Running head: SKILLING V.

UNITED STATES

Skilling v. United States:

A Case of Honest Services Fraud

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SKILLING V. UNITED STATES

Skilling v. United States:

A Case of Honest Services Fraud

“The Court acknowledges that Skilling’s vagueness challenge has force, for honest-services
decisions were not models of clarity or consistency. It has long been the Court’s practice,
however, before striking a federal statute as impermissibly vague, to consider whether the
prescription is amenable to a limiting construction.”

~ Supreme Court of the United States, Skilling v. United States

~ Crime Elements

The case that this paper deals with is rooted in the collapse of the Enron Corporation,

now an infamous example of corporate America gone wrong. The company was founded in 1985

and crashed just sixteen years later, in the end of 2001. The case began when the government

began investigating the collapse of the company and found that officers had propped up the stock

prices of the company, thereby “overstating the company’s financial well-being” (08-1394, 2010,

1). Many financial officers were arrested as a result of this charge, including Jeffrey Skilling,

who had served as the Chief Executive Officer of the Enron Corporation for seven months before

the company went bankrupt four months after he ended his tenure as CEO. The charge against

Skilling was that that he “engaged in a scheme to deceive investors about Enron’s true financial

performance by manipulating its publicly reported financial results and making false and

misleading statements” (08-1394, 2010, 1). The defendant engaged in this behavior ostensibly

because his compensation was directly tied to the stock prices of the company, which were

steadily rising due to the fake reports. Therefore, the prosecution proved (at least according to

the jury) that Skilling willfully and illegally manipulated the financial reports of the company for

personal gain.

With this charge in mind, the prosecution brought more than twenty five counts of fraud

and insider trading; however, the most important count, and the one that eventually brought the
SKILLING V. UNITED STATES

case to the Supreme Court, was the charge of honest-services wire fraud, as Skilling allegedly

deprived “Enron and its shareholders of the intangible right of his honest services” (08-1394,

2010, 1). The main element of the crime, then, was a specific type of fraud, as the prosecution

showed that Skilling deliberately misled stakeholders in the company while working within his

position as Chief Executive Officer. The prosecution proved in the original trial that Skilling

over reported earnings for over two years, from 1999 to 2001, despite the fact that he knew that

the company could not continue profitable trading at higher stock prices.

Defenses

Skilling’s defense in the original trial was simple enough: the defense lawyers argued that

the collapse of the company could not be considered a crime, and that the company had not

actually broken any laws. As one news report stated at the time, the lawyers “told jurors that the

company’s collapse was not a crime and implored them to find both men not guilty if the

slightest doubt exists” (Johnson, 2006, n.p.). In this way, the defense essentially argued that the

actions of Enron’s leaders (including Jeffrey Skilling) did not fall under the honest-services fraud

charge, and that they must therefore be acquitted accordingly. More than this, the defense also

painted these actions against the backdrop of public vilification, since the Enron leadership was

treated poorly in much of the media after the collapse of the corporation had such a detrimental

impact on the local economy. The argument, as it went, was that this was perhaps a case of poor

business management, but not fraudulent activity of criminal caliber, and certainly not relevant

to the honest-services fraud charge.

This approach directly contrasts other major cases of the same category, whose

defendants largely claimed ignorance to the actions within their companies (Emshwiller, 2006).

More specifically, the defense sought “to prove that the alleged crimes were actually
SKILLING V. UNITED STATES

commonplace and legitimate business practices, used for such routine purposes as managing

cash flow and hedging against losses on investments” (Emshwiller, 2006, n.p.). Skilling himself

stated, “I believe that this is a business case. I don’t believe that I’m involved in a criminal case”

(Emshwiller, 2006, n.p.). On top of this major theme, the defense also attacked the validity of the

prosecution’s case against Skilling, questioning the credibility of witnesses who were given

reduced prison sentences as a result of cooperation, doubled down on the prosecution’s burden of

proof, and pointed out that much of the prosecution’s case was based on the personal investment

practices of the defendant (Johnson, 2006, n.p.). In this way, the defense argued that the

prosecution had not successfully met the burden of proof and, even if it had, the case it had made

could not be considered valid.

These approaches may have poked holes in the government’s case against Skilling, but

they were not the main event. Overall, Skilling’s defense argued that Enron collapsed “not

because of widespread fraud but because of a market panic fueled by skeptical media reports,

questions about the integrity of then-finance chief Andrew S. Fastow, and investors known as

short sellers who bet the stock price would drop” (Johnson, 2006, n.p.). In short, the defense

asked the jury to acquit Skilling for two major reasons: first, because the blame ostensibly did

not lie with him, but instead with external factors outside of his control and; second, because of

the inherent bias against Skilling and other Enron leaders in the wake of the company’s untimely

bankruptcy.

