The Wall Street Journal
What will likely be the last, best chance for former Enron Corp. President Jeffrey Skilling to get out of prison soon is scheduled to be heard in a Houston federal court on Monday.
A three-judge panel of the Fifth U.S. Circuit Court of Appeals will hear arguments about how many, if any, of the 19 felony counts on which Mr. Skilling was convicted in 2006 should be overturned as a result of the landmark Supreme Court decision in his case.
The Supreme Court in June found that the Justice Department had been misapplying a crime theory, known as "honest services" fraud, in Mr. Skilling's case and others. The court held that honest-services fraud could only be used when someone failed to live up to his fiduciary duties as a result of taking a bribe or kickback, which wasn't alleged in the Skilling case.
The ruling raised immediate hopes among his defenders that Mr. Skilling, who is incarcerated at a federal facility in Colorado and has served nearly four years of a 24-year sentence, might soon be released.
The Supreme Court's Skilling decision sparked a wave of defense requests to throw out cases that used the honest-services fraud theory, and some have been dropped. At the same time, observers believe that the fate of Mr. Skilling, an emblematic figure of this century's first big wave of corporate scandals, remains in doubt.
The Supreme Court decision "could turn out to be a major victory for the defense bar but a pyrrhic one for Mr. Skilling," says Jacob Frenkel, a former federal prosecutor and enforcement attorney for the Securities and Exchange Commission who is now in private practice in Potomac, Md.
Mr. Frenkel believes the appellate panel could uphold much and possibly all of the case against Mr. Skilling on the theory that prosecutors had proven their case on grounds other than honest-services fraud.
Rather than ruling on the validity of Mr. Skilling's conviction—which included conspiracy, securities fraud and insider trading counts—the Supreme Court sent the matter back to the same Fifth Circuit panel that had previously upheld his conviction with the instruction to determine whether its honest-services decision required the dismissal of any or all of the 19 counts.
One potentially bad sign for Mr. Skilling came when a member of his three-judge panel recently turned down his request for bail following the Supreme Court decision. Legal observers say that decision suggests the panel doesn't yet believe the Supreme Court decision will knock out enough of the case to result in Mr. Skilling's immediate release.
Mr. Skilling's lawyers argue that all 19 counts were tainted by the use of honest-services fraud theory and thus should be overturned and their client given a new trial.
Mr. Skilling's "convictions are presumptively invalid" and there isn't any way for the government to prove that jurors didn't rely on the honest-services fraud theory to reach their verdicts, one defense court filing says. The filing also notes that one Fifth Circuit judge in a 2006 ruling wrote that use of the honest-services fraud theory created "serious frailties" in 14 of the 19 counts. However, that jurist isn't a member of the current three-judge panel.
In a recent interview, Daniel Petrocelli, Mr. Skilling's lead defense attorney, said "the law requiring reversal is extremely favorable to our position given the record of our case."
For Mr. Skilling, he added, the upcoming hearing and subsequent decision are "crucial to the rest of his life."
A government court filing counters that none of the counts needs to be overturned. Prosecutors at the 2006 trial sufficiently proved their case under the still-valid criminal theory of securities fraud and therefore any use of honest-services fraud was a "harmless" error, the filing says.
The 2006 trial, the filing says, "overwhelmingly demonstrated that Skilling participated in a conspiracy to commit securities fraud by manipulating Enron's earnings…and deceiving the investing public."
A Justice Department spokesman declined to comment.
The appellate panel could take several weeks or months to hand down a decision.
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