The Supreme Court on Thursday made it much harder to prosecute corruption cases against public officials and corporate executives, ruling that a law used to help convict former Enron Corp. Chief Executive Jeffrey Skilling was far too broad.
The decision narrowed but did not overturn a 1988 law that makes it a crime to scheme to deprive the public of their “right of honest services.”
All nine justices agreed that public officials and corporate executives cannot be convicted of defrauding the public unless they enriched themselves by taking a bribe or a kickback. Secret deals or conflicts of interest are not a crime unless they involve a direct payoff.
Though the law targeted public corruption, it has been used recently against corporate executives as well. Thursday’s ruling partly overturned the convictions of Skilling and former Chicago newspaper magnate Conrad Black. But both were found guilty on multiple counts, including “honest services” fraud, so their cases were sent back to lower courts to decide whether they should have new trials.
Legal experts said the ruling would make it much harder to prosecute secret, cozy deals that benefit public officials or top executives.
“The court has clearly raised the bar,” said Patrick Collins, a former public corruption prosecutor in Chicago. “The easy case is the official who takes $10,000 from a contractor and then awards him a contract.
“But what about the guy who secretly goes on a vacation paid for by the contractor, and then several years later awards him a big contract,” Collins said. “This is a gray area now if you can’t show a direct connection.”
Peter Zeidenberg, a former public corruption prosecutor in Washington, called the decision “a big deal.”
“It’s going to weed out a whole host of cases,” he said.
He cited examples of members of Congress and their aides who were prosecuted under the statute for taking golf trips, expensive meals and sports tickets from lobbyists.
Defense lawyers welcomed the ruling. “It effectively takes a bludgeon out of the hands of aggressive federal prosecutors who viewed every conflict of interest as a theft of honest services,” said Jack Falvey, a white-collar defense lawyer in Boston.
Jacob S. Frenkel, a formal federal prosecutor now in private practice in Potomac, Md., said prosecutors have “plenty of theories and statutes” to cover corporate criminal conduct without the need to resort to “contorted or extended honest-services fraud.” And by the time appellate courts reject those efforts, he said, there are “a lot of devastation and many guilty pleas and convictions along the way.”
In the trial of former Illinois Gov. Rod R. Blagojevich underway in Chicago, there was a quick reaction from U.S. District Judge James Zagel. He refused a defense request to delay the trial and said “my preliminary reading is [the decision] may not offer a lot of hope for you.”
Blagojevich’s far-reaching indictment charges him with many crimes, including but not limited to breaking his duty to provide honest services to the voters who elected him.
In Skilling v. United States, the former Enron chief executive was charged with cheating investors, lying to auditors and insider trading, which remain valid charges. But Justice Ruth Bader Ginsburg said prosecutors should not have charged Skilling with “honest services fraud,” since he did not set out to cheat Enron itself.
In her opinion, Ginsburg said the court decided to narrow the “honest services” fraud law. It “proscribes bribes and kickbacks — and nothing more,” she said. Skilling did not “accept side payments from a third party,” so he was not guilty of taking a kickback, she added.
It is not clear whether reversing this conviction undercuts the entire case. “We leave this dispute for resolution on remand,” Ginsburg said.
Skilling’s defense lawyer, Daniel Petrocelli of Los Angeles, called the decision a “landmark ruling” and an “unequivocal rejection of the principal theory of criminality used by the government against Mr. Skilling.”
He contended that the government used the honest services theory throughout the trial “as a way of securing convictions on all the counts” against Skilling and, for that reason, the whole case against his client should be reversed.
The Supreme Court justices agreed with Ginsburg that the law on “honest services” fraud was anything but clear. According to Justice Antonin Scalia, it could cover salaried workers who sneak out of the office in the afternoon and go to a baseball game.
Usually, a fraud refers to a scheme to obtain money from someone through a false promise. But in 1988, Congress expanded the anti-fraud law. A one-line amendment made it a crime to deprive someone of the “intangible right of honest services.”
In the two decades since then, the law has become a popular weapon for federal prosecutors. It allows them to bring charges in cases involving questionable schemes, even if they could not prove a bribe or kickback.
All the while, however, judges and legal experts have been divided on what the law means. Did it, for example, cover a state legislator who was retiring and had met with a private firm seeking a future job?
Prosecutors in Alaska had charged Bruce Weyhrauch, a former legislator, with “honest services” fraud in such a case because he voted on a bill that benefited the company. He did not a take a job with the private firm, however. The Supreme Court ruled for him Thursday in Weyhrauch v. United States and sent his case back to be reconsidered.
Chief Justice John G. Roberts Jr. and Justices John Paul Stevens, Stephen G. Breyer, Samuel A. Alito Jr. and Sonia Sotomayor joined with Ginsburg. Justices Scalia, Anthony M. Kennedy and Clarence Thomas would have gone further and thrown out the “honest services” fraud law entirely. They said the law was hopelessly vague and that Congress, not the court, should fix it.
Separately, the justices rejected Skilling’s claim that he was denied a fair trial because of prejudice in the community against him and Enron. Sotomayor, Stevens and Breyer dissented on that point.
In Black v. the United States, the former newspaper executive was accused of taking millions of dollars in secret payments. But Ginsburg and the court said prosecutors erred by telling the jury that Black could be convicted for depriving his company of his “honest services.”
“We express no opinion on the question of whether the error was ultimately harmless,” she said in sending the case back to Chicago.
Jeff Coen contributed to this report from Chicago.