Wednesday, November 15, 2006
The government's effort to convict executives from Enron's Broadband Unit on fraud charges suffered another blow when prosecutors conceded error in four of the five counts of conviction of Kevin Howard, the former CFO of the unit. After the first Broadband proceeding against five defendants ended in a mistrial after a mind-numbingly dull presentation, the government broke the prosecution into three parts and succeeded in convicting Howard in May on conspiracy, wire fraud, and false books-and-records charges. The unit's former chief accounting officer was acquitted. Problems arose in August, however, when the Fifth Circuit reversed the fraud convictions of three defendants from the Enron Nigerian Barge trial that were based on a right of honest services theory, which the court found did not apply to corporate officers who believed they were acting in the company's best interests (U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006).
In a brief filed with U.S. District Judge Vanessa Gilmore (available below), prosecutors state that the same problem that infected the convictions in Brown are present in Howard's case, so the court should vacate four convictions. The indictment alleged both money/property and right of honest services fraud, so prosecutors could retry him on the theory that his misstatements deprived Enron of property, although that may be a more difficult case to establish because the government must prove a loss to the victim. Prosecutors also argued that the fifth count should stand because it is not based on the right of honest services theory, which only applies to fraud charges and not false records. A key issue will be whether the court finds that there was prejudicial spillover from the conspiracy and fraud counts that taint the books-and-records conviction, which may result in a new trial on all the charges. If Judge Gilmore denies the motion to vacate the fifth count, it will certainly come up in an appeal to the Fifth Circuit. (ph)