Saturday, September 8, 2007
Former Enron CEO Jeffrey Skilling's counsel delivered the opening brief to the U.S. Court of Appeals for the Fifth Circuit challenging the convictions -- although "brief" may not be entirely accurate as the filing comes in at a hefty 237 pages, roughly 60,000 words according to the Wall Street Journal Law Blog (here). Former Acting Solicitor General Walter Dellinger, head of the appellate group at O'Melveny & Myers, likely will argue the case on Skilling's behalf.
Skilling's brief makes four main arguments for reversal of the conviction: (1) the "right of honest services" theory in the indictment as one basis for finding the mail/wire fraud conspiracy has since been discredited by the Fifth Circuit, and affects the other counts requiring their reversal; (2) flawed instructions on "materiality" and "deliberate ignorance" (aka the Ostrich Instruction); (3) prejudice from the denial of the change of venue motion; (4) insufficient voir dire to allow Skilling to flesh out prejudice. Skilling's strongest argument is the first, based on the Fifth Circuit's decision in U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006), issued in August 2006 -- about three months after his conviction -- that overturned the fraud convictions of defendants in the Enron Nigerian Barge Trial. The court held that an employee who believes his acts were for the benefit of the corporation cannot have the intent to deprive the company of the person's honest services. That theory was one of three charged in the indictment for the fraud conspiracy count, and because the jury did not identify which theory was the basis for its conviction, the charge will in all likelihood be reversed. In fact, the federal prosecutors may well concede that the conspiracy count must be reversed under Brown, a position the government took in the district court on review of convictions of one defendant in the Enron Broadband Trial.
Even if the conspiracy count gets reversed, the interesting question is how much effect the flawed honest services theory will have on the other convictions. The defense brief argues that all the other counts must be reversed because of prejudicial spillover from the evidence admitted on the improper conspiracy count. The government's likely response will be that at least the false filings with the SEC and insider trading counts should survive because they are unrelated to the conspiracy count. The insider trading charge does not require proof of a scheme to defraud in the same way that the mail/wire fraud conspiracy count does, being based on trading while in possession of material nonpublic information in breach of a duty of trust and confidence. The false filing counts do not require any intent to defraud, and so may be sufficiently distinct that the error from the honest services fraud theory does not affect them. The Fifth Circuit will have to assess the prejudice arising from the improper instruction on honest services, which is very hard to predict.
I think the other arguments are more difficult for Skilling to win. The jury instruction issues will require the court to analyze whether U.S. District Judge Sim Lake made legal errors, and then an assessment of prejudice if there were any. In Skilling's favor is the fact that the honest services issue could have its own spillover effect if the Fifth Circuit finds error in the instructions, making it easier to find prejudice and reverse the convictions because of the number of errors in the trial. The venue and voir dire claims are very hard arguments to win because the district court has wide discretion in those areas, and cases with far more prejudicial news coverage than this one have survived venue challenges.
Skilling's final argument concerns his sentence of more than 24 years in prison, which he has already begun serving. Assuming the conspiracy conviction is overturned, then even an affirmance on the other counts probably would require a resentencing so that Judge Lake can base the sentence on only those convictions upheld by the Fifth Circuit. Whether the reasonableness argument gains traction with the Fifth Circuit remains to be seen. The court did reject a similar sentence in the Jamie Olis case, also handed down by Judge Lake, although the loss calculations were different given the demise of Enron versus the continued viability of Dynegy, Olis' former employer.
The filing is available below, but check to make sure you have enough ink in the printer if you decide to go that route. (ph)
Blog co-editor Ellen Podgor offers the following views on Skilling's brief:
The definition and inclusion of honest services as a basis for a fraud conviction is controversial in part because of the language used by Congress in trying to restore a theory that would allow the government to prosecute alleged frauds after the United States Supreme Court rejected intangible rights cases in the McNally decision.