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by Shaw, Bransford & Roth, P.C.
July 29, 2010
In a Supreme Court decision, Skilling v. U.S., issued just before the Court's summer recess, the Court decided the issue of whether the honest-services statute, which is widely used by prosecutors to charge defendants in corruption cases, is unconstitutionally vague. The Court decision stated that it "now hold[s] that §1346 [the honest-services statute] criminalizes only the bribe-and-kickback" schemes. The Court also determined that the petitioner's conduct in this case, a former Enron executive, did not fall within the honest services statute's compass.
This case involves the petitioner, Jeffrey Skilling, a longtime Enron officer and Enron's chief executive officer from February until August 2001 when he resigned. Less than four months after Skilling's resignation, Enron crashed into bankruptcy and its stock value plummeted. The government conducted an investigation on Enron and found an elaborate conspiracy involving Enron propping up its stock prices by overstating the company's financial well-being. The government indicted Skilling and two other Enron executives for engaging in a scheme to deceive investors about Enron's true financial performance. One of the counts of Skilling's indictment charged him with conspiracy to commit "honest-services" wire fraud, 18 U.S.C. §§371, 1343, 1346, "by depriving Enron and its shareholders of the intangible right of his honest services," along with charges of security fraud, wire fraud, making false representations to Enron's auditors, and insider trading. A jury found Skilling guilty of 19 counts, including the honest-services fraud charge. Skilling appealed to the U.S. Court of Appeals for the Fifth Circuit to claim in part, that the honest-services statute should be invalidated as unconstitutionally vague. The Court of Appeals affirmed the lower court decision. The Supreme Court granted certiorari.
To place Skilling's claim that § 1346 is unconstitutionally vague in context, the Court reviewed the origin and subsequent application of the honest-services doctrine. The Court found that over time, courts applied the honest services doctrine to a private employee who breached his allegiance to his employer, often accepting bribes or kickbacks. Looking at the Congressional intent of the statute, the Court determined that construing the honest services statute to extend beyond that core meaning of accepting bribes or kickbacks "would raise the due process concerns underlying the vagueness doctrine."
The Supreme Court held that prosecutors have stretched too far this federal statute, that makes it a crime to deprive the public or a company of the "intangible right of honest services." The Court held that the statute should be limited to reach schemes to defraud involving only bribes or kickbacks, not the self-dealing or conflict-of-interest schemes previously prosecuted.
The Court ultimately found that Skilling did not violate § 1346 because the government had "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." Thus, the Court determined that because Skilling's alleged misconduct entailed no bribe or kickback, it did not fall within § 1346's proscription. Therefore, the Court affirmed in part and vacated in part.
The case is Skilling v. U.S., No. 08-1394, dated June 24, 2010.
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