Court hears Skilling Enron appeal

April 2, 2008 11:46:55 AM PDT
Former Enron Corp. CEO Jeffrey Skilling's best chance at overturning some of his convictions could hinge on a legal theory by the prosecution, which an appeals court has already decided was flawed. Attorneys for Skilling planned to argue Wednesday before a three-judge panel of the 5th U.S. Circuit Court of Appeals that Skilling's 2006 convictions for his role in Enron's collapse should either be dismissed or he should be retried.

Federal prosecutors say Skilling received a fair trial in Houston and his convictions should be upheld.

Skilling and company founder Kenneth Lay were convicted in May 2006 on 19 counts of fraud, conspiracy, insider trading and lying to auditors for their role in the collapse of Houston-based Enron, once the nation's seventh-largest company.

Lay died less than two months later and his convictions were vacated. Skilling reported to a federal prison in Minnesota in December 2006, where he is serving a 24-year sentence. Skilling will not be present for Wednesday's arguments.

Skilling is the highest-ranking executive to be punished for the accounting tricks and shady business deals that led to the loss of thousands of jobs, more than $60 billion in Enron stock value and more than $2 billion in employee pension plans after the company imploded in 2001.

Skilling attorney Daniel Petrocelli has claimed prosecutors used a flawed legal argument at trial known as "honest services."

Prosecutors theorized that Enron employees were bound to serve honestly and not put their interests ahead of the company's. If they failed to do so, they deprived the company of "honest services" and committed a crime.

The 5th Circuit has already overturned several Enron-related convictions that were based on the honest services theory, ruling it was flawed and that executives did only what Enron wanted them to do and they did not profit at its expense.

Petrocelli has argued that Skilling's conduct followed the corporate goal of improving Enron shareholders' stock value.

"He is likely to get a reversal on the honest services (claims). But it won't affect all counts," said Chuck Ross, a white-collar crime attorney based in New York.

But legal experts are uncertain about the success of Skilling's appeal when it comes to claims by his attorneys that prosecutors hid important evidence by not turning over more than 400 pages of notes from FBI interviews with former Enron Chief Financial Officer Andrew Fastow.

At Lay and Skilling's trial, Fastow testified his bosses were aware of fraudulent financial structures engineered by Fastow and his staff. Fastow, considered the mastermind behind financial schemes that doomed Enron, is serving a six-year sentence.

Prosecutors gave summaries of the notes to Skilling's defense team. The trial judge, U.S. District Judge Sim Lake, denied requests to turn over the full notes to Skilling's lawyers.

After the trial, the 5th Circuit ordered the notes be turned over.

Petrocelli claims the notes contradict much of Fastow's testimony, including that Skilling orally agreed to secret side deals to manipulate Enron's financial statements.

"Dismissal with prejudice is necessary to remedy the grave injustice and prejudice to which Skilling has been subjected," Petrocelli wrote the court in March.

Prosecutors dispute Petrocelli's claims.

"Skilling's microscopic and misleading dissection of the Fastow notes provides no basis for overturning the jury's verdict," prosecutors wrote last month.

Jack Sylvia, a Boston-based lawyer with the firm Mintz Levin, said Skilling's defense team has put together a good appeal, making good arguments that the trial's jury selection - which lasted one day - was insufficient, that the trial should have been held outside of Houston, and that his 24-year sentence was too harsh.

But he said it is difficult to predict whether the appeal will be successful.

"It's a very low number of cases that get overturned on appeal," he said.