Constitutional Protection Issues

Skilling’s case may not have been as sensational as other high profile fraud cases in the

United States, but it did bring up one important issue related to the defendant’s Constitutional

protection: the right to a fair trial. Skilling’s trial was to take place in Houston, which his defense
SKILLING V. UNITED STATES

argued would create an unfair bias against him due to the huge detrimental impact that the crash

of his company had on the local economy. The idea was that it would be nearly impossible to

empanel a completely impartial jury of twelve locals who were familiar with the case. With this

in mind, Skilling and his defense attorney’s petitioned for a change of venue for the trial,

“contending that hostility toward him in Houston, coupled with extensive pretrial publicity, , had

poisoned potential jurors” (08-1394, 2010, 1). In order to support this contention, Skilling’s

defense submitted “hundreds of news reports detailing Enron’s downfall, as well as affidavits

from experts he engaged portraying community attitudes in Houston in comparison to other

potential venues” (08-1394, 2010, 1). Despite the evidence the defense had presented, the district

court denied the petition for a change of venue, finding that it would still be more than possible

for Skilling to face a fair trial in the same town the collapse of the company had destroyed the

economy. More specifically, the court found that “media coverage, on the whole, had been

objective and unemotional, and the facts of the case were neither heinous nor sensational” (08-

1394, 2010, 1). In short, the court denied Skilling’s request because it found that the venue did

not affect his Constitutional rights.

However, the status of this aspect of the case as a Constitutional issue is reaffirmed by

the fact that the supposedly unfair trial was part of Skilling’s appeal and, eventually, was directly

addressed by the Supreme Court. However, the Supreme Court upheld the Texas District Court’s

conclusion that having a trial in Houston did not affect his Constitutional right to a fair trial. As

the Supreme Court’s opinion states, “reasonable minds exposed to such information [as

presented in the local media] would not necessarily have formed an indelible impression that

Skilling himself was guilty” (08-1394, 2010, 20). The majority of the Supreme Court upheld the

lower court’s decision to hold trial in Houston, but it is worth noting that a dissenting justice
SKILLING V. UNITED STATES

wrote that “While the procedures employed by the District Court might have been adequate in

the typical high-profile case, they did not suffice in the extraordinary circumstances of this case

to safeguard Skilling’s constitutional right to a fair trial before an impartial jury” (08-1394, 2010,

21). The constitutional issue in this case, then, is both complicated and divisive even at the

higher level.

Case Brief

Title & Citation

Skilling v. United States 561 US 358 (2010)

Facts of the Case

Defendant Jeffrey K. Skilling was a former Enron Corporation executive convicted of

various counts of conspiracy, fraud, insider trading, and false representations to auditors (Oyez,

n.d., n.p.). The conviction followed the collapse of the Enron Corporation, which was a gas and

oil giant up to the point of bankruptcy in 2001. After the company collapsed, the government

conducted an investigation into the company’s finances and found that executives and leaders

had been misrepresenting and over reporting earnings and other factors, which had caused the

company’s stock to rise quickly. This quickly led to the instability that resulted in the bankruptcy

of the company. Skilling is held responsible for this collapse under the honest-services wire

fraud federal statute, since he ostensibly deprived both the corporation and its shareholders from

honest services by withholding and misrepresenting critical financial information. The defendant

was also charged with more than two dozen other counts of fraud, conspiracy and insider trading.

The facts of the case are paramount to the eventual Supreme Court decision, since the appeal

deals not only with procedural issues (such as the question of a fair trial in Houston) but also
SKILLING V. UNITED STATES

legal issues (such as the specificity and applicability of the honest-services fraud charge brought

by the prosecution).

Issues

The Skilling case is associated with two major issues, both of which directly reflect the

questions presented to the Supreme Court in 2010. The first issue has to do with the vagueness of

the honest-services law, which is the main count that Skilling was found guilty of. The second

issue has to do with the trial that Skilling received in Texas, and whether that trial was fair given

the community outrage regarding the fall of Enron. As one source describes the first issue, “Is

the federal statute making it ac rime for someone to ‘deprive another of intangible right of honest

services’ unconstitutionally vague?” (Kurland, n.d. n.p.). In turn, the second issue can be

described as follows: “When an entire community is outraged by the events giving rise to a

criminal trial, is it possible to draw a jury that does not share the community’s presumed

prejudice? If so, what standard should a court use to determine presumption of prejudice has

been overcome?” (Kurland, n.d., n.p.). In this way, the court had to decide not only if Skilling’s

trial had been fair by constitutional standards, but also if the main statute with which he was

charged is constitutionally specific.

