This week, the United States Supreme Court resolved some fishy matters on which prosecutors sought to base a federal felony conviction.
The case, Yates v. United States, arose from a offshore inspection of a commercial fishing vessel in the Gulf of Mexico. During the inspection, a federal agent found that the ship’s catch contained undersized red grouper, in violation of federal conservation regulations. The agent instructed the ship’s captain, Mr. Yates, to keep the undersized fish segregated from the rest of the catch until the ship returned to port. But after the officer left, Yates instead told a crew member to throw the undersized fish overboard. Yates was subsequently charged with destroying, concealing and covering up undersized fish, in violation of Title 18, United States Code, section 1519. That section provides that a person may be fined or imprisoned for up to 20 years if he “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence” a federal investigation.
At trial, Yates moved for a judgment of acquittal on this charge, noting that the provision was part of the Sarbanes-Oxley Act of 2002. That law was designed to protect investors and restore trust in financial markets after the collapse of Enron Corporation. Yates argued that the reference to “tangible object” was meant to refer to objects that store information, such as computer hard drives, and did not refer to fish. The Court denied the motion and the jury convicted Yates, and the Eleventh Circuit Court of Appeals affirmed the conviction, finding that fish are objects having physical form, and therefore fall within the dictionary definition of a “tangible object.”
In a majority opinion authored by Justice Ginsburg (and joined by the Chief Justice, Justice Breyer and Justice Sotomayor), the Court relied upon “[f]amiliar interpretive guides” in ruling that the “tangible object” to which section 1519 referred was indeed used to record or preserve information. In so ruling, the Court placed significant emphasis on context – in particular, the other parts of Title 18, Chapter 73. The Court noted Congress placed section 1519 at the end of that chapter immediately after pre-existing specialized provisions expressly aimed at corporate fraud and financial audits. The Court also noted the contemporaneous passage of section 1512(c)(1), which prohibits a person from “alter[ing], destroy[ing], mutilat[ing], or conceal[ing] a record, document or other object . . . with the intent to impair the object’s integrity or availability for use in an official proceeding” – a provision that would be unnecessary if section 1519’s reference to “tangible object” already included all physical objects. The Court also applied the statutory interpretation canons of noscitur a scoiis (“it is known from its associates”) and ejusdem generis(“of the same kind”), noting that beginning the provision with “any record [or] document” directs that the “tangible object” later referenced must be one used to record or preserve information. The Court also noted that the rule of lenity required that it resolve the dispute against finding criminal liability here. Justice Alito filed a concurring opinion relying on a narrower basis, while Justices Kagan, Scalia, Kennedy and Thomas dissented from the Court’s ruling.
The Court’s opinion in Yates makes for good reading for aficionados of classic statutory interpretation, and the Court’s decision to find that the scope of the statute was narrower than suggested by the government is a welcome respite from the seemingly ever-increasing scope of crimes in the U.S. Code. Congress could certainly pass legislation to make clear if it intended to include other tangible objects in the scope of this provision. But for now, tossing back the little ones does not constitute a SOX crime.
Former Enron executive Jeffrey Skilling reportedly has negotiated a deal with federal prosecutors that is likely to result in a significant reduction of the prison sentence he will serve for his role in the collapse of Enron. Under the new agreement, Skilling faces between 14 and 17.5 years in prison — a 27 to 42 percent reduction relative to his previous sentence of 24 years. Apparently, Skilling’s aggressive defense wore prosecutors down in such a way that they are now willing to give up almost half of Skilling’s prison sentence to resolve the case once and for all.
In May 2006, Skilling was convicted on one count of conspiracy, 12 counts of securities fraud, five counts of making false statements to auditors, and one count of insider trading. As a result, he was sentenced to roughly 24 years in prison and ordered to pay $45 million in restitution.
Skilling appealed the convictions and sentence with some success. First, the U.S. Court of Appeals for the 5th Circuit vacated his sentence on the grounds that the U.S. Sentencing Guidelines had been misapplied. Then, the U.S. Supreme Court held that the trial record did not support his conviction for conspiracy to commit “honest services” wire fraud. On remand, the 5th Circuit found the “honest services” error to be harmless and upheld the conviction so all that remained was for Skilling to be resentenced.
