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High Court Sides With Enron CEO Skilling

The Supreme Court rules that a fraud conviction against former Enron CEO Jeffrey Skilling can't stand.

NEW YORK (

TheStreet

) -- The Supreme Court overturned on Thursday morning a U.S. Fifth Circuit court ruling that former Enron CEO Jeffrey Skilling was guilty of defrauding investors under what is known as an "honest services" test.

The Supreme Court denied the former Enron CEO's argument that pretrial publicity prevented Skilling from receiving a fair trial. However, the highest court in the land held that the jury improperly convicted Skilling on the charge of conspiracy to commit "honest services" wire fraud.

Former Enron CEO Jeffrey Skilling

The ruling sends the case back to a lower court to be reviewed. Writing the majority opinion, Justice Ruth Bader Ginsburg said that the court's finding fault with the test applied to the fraud conviction did not mean Skilling's conviction should necessarily be overturned.

Chapter 18, section 1346 of the U.S. Code states in pertinent part, "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Essentially, the statute makes it a crime to use mail, wire services or other electronic means to commit acts that deprive another of honest services, according to a report from the law firm of Parkman, Adams & White.

Congress passed the law in 1988 in response to the Supreme Court's decision in U.S. v. McNally, a case where the Court struck down the mail-fraud convictions of two Kentucky politicians involved in a workers' compensation kickback scheme. It rejected the honest services theory and determined that the federal mail fraud statute only applied to schemes and artifices that deprived victims of money or property, and not to those ostensibly depriving citizens of their right to good governance, the law firm of Parkman, Adams explained in a recent report on the Skilling case.

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Since then, the honest services law has been a favorite tool for federal prosecutors in pursuing public corruption cases. It has been instrumental in a number of high profile public scandals, including the prosecution of Washington lobbyist Jack Abramoff, former congressman William Jefferson, former governors Don Siegelman and Rod Blagojevich, and Enron executives, the law firm of Parkman, Adams noted in its Skilling Supreme Court decision preview.

The law firm noted that since the statute is short and vague, an honest services fraud case may be easier to prove than bribery. It may also apply to a much wider range of conduct (some of which may only offend ethical or fiduciary rules) and may carry greater penalties for those convicted.

The Supreme Court ruled that in proscribing fraudulent deprivations of "the intangible right of honest services," Congress intended at least to reach schemes to defraud involving bribes and kickbacks and that the Skilling ruling construed the honest-services statute to extend beyond that core meaning. "We therefore hold that section 1346 covers only bribery and kickback schemes. Because Skilling's alleged misconduct entailed no bribe or kickback, it does not fall within 1346's proscription."

-- Reported by Eric Rosenbaum in New York.

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