Holding

The Supreme Court hearing resulted in two major holdings regarding Skilling v. United

States. First, the court found that Skilling did have affair trial in Houston, and upheld the

findings of both the district and the appellate courts. As the majority decision states, “Pretrial

publicity and community prejudice did not prevent Skilling from obtaining a fair trial. He did not

establish that a presumption of juror prejudice arose or that actual bias infected the jury that tried

him” (08-1394, 2010, 3). More specifically, the court found that, while the economic impact that
SKILLING V. UNITED STATES

the case had on Houston was a valid concern for the defense, but that screening and voir dire

successfully resulted in the empanelling of a jury that had only limited knowledge of and links to

the Enron collapse. The second major finding of the Supreme Court hearing is that the conviction

of Skilling under Section 1346 (the honest-services fraud law) is unconstitutional: the law is

“properly confined to cover only bribery and kickback schemes…Because Skilling’s alleged

misconduct entailed no bribe or kickback, it does not fall within the Court’s confinement of

Section 1346’s proscription” (08-1394, 2010, 6). Therefore, the court upheld Skilling’s overall

trial, but reduced his sentence by declaring that the actions for which Skilling was convicted was

under a false legal theory.

Reasoning

The court arrived at the first ruling by simply assessing the facts of the case and the

course of the trial, and subsequently applying legal theory to the situation. For instance, the court

states that the media coverage of the Enron case had diminished greatly in the years leading up to

Skilling’s trial, and much of this coverage had been unbiased in the first place. Furthermore, the

court finds no legal basis for finding the voir dire in pretrial unsatisfactory, but instead finds that

the original trial court had good enough judgment to make that call itself. For the second ruling,

regarding the breadth and vagueness of the honest-services fraud law, the court reasoned that the

law itself is unconstitutionally vague, and that Skilling’s case does not fall within the legal

parameters of the statute as originally intended by Congress. Instead, the court limited the

applicability of the law to direct bribery and kickback schemes, neither of which Skilling

engaged in at Enron. However, the court notes that it must “construe” rather than “condemn” the

laws of Congress (08-1394, 2010). In this way, the court did not find that the law itself was
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unconstitutional, but instead that it only applies to certain kinds of cases, rather than fraud in

general.

Analysis

First, the Supreme Court responded to Skilling’s appeal regarding an unfair trial by

essentially stating that “no Supreme Court holding requires an irrebuttable presumption of jury

prejudice” (Kurland, n.d., n.p.). In other words, the court finds that the Constitution guarantees a

fair trial and impartial jury, but not necessarily safety from a venue where an unfair trial could

potentially be possible. Because Skilling actually had a fair trial, the constitutional point does not

hold up. Second, the court found that the honest-services fraud law is not unconstitutionally

vague as a whole, because courts of appeals have successfully established a specific definition of

what constitutes honest services fraud. The court does, however, limit the use of the law to

specific cases of bribery and kickbacks.

Personal Judgment

If I were to decide on the same or a similar case, I would have made the same decision as

the Supreme Court in this case because it accurately applies the law as it was originally intended.

The court showed prudence in recognizing that the reality of the trial did not make it unfair for

Skilling or the defense, but by simultaneously pointing out that the honest-services fraud law did

not apply to Skilling’s case. In this way, the court acted according to its prerogative, not

completely negating the laws passed by the Constitution but instead ensuring that they work on a

practical and constitutional plane in individual criminal and civil cases. This gives future

prosecutors, trial courts and appellate courts a clear line for defining which cases fall under the

legislation in question and which ones do not. Because of this, I would find that Skilling had a
SKILLING V. UNITED STATES

fair trial but that he was unfairly and unconstitutionally convicted under the honest-services

fraud statute because of its vagueness.

SKILLING V. UNITED STATES

References

Emshwiller, J.R. (20 January 2006). An audacious Enron defense: Company’s moves were all

legal. The Wall Street Journal. Retrieved from:

http://www.wsj.com/articles/SB113772974804651717

Johnson, C. (17 May 2006). Enron defense sums up its case. Washington Post. Retrieved from:

http://www.washingtonpost.com/wp-

dyn/content/article/2006/05/16/AR2006051601834.html

Kurland, T. (n.d.). Skilling v. United States. LII. Retrieved from:

https://www.law.cornell.edu/supct/cert/08-1394#discussion

Oyez. (n.d.). Skilling v. United States. Oyez. Retrieved from:

https://www.oyez.org/cases/2009/08-1394

United States Supreme Court. Skilling v. United States 561 US 358 (2010)