Skilling’s attorneys were preparing to request a second trial based on newly discovered evidence, but the prosecutors evidently decided that the fight was not worth it. According to prosecutors, the government has invested extraordinary resources in bringing Skilling to justice, and a second round would impose even greater costs, delay resolution, and delay restitution payments to Skilling’s victims.
The parties’ agreement will facilitate closure by stipulating that a sentence in the range of 14 to 17.5 years is reasonable. Both parties have agreed not to contest a sentence within that range and have reserved their right to contest a sentence outside that range.
U.S. District Judge Sim Lake, the sentencing judge, is likely to agree with the parties, as a sentence outside the agreed-upon range would burden the parties with costs they would rather avoid.
Skilling is scheduled to be resentenced in the Southern District of Texas on June 21.
Justice may or may not be blind; but she can buckle under pressure. It may take years, millions of dollars and armies of attorneys, but if you have the resources to test her mettle, you too may tip the balance in your favor.
Almost seven years after his conviction on fraud and other charges, former Enron executive Jeffrey Skilling may finally be succeeding in his effort to cut down his prison sentence that was originally set at more than 24 years. His investment in his battle is nothing short of impressive. He apparently spent some $70 million on his defense in the underlying trial that ended in 2006 … and that doesn’t include the subsequent seven years of activity, which involves more than 1300 docket entries as of March 2013.
Skilling’s persistence may be paying off. The Department of Justice recently issued a notice on a proposed sentencing agreement with Skilling. (The notice provided that victims have until April 17, 2013, to express their views on the prospective agreement. No further timetables have been officially set.)
It may seem surprising that the Justice Department would consider entering a sentencing agreement with someone who has already been convicted and sentenced and is serving time. But this is a product of Skilling’s aggressive efforts since his conviction, which have resulted in several appearances before the U.S. Court of Appeals for the Fifth Circuit and in one successful trip to the U.S. Supreme Court.
In 2009, the Fifth Circuit vacated Skilling’s sentence – which is where the recently announced sentencing agreement comes into play. In 2010, the Supreme Court ruled that one of the legal theories behind Skilling’s conviction (the honest-services fraud theory) was unconstitutionally vague and remanded the case to the Fifth Circuit to decide whether any of the charges should be invalidated.
After more yo-yoing between courts (the Fifth Circuit upheld the conviction in 2011, the Supreme Court declined to hear a second subsequent appeal in 2012, and Skilling renewed his request for a new trial based on new evidence after the failed Supreme Court appeal), the Justice Department may be raising a white flag of sorts and opting to settle upon a sentence that is mutually acceptable to Skilling and prosecutors. The DOJ may be unwilling to spend more public resources on a man who won’t go away until he gets his way.
It is hard to say what the sentencing agreement will provide. We previously opined that in resentencing, the judge could sentence Skilling to somewhere between 15 and 30 years under the sentencing guidelines. Obviously a more stringent sentence than the previous 24-year sentence is not going to be the result of the prospective agreement between Skilling and the DOJ. Regardless of the terms, the agreement will need to be approved by the sentencing judge. And he will invariably have to balance, along with the scales of justice, the public outcry if the sentence is too light and the costs of continuing to do battle with Skilling.
On Sunday, October 16, 2011, an op-ed article by founding partner Jeff Ifrah and associate Jeff Hamlin appeared in the Houston Chronicle. The article discusses the upcoming resentencing of former Enron CEO Jeffrey Skilling and the fact that it is now close to the fifth anniversary of his conviction.
The following is the full text of the article:
Five years later, Skilling’s sentence is still up in the air
Oct. 23, 2011, will mark the five-year anniversary of Jeffrey Skilling’s sentencing and, remarkably, no one yet knows what the former Enron CEO’s final sentence will be.
In May 2006, Skilling was convicted in the wake of Enron’s collapse on one count of conspiracy, 12 counts of securities fraud, five counts of making false statements to auditors and one count of insider trading. Five months later, U.S. District Judge Sim Lake sentenced Skilling to 292 months – more than 24 years – in prison and assessed $45 million to be paid in restitution.
