High court reins in prosecutors' use of fraud law

[June 25, 2010]  WASHINGTON (AP) -- The Supreme Court on Thursday sharply curtailed prosecutors' use of an anti-fraud law that was central in convicting politicians and corporate executives in many of the nation's most prominent corruption cases. The ex-CEO of disgraced energy giant Enron and a Canadian media mogul, both in prison, are among the figures who could benefit from the ruling.

The justices voted 6-3 to keep the law in force, even as they joined unanimously in weakening it, and left it to a lower court to decide whether Jeffrey Skilling, the former Enron boss, and Conrad Black, the former newspaper owner, should have their convictions stemming from "honest services" fraud overturned.

The "honest services" law has been criticized by defense lawyers as the last resort of prosecutors in corruption cases that lack the evidence to prove that money is changing hands. It also has been called vague, subjecting people to prosecution for mistakes and minor transgressions in the business and political worlds. But watchdogs consider it key to fighting white-collar and public fraud.

Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, said the decision "deprives prosecutors of an important tool in their efforts to fight public corruption. Previous convictions may be vacated and corrupt officials will have an easier time escaping accountability for their misdeeds."

The court, in an opinion written by Justice Ruth Bader Ginsburg, said prosecutors may continue to seek honest services fraud convictions in cases where they put forward evidence that defendants accepted bribes or kickbacks.

"Because Skilling's misconduct entailed no bribe or kickback, he did not conspire to commit honest-services fraud under our confined construction" of the law, Ginsburg said. Three justices, Anthony Kennedy, Antonin Scalia and Clarence Thomas, would have found the law unconstitutional.

Thursday's decision does not necessarily mean that any of the 19 counts against Skilling or four counts against Black will be thrown out, Ginsburg said. At the same time, by a 6-3 vote, the court rejected Skilling's claim that he did not get a fair trial in Houston because of the harsh publicity surrounding the case in Enron's hometown.

It is unclear whether any convictions will be overturned or prison sentences reduced as a result of the decision, lawyers familiar with the fraud law said. Determinations will have to be made case by case.

But there is no doubt how important the law has been to prosecutors. Supreme Court nominee Elena Kagan said recently that the honest services cases at the high court were the ones that mattered most to the Justice Department.

Justice Department spokeswoman Tracy Schmaler said prosecutors would continue to urge that honest services convictions for Skilling, Black and others be upheld. "While we are disappointed that today's Supreme Court decisions narrowed the honest services statute, we are pleased that the Court upheld many of the core provisions that have been used for decades to prosecute corrupt public officials and corporate executives who have breached their duties to their constituents, clients, and investors," Schmaler said.

Lawyers for the two men say that the entire case against them should be thrown out. "This paves the way for a reversal of the convictions of Mr. Skilling and to a complete exoneration," said Daniel Petrocelli, Skilling's lawyer.

Miguel Estrada, who represented Black at the Supreme Court, said, "We are confident the lower courts will quickly conclude that the errors that the Supreme Court has now conclusively found tainted every aspect of this case. We look forward to helping Mr. Black regain his freedom."

Honest services charges have figured in convictions won against former Govs. George Ryan of Illinois and Don Siegelman of Alabama, and former Reps. Randy "Duke" Cunningham of California, William Jefferson of Louisiana and Bob Ney of Ohio.

Former New York Senate leader Joseph Bruno is facing two years in prison after being convicted under the same federal statute, and the judge in his case said he is reviewing the court's decision. Former Illinois Gov. Rod Blagojevich faces honest services charges in his ongoing trial, although the judge in that case said Thursday the high court ruling might not be of much help to Blagojevich.

Honest services charges also have been used regularly in public corruption cases stemming from the Jack Abramoff lobbying scandal, including in the pending retrial of former Abramoff associate Kevin Ring.

The new limits will lead to another hearing for Black and could mean the end of federal prosecutors' case against former Alaska lawmaker Bruce Weyhrauch.

Donald Ayer, a Washington lawyer who represented Weyhrauch, said the ruling will put the brakes on prosecutors' increasingly aggressive and creative efforts to win convictions under the 28-word fraud law that makes it a crime "to deprive another of the intangible right of honest services."

Skilling was convicted in 2006 of conspiracy, securities fraud, insider trading and lying to auditors for his role in the downfall of the once-mighty Houston-based energy giant. The company collapsed into bankruptcy in 2001 under the weight of years of illicit business deals and accounting tricks. Skilling is serving a sentence of more than 24 years at a minimum security prison outside Denver, although a federal appeals court had ordered a re-sentencing even before Thursday's decision.

Black, serving a 6 1/2-year prison term, and two other former executives were convicted of depriving the Hollinger International media empire of their faithful services as corporate officers. The company once owned the Chicago Sun-Times, The Daily Telegraph of London, The Jerusalem Post and hundreds of community papers across the United States and Canada.

Central to the case is $5.5 million that the defendants say were management fees they were owed and were trying to collect in such a way that they would not have to pay Canadian income tax. The government says the money belonged to the company's shareholders.

Weyhrauch wants charges against him dropped. Prosecutors allege that he failed to disclose he was in job negotiations with an oil-field operations company at the same time the state legislature was also considering an oil bill. Weyhrauch says disclosure was not required by Alaska law.

[Associated Press; By MARK SHERMAN]

Associated Press writer Juan Lozano in Houston contributed to this report.

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