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The Supreme Court's Ruling On "Honest Services" Theft

Publication Date: 
June 25, 2010
Source: 
Time
Author: 
Deirdre Van Dyk

Professor Robert Weisberg is quoted on the U.S. Supreme Court's ruling on the "honest services" law. Deirdre Van Dyk of Time filed this story:

Former Enron chief executive Jeffrey Skilling scored a partial victory Thursday when the Supreme Court sharply limited a law that prosecutors routinely rely on to convict corporate executives and government officials, the 'Honest Service' law. TIME's Deirdre van Dyk spoke to Robert Weisberg, professor at Stanford Law School and co-director of the Stanford Criminal Justice Center, about how this decision may affect the case against Skilling and other prosecutions, such as the trial of former Illinois Governor Rod Blagojevich.

Explain the Enron case to us, and why the court ruled on this.
The gist of the charge against Skilling was that he misrepresented the earnings of the company. The prosecutors also had a securities fraud count in this case. But the government didn't have enough confidence in that part of the case and it blended securities fraud with an honest services fraud in a conspiracy count. The Honest Services law purports to make it a federal crime to deprive someone of "honest services" to which that person is entitled. If that sounds unbelievably broad and vague, it is. And the court agreed. (See the top 10 crooked CEOs.)

Where did the prosecutors go wrong?
If Skilling is accused of lying about the financial health of the company, then the proper charge should've simply been material misrepresentation under securities fraud. Because they asked for too much, the government is now in the position of having to establish, in the lower court, that the conspiracy charge can still stand under the security fraud theory because it was not infected by the 'honest services' theory, which has now been struck down.

So what happens to other cases that were successfully prosecuted using the statute?
It's going to allow for other cases to be appealed more successfully, or even reopened. Those prosecutors who invested in this particular statute as a way of strengthening their cases are going to face the risk of their cases being overturned. But in white collar crime, you get a lot of guilty pleas, because the defendant cooperates, and it's really hard to reopen a case when you have a guilty plea. (See a TIME cover story on Enron's fall.)

What other cases might be overturned?
Well, in addition to Conrad Black, the Canadian financier who was busted for fraud, there are a lot of other cases kicking around in the lower courts. Some of them involve politicians. It might even involve parts of the Rod Blagojevich case. I say "parts: because if the former Illinois Governor took bribes, he can still be convicted. But to the extent that politicians just feathered their own nests and engaged in illicit patronage — appointing relatives to office — that might not be punishable under this act. There's also the issue of former New York state Senate majority leader Joseph Bruno, who may reopen part if not all of his case. He was convicted of financial conflict of interest under the "Honest Services" act, and prosecutors never formally charged that he took bribes or kickbacks.

...

How did the "Honest Services" law ever get on the books?
There's a funny history here. In the early 1980s Federal prosecutors started to get federal jurisdiction over bribery cases involving public officials at the state level. So they came up with this theory: well, this is fraud case, and fraud has to be a kind of theft. These public officials did kind of steal something — their constituents right to honest government. That's the so-called "intangible rights" theory.

But in 1987, the Supreme Court said, no, fraud really has to be about property, not this intangible stuff. Congress didn't like this ruling. So they re-legislated the section at issue here in 1988, but they overdid it with this ridiculous statute saying honest services could be the predicate for mail or wire fraud.

Prosecutors said, oh my God, we've died and gone to heaven, we can prosecute anything under this! For instance, if you use your TIME office phone or computer to talk to your relatives, well, look what you've done. Your employer was entitled, by virtue of your employment contract, to your honest services. Hmm, you kind of violated those duties. You could be prosecuted for a federal crime. I've spoken to prosecutors over the years who said, oh this is a great law, we don't have to rely on these technicalities that tell you what a crime is, we can use our own good judgment about when someone is sleazy enough to be a federal criminal. This is not reassuring.

Might Congress try to legislate around Thursday's Supreme Court's ruling?
There's a line and a footnote in the opinion that shows how hard it would be to do anything about it. Essentially what it says is, it's hard to define a dishonesty fraud, other than bribery. Abusing your position in order to benefit yourself, in all the ways people can do that, that's pretty hard to write a law about. (Read about a broadway play on Enron.)

So what happens to Skilling now?
There was another issue [before the Supreme Court] that he said he had an unfair trial because of prejudicial publicity, but [the Court] said, "Oh, please." So now it goes back to the lower courts to determine whether the broad conspiracy charge, and some other security fraud charges he was convicted of, can still stand. Skilling is very likely to win on nullification of the conspiracy charge, but it's less clear whether the other security charges which Skilling argues got confused in the jury's mind with the "Honest Services" issue will still stand. So he may stay in jail.

So what's the take-away from this decision?
I think this is a modest blow to federal prosecutors, but it's a blow they deserved. The ability to punish outright security fraud and in particular insider trading, that's alive and well.

In the political area, I think it will force the states to be a little more aggressive with local and state officials; they shouldn't always count on the feds to do it.