But given the vagaries of the federal sentencing system, Skilling, who is now serving time in a prison in Englewood, Colo., could end up serving that same 24 years, or significantly more time, or even significantly less time, for the crimes that he committed as leader of Enron. Skilling is currently scheduled for release on Feb. 21, 2028, when he will be 74 years old. He could, however, end up getting out of prison well before that and still in the prime of life – or he might serve what amounts to a life sentence.
Since the sentencing, Skilling’s legal team has achieved some victories. In January 2009, the U.S. Court of Appeals for the 5th Circuit vacated Skilling’s sentence on the grounds that the district court misapplied the federal sentencing guidelines. The next year, however, the U.S. Supreme Court held that the trial record didn’t support a conviction on one of the prosecution’s key theories – conspiracy to commit “honest services” wire fraud. But Skilling suffered a defeat last April, when the 5th Circuit upheld his conspiracy conviction and found this “honest services” error to be harmless.
With all that, though, Skilling still needs to be resentenced, and Judge Lake has not yet set a date for the resentencing.
The federal system under which Skilling was sentenced tries to bring about fairness and uniformity by assigning a number to each defendant, depending on the crime of which he or she was convicted, and then pushing that number up or down based on various factors specified in the sentencing guidelines. That final number determines how many months the person must serve. Under the guidelines in effect when Skilling committed his crimes at Enron, he started with a “base offense level” of 6. At his initial sentencing, the court chose to increase that number all the way up to level 40. This 34-level jump included a four-level increase for “substantially jeopardizing the safety and soundness of a financial institution.”
That four-level increase could make a lot of difference. The sentencing judge applied the increase based on a finding that Skilling’s conduct caused Enron’s bankruptcy, which, in turn, caused devastating losses to Enron’s corporate retirement funds. Taken together, Skilling’s sentence level and his lack of a criminal history gave him a sentencing range of 292 to 365 months. The court imposed a sentence at the bottom of that range. That’s where the current 24-year sentence came from.
On appeal, Skilling argued that the district court’s application of the four-level increase was erroneous because Enron’s retirement plans were not “financial institutions” under the guidelines. The 5th Circuit agreed, finding that Enron’s Corporate Savings Plan and Employee Stock Ownership Plan did not fall within the guidelines’ definition of a “financial institution.”
We will see what impact this ruling will have on Skilling’s sentence. The judge could simply eliminate the four-level boost. That would give Skilling a sentence between 188 to 235 months. If the court opts for the bottom of the range as it did the first time, Skilling’s sentence will be 15 years and eight months – roughly nine years less than his current sentence.
Alternatively, the court could keep Skilling’s sentence at 24 years, or even make it more draconian by using a catch-all provision of the guidelines known as Section 5K2.0. Under Section 5K2.0, the court may increase a sentence to account for aggravating circumstances “of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission.” The prosecution might argue this way: Because Judge Lake mistakenly thought that the “financial institutions” provision applied, he didn’t consider the catch-all provision. Now that the appeals court has ruled out the “financial institutions” increase, Section 5K2.0 provides the only means to account for the harm Skilling caused thousands of Enron employees who lost their retirement savings.
To determine how high to go under Section 5K2.0, the judge could look to a later version of the guidelines. In 2003, the U.S. Sentencing Commission revised the guidelines to include a four-level increase for a crime that endangered the solvency or financial security of an organization that was publicly traded or employed at least 1,000 people or substantially endangered the solvency or financial security of 100 or more victims. That sounds a lot like what happened at Enron. In fact, it’s possible that the commission added these provisions precisely because the harms Skilling caused weren’t adequately addressed under the existing guidelines. Of course, the 2003 revisions don’t strictly apply to Skilling; he committed his crimes before then. But the revisions could help the judge make his ruling.
Thus Skilling could be resentenced to 24 years, his original sentence, or even more. A four-level increase would easily support another 24-year sentence. A six-level increase would give him a sentencing range of 30 years to life.
