Fraud statute inspires some honest debate

Oct 15, 2009 (Chicago Tribune - McClatchy-Tribune News Service via COMTEX) -- ENRNQ | Quote | Chart | News | PowerRating -- Almost two years after the economy collapsed, practically no one has been thrown in the clink, and now former Enron Corp. boss Jeffrey Skilling may be handed a get-out-of-jail-free card.

Is the criminal justice system going soft? In one respect, yes.

The U.S. Supreme Court has set the stage for reining in a widely used fraud statute, a move expected to make at least some corruption cases tougher to win.

The court on Tuesday agreed to review the criminal conviction of Skilling, after previously agreeing to hear fraud cases involving deposed media baron Conrad Black as well as an obscure Alaska legislator. By the end of the court's current session in June, going after shady practices now regarded as criminal may be off limits altogether.

As it stands, the law makes it a crime for executives and government officials to deprive those they serve of the "intangible right to honest services." That strangely worded phrase has divided jurists for years and led to what critics consider a string of unjustified prosecutions.

"Honest services fraud" occurs when corporate executives misuse their positions for private gain, at least according to Richard Posner, the Chicago appellate judge who voted to uphold the 2007 conviction of Black.

By misappropriating millions for themselves, Black and his co-defendants "deliberately failed to render honest services" to the Hollinger International media company, Posner wrote.

But what about Skilling, who obtained no similar gain from his misconduct at Enron? Or the Alaska official whose actions apparently did not violate any state law?

Opinions differ.

Justice Antonin Scalia, dissenting in the recent case involving ex-city of Chicago official Robert Sorich, said the honest-services law "invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators and corporate CEOs."

By agreeing to address the issue through three cases instead of one, the high court has signaled that it won't throw out the statute altogether, according to Peter Henning, a law professor at Wayne State University who specializes in white-collar crime.

Instead, watch for rulings that provide guidelines and limits on what qualifies as fraud, Henning said. As it tries to "set some parameters," he said, "the court could end up discouraging cases."

At a minimum, he noted, "It will channel the cases so the prosecutors know what to emphasize."

Up to now, the law has been applied in a broad _ some would say sweeping _ fashion.

Contrary to public perception, the case against Skilling was a close call.

The one-time corporate whiz never set out to create a criminal enterprise. Rather, he made exaggerated statements about Enron's performance that got way out of hand.

As lead prosecutor Sean Berkowitz told jurors at Skilling's 2006 federal trial, "The truth was coming out, and Enron could not survive the truth."

Black's case looks quite different because he was charged with looting the corporate parent of the Chicago Sun-Times and other newspapers.

The case of former Alaska Rep. Bruce Weyhrauch was different still: He is awaiting trial on allegations that he sought legal work from an oil company while considering related matters in the legislature.

Each case has other distinctions too: Skilling was convicted of a securities fraud charge seemingly unconnected to honest services, and the venue of his trial in hostile Houston also will be under review. When the Supreme Court rules, Skilling and Black stand a good chance of obtaining new trials, Henning said.

The outcome could affect another looming trial too.

Honest services fraud plays a prominent role in the indictment of ex-Illinois Gov. Rod Blagojevich, who is accused of depriving state residents of his honest services through a scheme involving kickbacks and other alleged dirty deeds.

Blagojevich has traveled across the country proclaiming his innocence. Maybe his next stop should be on the steps of the Supreme Court.

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ABOUT THE WRITER

Greg Burns is a columnist for the Chicago Tribune. Readers may send him e-mail at gburns@tribune.com.

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