Thursday, February 1, 2007

Enron Conviction Falls

No, it's not Jeffrey Skilling, that would merit major headlines.  The convictions of Kevin Howard, the former CFO of the Enron Broadband unit, were overturned by U.S. District Court Judge Vanessa Gilmore (opinion available below).  A jury convicted Howard in May, 2005, just a few days after the verdict in the Lay/Skilling trial in the same courthouse in Houston, of conspiracy, wire fraud, and falsifying books and records related to transactions at the Broadband division.  The government conceded in November 2005 that the Fifth Circuit's decision in United States v. Brown, 459 F.3d 509 (5th Cir. 2006), overturning the fraud convictions in the Enron Nigerian Barge trial controlled four of the five counts in Howard's case.  In Brown, the appellate court found that the government's theory of wire fraud based on deprivation of the right of honest services was improper because the defendants believed that their interests were aligned with the company's, and therefore they did not have the intent to defraud even if they breached their fiduciary duty.  The government used the same theory in the Broadband prosecution, and so the fraud and conspiracy convictions had to be reversed because the jury verdict did not provide any indication about whether the improper legal theory played a role in the decision.

The fifth conviction, for falsifying books and records, was different because it did not involve proof of an intent to defraud.  Judge Gilmore reversed the conviction, however, because one basis on which the jury could find Howard guilty was by applying the Pinkerton doctrine that would permit a conviction because of his participation in the conspiracy.  This gets tricky, but it works like this: the court instructed the jury that it could find Howard guilty based on his knowledge of the falsified books, or based on his participation in the conspiracy.  Under Pinkerton, if a person is a member of a conspiracy, then that person is liable for all the crimes committed by any other member of the conspiracy, even if they did not do anything themselves for that crime.  The conspiracy finding, in turn, could be based on an agreement to commit wire fraud based on the improper honest services theory.  Because the wire fraud charge was tainted by the bad honest services theory, the conspiracy falls, and because the falsifying records charge could have been based on the bad conspiracy charge, so it too must it be reversed.  Kind of like knocking down the first in a row of dominoes -- once one goes, they all go.

The government can retry Howard on all of the counts because the reversal was based on legal error and not insufficient evidence.  This would be the third trial for him, however, the first having ended in a hung jury after a presentation that was at best stultifying.  With the Enron Task Force dissolved, the decision shifts to the U.S. Attorney's Office for the Southern District of Texas, which still has an indictment of three other Broadband defendants to pursue and a decision to make on whether to retry the Nigerian Barge defendants whose convictions were overturned in Brown.  Does that office have the resources and commitment to continue these cases, especially when it also has the NatWest Three on the docket? (ph -- thanks to Tom Kirkendall of the Houston's Clear Thinkers blog for providing the Judge's order)

Download enron_broadband_order_jan_31_2007.pdf

http://lawprofessors.typepad.com/whitecollarcrime_blog/2007/02/enron_convictio.html

Enron, Judicial Opinions | Permalink

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