But the judge won’t likely go in this direction. For one, courts rarely increase a defendant’s sentence the second time around in the absence of new evidence. Also, the judge could have given Skilling a 30-year sentence the first time but decided to look at the bottom of the range instead. We are not aware of any new evidence to support a harsher result. Finally, codefendants Richard Causey and Andrew Fastow are currently serving sentences in the five- to six-year range. Skilling’s initial sentence was already four to five times greater, by comparison. The sentencing judge is not likely to make that disparity any larger. If he does, our prediction is that another round of appeals is sure to follow.
On November 16, 2010, the Los Angeles-based Daily Journal published an article by Jeffrey Hamlin, an associate at Ifrah PLLC, on a recent U.S. District Court ruling. The following is the full text of the article.
Earlier this year, the U.S. Supreme Court, in the much-watched case of former Enron executive Jeffrey Skilling, limited the federal “honest services” statute to traditional or “paradigmatic” bribery and kickback schemes. The criminal statute prohibits “a scheme or artifice to deprive another of the intangible right of honest services.” Skilling and others contended that the statute was unconstitutionally vague. The Court’s ruling in their favor was a blow to prosecutors.
In the wake of Skilling, prosecutors are coming up with novel theories to salvage “honest services”-type cases that don’t involve traditional bribery or kickback schemes. Recently, a federal district judge in New York decided that one such theory can proceed in court. We are quite dubious that the judge is headed in the right direction. It seems as if the same vagueness that the Court objected to in Skilling is returning.
The case involved Joseph Queri, a former executive with Dick’s Sporting Goods, and Benjamin Viloski, a former real estate attorney for Dick’s. Prosecutors alleged that Queri and Viloski defrauded Dick’s in connection with the company’s development of new stores in Pennsylvania. According to the government, the defendants controlled companies that ostensibly provided brokerage and consulting services to landowners and real estate developers with an interest in the expansion. Queri and Viloski invoiced the landowners and developers for the bogus services and kept the money themselves. In August 2009, a federal grand jury returned an indictment, which included eleven counts of mail fraud, wire fraud and related conspiracy charges.
In early 2010, Queri and Viloski asked the court to dismiss these counts. Among other things, the defendants argued that the “honest services” charges were based on a criminal statute that was unconstitutionally vague, the issue that was then pending in Skilling. The prosecution replied that, even if the “honest services” statute were found unconstitutional, the government had alleged other viable theories of mail and wire fraud, including fraud that involved the deprivation of intangible property. What was that intangible property? It was valuable information that could affect the company’s business decisions – specifically, it was the very fact of the defendants’ self-dealing. The trial court reserved judgment on this contention pending the U.S. Supreme Court’s decision in Skilling.
After the June 2010 Skilling ruling, the judge dismissed all portions of the indictment against Queri and Viloski related to honest-services fraud. The judge, however, held that the government could go ahead with its “intangible property rights” theory that Queri and Viloski had defrauded Dick’s by failing to disclose their self-dealing. The court relied on Second Circuit case law, which recognizes that a business entity has an intangible property interest in controlling the use of its assets.
Strictly speaking, the Skilling Court’s limiting construction of the honest-services statute is not relevant to whether undisclosed conflicts of interest may be prosecutable under some other statute. That said, the government’s novel “intangible rights” theory should fail based on principles similar to those stated in Skilling.
The Skilling Court was concerned with fair notice. If the honest services statute was unconstitutionally vague about whether deprivation of “honest services” encompassed self-dealing, what can be said for the notion that the mail and wire fraud statutes protect an employer’s intangible right to potentially valuable information – when that information is itself the fact that the employees are engaged in self-dealing?
When courts consider whether something is “property” for purposes of the mail and wire fraud statutes, they ask whether the interest is a traditionally recognized, enforceable property right. They have declined to recognize property interests in abstract realities that may impact the value of business property. Otherwise, Gatorade would have had an intangible property interest in information about Tiger Woods’ marital infidelities. And the Minnesota Vikings would have an intangible property interest in information about Brett Favre’s sexting scandal.
