The Supreme Court has found flaws in the conviction of former Enron CEO Jeffrey Skilling on the basis of the “honest services” statute, and remanded the case back to a lower court to address them.

The appeals court decision was affirmed in part, vacated in part and remanded. Justice Ruth Bader Ginsburg, in an opinion supported in varying degrees by other justices, found that the honest-services statute only applies to bribery and kickback schemes.

The indictment in the case had charged Skilling with conspiracy to commit honest services wire fraud by depriving Enron and its shareholders of the intangible right of his honest services. The energy-trading firm collapsed in 2001 in part due to fraudulent accounting practices, inflating the company's financials by misusing mark-to-market accounting. After a four-month trial in 2006, a jury found Skilling guilty of 19 counts, including the honest-services fraud conspiracy charge and not guilty of nine insider trading counts.

“The government charged Skilling with conspiring to defraud Enron’s shareholders by misrepresenting the company’s fiscal health to his own profit, but the government never alleged that he solicited or accepted side payments from a third party in exchange for making these misrepresentations,” wrote Ginsburg for the court. “Because the indictment alleged three objects of the conspiracy — honest-services wire fraud, money or property wire fraud, and securities fraud — Skilling’s conviction is flawed. This determination, however, does not necessarily require reversal of the conspiracy conviction, for errors of the Yates variety are subject to harmless error analysis. The court leaves the parties’ dispute about whether the error here was harmless for resolution on remand, along with the question whether reversal on the conspiracy count would touch any of Skilling’s other convictions.”

The court also ruled that the pre-trial publicity in the case and community prejudice did not prevent Skilling from getting a fair trial in the company’s hometown of Houston.Skilling is currently serving a 24-year prison sentence.

Justice Sonia Sotomayor filed a partial dissent, supported by retiring Justice John Paul Stevens and Justice Anthony Kennedy. In her dissent, Sotomayor disagreed with the court’s determination that Skilling had a fair trial before an impartial jury. Justices Antonin Scalia, Clarence Thomas, and Anthony Kennedy said they would have ruled the honest services statute unconstitutional.

In a separate but related case, the court ruled Wednesday that Hollinger International's former chief Conrad Black also did not violate the honest services statute and that the judge's instructions to the jury had been incorrect. He had been convicted of several fraud counts, but acquitted of others. Black had been accused of violating the statute in siphoning off money from the newspaper publishing company to support a lavish lifestyle. His case will also go back to a lower court to decide.

The court also ruled against the honest services statute in another case involving an Alaska state representative, Bruce Weyhrauch, who had been charged with violating the statute by voting on a tax law while seeking a job with a company that had an interest in getting the tax law passed.

The court has not yet ruled on an eagerly anticipated case involving the constitutionality of the Public Company Accounting Oversight Board, but it is likely to issue a ruling next Monday as the court’s term comes to a close.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access