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U.S. Supreme Court Clarifies "Honest Services" Fraud

The U.S. Supreme Court has ruled that a lower court must reexamine the conviction of former Enron executive Jeffrey Skilling.

Prosecutors had convicted Skilling under a portion of the mail-fraud statute that makes it illegal to deprive someone of “honest services.” The honest services law was meant to tackle fraud cases in which no party suffered a loss. The idea behind the law was certain actions, such as a government official colluding to give a contract to a favored constituent, for example, is still illegal even if the government receives fair terms on that service. However, the law does not set out exactly what sort of actions are illegal under the honest services theory.

Starting in the 1940s, appellate courts applied the honest services doctrine to bribery of public officials. However, over time, the courts began to apply the concept to private industry as well. Usually, the theory was used in cases where a person accepted bribes or kickbacks but the company did not suffer from those actions. But the doctrine also applied to other types of fraud.

Skilling was convicted for wire fraud under the honest services theory for conspiring to defraud Enron’s shareholders by misrepresenting the company’s financial health. However, Skilling could not be charged for this crime under another statute because he never solicited or accepted payment from a third party in exchange for making these misrepresentations. The government argued that Skilling’s actions were illegal because he deprived the company and its shareholders of honest services.

In appealing his conviction under the honest services theory, Skilling argued that he cannot be convicted under the statute because it does not clearly state that his actions were illegal. The U.S. Supreme Court agreed with Skilling, ruling that because most cases under the honest services doctrine involved bribes and kickbacks, the Court determined that the law applies only to bribes and kickbacks (.pdf of decision below). Thus Skilling’s conviction on that count must be thrown out, ruled the Court. This did not invalidate the government’s entire case against Skilling, however. The Court ruled that the conviction, including counts of fraud and conspiracy can be reexamined by a lower court.

Justice Scalia issued a dissenting opinion on this issue, arguing that the statute should be thrown out because it is too vague rather than be rewritten to make it less so. In his written dissent, Scalia wrote that “…it is obvious that the mere prohibition of bribery and kickbacks was not the intent of the statute. To say that bribery and kickbacks represented ‘the core’ of the doctrine, or that most cases applying the doctrine involved those offenses, is not to say that they are the doctrine. All it proves is that the multifarious versions of the doctrine overlap with regard to those offenses. But the doctrine itself is so much more.”

(Skilling v. United States, U. S. Supreme Court, No. 08-1394, 2010)​​Skilling v. U.S.pdf