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The honest-services statute provides that the term scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services. 18 U.S.C.S. § 1346. That is, the statute defines the scheme or artifice to defraud language found in the substantive mail and wire fraud statutes, 18 U.S.C.S. §§ 1341, 1343, respectively, to include the substantive crime of depriving another of one's honest services. Thus, wherever mail or wire fraud is an object of a conspiracy, there are two possible objects that can be charged: use of the mails or wires to deprive another of 1) property or money or 2) honest services.
Defendant Jeffrey Skilling's rise at Enron began when he founded Enron's Wholesale business. He became the President and Chief Operating Officer and joined the Board of Directors, and became its CEO, and on August 14, 2001, Skilling resigned from Enron. About four months after defendant’s departure, Enron crashed into sudden bankruptcy. An initial investigation uncovered an elaborate conspiracy to deceive investors about the state of its fiscal health. With Congress looking on, the President appointed a team of investigators, the Enron Task Force. The investigation led to criminal charges against defendant and many others. According to the government, the conspiracy, led by defendant and Enron's CEO until defendant took over worked to manipulate Enron's earnings to satisfy Wall Street's expectations. The jury convicted defendant for conspiracy, securities fraud, making false representations to auditors, and insider trading. Defendant argued that the government prosecuted him using an invalid legal theory, that the district court used erroneous jury instructions, that the jury was biased, that prosecutors engaged in unconstitutional misconduct, and that his sentence was improper.
Was the defendant’s conviction improper?
The court affirmed the convictions, but vacated the sentence, thus, remanded for resentencing without the enhancement for substantially jeopardizing a financial institution under U.S. Sentencing Guidelines Manual § 2F1.1(b)(8). The court held that while it was not known if the jury convicted him of conspiracy to commit honest-services fraud, rather than the two other alleged conspiracy frauds, the jury was entitled to convict defendant of conspiracy to commit honest-services fraud because no one at the corporation explicitly directed or sanctioned his improper conduct. The court explained that corporate approval of one sale was not the same as directing someone to engage in fraudulent conduct. Thus, there had been no legally insufficient theory. Also, due to sufficient inflammatory pretrial material and its sheer volume, and the facts that thousands of local employees lost their jobs and many saw their retirement accounts wiped out, prejudice from pretrial publicity had to be presumed. However, the district court had conducted an exemplary voir dire and defendant failed to challenge for cause all but one of the jurors who actually sat. Since defendant's own false Securities and Exchange Commission investigation testimony was used against him, it was not error to use that testimony under § 3C1.1. The court, however, held that the § 2F1.1 enhancement had to be vacated because the court was unprepared to declare that the "Retirement Plans" were financial institutions.