On Tuesday, the Fifth Circuit ruled on Jeff Skilling’s appeal from his conviction in the Enron case, upholding the conviction, but sending the case back for re-sentencing. Skilling may be able to raise a Brady issue on remand, as well, so the case doesn’t seem to be over. The opinion is 106 pages long, so we will summarize the ruling and its meaning for you here.
Skilling challenged his conviction, on the grounds that the government’s theory of “honest services” fraud was wrong. The government’s case let the jury decide on three purposes of Skilling’s conspiracy, one of which was to deprive Enron of the honest services of its employees. Because the jury returned a general verdict, if any one of those legal theories was insufficient, then the verdict must be reversed.
Skilling focused on the honest services theory, arguing that it was insufficient because his actions were done to give Enron a higher stock price, so it was in the corporate interest. He didn’t act in secret, and wasn’t self-dealing.
In making this argument, Skilling relied on the Circuit’s previous Enron case, United States v. Brown, 459 F.3d 509. In that case, a loan secured by Nigerian barges was fraudulently booked as revenue. The defendants in that case were specifically ordered by their CFO, Andy Fastow, to carry out the deal. Not only did they believe that Enron had a corporate interest in the scheme, and was a willing beneficiary of it, but their superiors ordered and approved their actions. Furthermore, they were paid more depending on whether they successfully achieved the goal.
The Court held that Skilling’s reliance on Brown was misplaced. The Brown rule absolves low-level employees of liability for honest-services fraud when:
1) the employer creates a particular goal,
2) the employer aligns the employees’ interests with the employer’s interest in achieving that goal, and
3) higher-level management authorizes or orders improper conduct in order to reach the goal.
Here, the first two conditions were met, but the third was not. Condition 1 was met when Enron created a goal of meeting Wall Street earnings projections. Condition 2 was met as Skilling got paid more if Enron met those projections. But condition 3 was not met, as there was no evidence that anyone besides Skilling authorized his conduct. The Board tacitly approved several of the underlying transactions, but never authorized him to engage in fraudulent conduct.
Because the third condition was not met, the Brown rule does not absolve Skilling of his liability. His conviction was therefore upheld.
With respect to sentencing, Skilling argued that the district court got the Guidelines calculation wrong, and that the sentence is unreasonable under §3553. The Court didn’t get to the §3553 issue, because it held that the Guidelines calculation was indeed incorrect, and a court has to do the Guidelines right before the §3553 factors come into play.
Skilling appealed a §3C1.1 two-level enhancement for obstruction of justice, and a §2F1.1(b)(8)(A) four-level enhancement for jeopardizing a financial institution.
The §3C1.1 enhancement was based on a determination that Skilling perjured himself as to his sale of Enron stock right after he resigned from the company. He’d tried to sell his stock while still CEO, but it would have had to be reported. So he resigned, then tried to sell his stock. But then September 11 happened, and he wasn’t able to sell until September 17. Skilling testified to the SEC that his order to sell on September 17 was due to his concerns over the market’s reaction to 9/11. The judge decided that was perjury.
On appeal, skilling didn’t argue that it wasn’t perjury. Instead, he argued that the court should have suppressed his SEC testimony in the first place, because the SEC misled him as to the fact that the investigation was criminal in nature.
The Circuit, however, pointed out that suppressible evidence can still be used at sentencing, and none of the exceptions to that rule apply here. The Court also found no justification for the original perjury. So the two-level enhancement was proper.
The §2F1.1(b)(8)(A) enhancement was based on the finding that Enron’s retirement plans were “financial institutions” for the purposes of that Guideline. Retirement plans aren’t specifically mentioned in the Guideline’s definition, which enumerates a long list of included entities. Various kinds of pension funds are included, however. And the list does include a catch-all “any similar entity.”
With respect to “pension funds,” the Guidelines don’t define the term. But a pension requires more than just employee investment for later payout — a pension has definitely determined payouts. Here, the retirement funds didn’t have specific benefits, they were just there as a pool for funding any benefits that might be given. So the Court decided they didn’t count.
With respect to the catch-all, apart from pension funds, the Guideline definition lists classic financial institutions like banks, investment houses, and the like. The Court did not want to expand the definition to declare every corporate retirement plan to be a financial institution.
Because the retirement plans weren’t financial institutions, the four-level enhancement was improper. So Skilling’s sentence was vacated, and the case was remanded for resentencing.
In addition to these main issues, the Court also rejected Skilling’s other challenges to his trial. Giving a “deliberate ignorance” instruction was at worst harmless error. None of the other jury instructions were problematic. The venue was proper. There was no prosecutorial misconduct.
Interestingly, however, the Court specifically stated that Skilling can raise Brady issues on remand. An FBI interview note showed that Andy Fastow didn’t think he had discussed a certain list with Skilling. This was omitted from the formal “302” report provided to the defense. Skilling claims that Fastow was talking about a list of talking points that Fastow had testified at trial he actually had discussed with Skilling.
The Circuit found this troubling, but the trial court never saw the notes or ruled on this claim, so nothing could be decided on appeal. But the Court instructed that “Skilling must bring this claim to the district court before we can address it.”
Therefore, Skilling might be able to get a new trial! If Skilling can show that there was a Brady violation, this case could be far from over. The government claims that the list in question is unrelated to the case, however, so we’re just going to have to wait and see.