Moreover, even if the mail and wire fraud statutes are susceptible to such broad construction, they must be considered impermissibly vague, especially after Skilling. Employees cannot possibly have fair notice of criminal liability based on a failure to disclose adverse information about themselves to an employer. And the uncertainty invites arbitrary and discriminatory enforcement. These are the very ills Skilling sought to avoid.
Moreover, there is some indication that the Supreme Court majority in the Skilling case would accept this argument.
In a footnote, Justice Ruth Bader Ginsburg wrote in her majority opinion that “if Congress were to take up the enterprise of criminalizing ‘undisclosed self-dealing by a public official or private employee,’ it would have to employ standards of sufficient definiteness and specificity to overcome due process concerns.” She concluded that “these questions and others call for particular care in attempting to formulate an adequate criminal prohibition in this context.” We agree.
On June 25, 2010, the U.S. Supreme Court issued its partially favorable decision in Skilling v. United States. Although the Court accepted former Enron CEO Jeff Skilling’s arguments on the reach of the “honest services” statute, it rejected Skilling’s contention that pretrial publicity and community prejudice prevented him from receiving a fair trial.
Since his conviction in 2004, Skilling has had ample time to consider what he would do differently if given the chance. CNN contributor Archelle Georgiou posed that very question during a jailhouse interview in 2008. Anticipating the Supreme Court decision, she recently published an article based on his response. When Georgiou asked him how he would alter his legal strategy, Skilling said he would (i) plead the Fifth; (ii) go on an aggressive public-relations offensive; and (iii) avoid sarcasm. See Skilling Speaks: Enron CEO’s Jailhouse Interview.
Although Georgiou’s article is informative, some of her observations seem bizarre. She is astonished that the incarcerated Skilling has to ask her for a 50-cent French-vanilla latte, but discusses his yoga practice, daily four-mile walks and low-carb diet as though these might not be equally astonishing to some people. Other observations are seriously flawed (her romantic description of Skilling as a principled individual who would rather go to jail than “not give voice to his side of the Enron tragedy,” is untenable given his statement that, in hindsight, he should have pleaded the Fifth!). These weaknesses aside, Skilling’s first and second points amount to good advice.
Skilling pretty much admits he should have listened to his attorneys when they advised him to plead the Fifth. Like so many other corporate-officers-turned-defendants, Skilling did not listen because did not understand the differences between corporate life and criminal defense. In 2001, Skilling was the CEO of the seventh highest-revenue-grossing company in America. He had considerable charisma, power and influence. Employees, shareholders, ratings analysts and others expected him to formulate a vision for his company and articulate a plan for achieving it. His friendly audience wanted him to inspire and lead. But all of this changed when he was indicted.
Skilling’s attorneys got it; Skilling didn’t. Against their advice, he tried to explain Enron’s business decisions. But unlike CEO Skilling, Defendant Skilling could no longer rely on his power and influence to carry the day. More importantly, unlike CEO Skilling, who regularly sold his point of view to employees and shareholders, Defendant Skilling did not bear the burden of proving his defense. The prosecution bore the burden of proving his guilt. Unaware of how things had changed, he attempted to sell his version of the facts and, unwittingly, helped the government prove its case against him.
As to Skilling’s second point, it’s less clear that a public-relations offensive would have improved his outcome. It may have helped with damage control. But if Skilling thinks a PR firm would have spruced up Defendant Skilling’s image as it may have helped his image in Enron’s glory days, he is mistaken. One only has to consider the limited impact that BP’s public-relations efforts are having in the wake of Deepwater Horizon oil spill.
For his final point, Skilling wishes he had avoided sarcasm. In particular, he regrets having said in May 2001, “They’re on to us.” But this is not so much a legal strategy as a personal regret. When he made the damning comment, Enron hadn’t yet collapsed and he probably could not foresee that it would be used against him at his future criminal trial. That aside, if he’s going to start wishing he had behaved differently, it’s curious he has not focused on what actions he might have taken to prevent the “Enron tragedy”—such as ‘ask more questions’ or ‘insist on more safeguards and controls.’ At a minimum, this type of conduct would have aided his defense by showing that he was not part of the problem. At maximum, it could have prevented Enron’s demise.