chairman Kenneth Lay were convicted of conspiring to use off-the-books partnerships to manipulate the company’s finances and mislead investors about its true condition. Lay died before he could appeal.

Skilling never accepted his fate. In 2010, the U.S. Supreme Court heard Skilling’s appeal and agreed that his conviction rested in part on a hopelessly vague and therefore invalid legal theory known as the “theft of honest services.” The federal appeals court based in Atlanta reviewed the case in 2011 and, in a burst of common sense, concluded that, despite the government’s flawed prosecution, Skilling had demonstrated ample dishonesty to warrant upholding his criminal punishment.

The appellate court noted, however, that not only had the government proceeded on a problematic theory; Judge Lake had also made a technical mistake in how he applied the federal sentencing guidelines. So the intermediate court ordered Lake to recalculate the sentence.

As part of the compromise that prosecutors and Skilling’s defense team have presented to Lake, the defendant agreed to forfeit $40 million and forgo his anticipated demand for a new trial. For some time, Skilling’s lawyers have indicated they would seek a retrial based on allegations that the government failed to turn over evidence of inconsistencies in testimony by Andrew Fastow, Enron’s former chief financial officer and a key prosecution witness against Skilling. The Justice Department has denied any misconduct, but given the slipperiness of all concerned in the Enron affair, the notion that Fastow may have contradicted himself is anything but far-fetched.

In a phone interview with Bloomberg News, Skilling’s lead lawyer, Daniel Petrocelli, said: “The proposed agreement will bring certainty and finality to a long, painful process, although the recommended sentence for Jeff would still be more than double that of any other Enron defendant, all of whom have long been out of prison.”

The sentencing deal “will put an end to the legal battles surrounding this case,” the Justice Department said in an e-mailed statement. “Mr. Skilling will no longer be permitted to challenge his conviction for one of the most notorious frauds in American history, and victims of his crime will finally receive the more than $40 million in restitution they are owed.”

As any longtime observer can attest, Lady Justice is rarely precise. Skilling and his antagonists at Justice agree they can live with an imperfect resolution to one of the great corporate fiascos of all time. Without any enthusiasm, one is tempted to agree.

    Before it's here, it's on the Bloomberg Terminal.