The Supreme Court placed new limits Thursday on prosecutors’ use of a federal fraud law to go after white-collar criminals and questioned the convictions of several high-profile defendants including former Enron chief Jeffrey Skilling and former Canadian newspaper mogul Conrad Black.
In a case watched closely by the Justice Department, the court said the “honest services fraud” law is limited to bribery and kickback schemes.
“Because Skilling’s alleged misconduct entailed no bribe or kickback,” the Court said in a majority opinion authored by Justice Ruth Bader Ginsburg, “it does not fall within the Court’s” reading of the law.
Even though the court rejected prosecutors’ use of the law, it left a decision on whether or not to overturn Skilling’s conviction to the appeals court.
The ruling was a somewhat unexpected one, since white-collar lawyers had anticipated the Court would either throw out the statute all together, or adopt lower court rulings that narrowed it slightly.
“It’s a surprising decision in how narrow the court has drawn the boundaries,” said John Falvey, Jr., a former federal prosecutor in Massachusetts who is now a partner at Goodwin Procter LLP. “The court really trimmed the statute back in a way other courts hadn’t talked about doing.”
The ruling “said expressly to Congress: ‘If you want to criminalize more than that, write a better law’,” Falvey said.
Lawmakers took the bait, lashing out at the court and arguing the ruling both ignored Congress and undermined prosecutors.
“The Court has significantly narrowed the honest services fraud statute, a key tool for prosecutors to protect American taxpayers from fraud and corruption,” said Sen. Patrick Leahy (D-Vt.) who chairs the Senate Judiciary Committee. ”In doing so, the Court has once again disregarded the will of Congress and undermined those efforts to protect Americans from abuses by powerful corporate and political interests.”
Watchdog groups also criticized the ruling. “Today’s decision deprives prosecutors of an important tool in their efforts to fight public corruption,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington.
Skilling is serving a decades-long sentence after being convicted in 2006 on securities fraud and conspiracy charges for his role in Enron’s collapse.
In a separate opinions, the court vacated the convictions of former Canadian newspaper mogul Conrad Black and former Alaskan legislator Bruce Weyhrauch and remanded the cases for consideration by appeals courts.
According to Jeffrey Cramer, a former Assistant United States Attorney in the Northern District of Illinois, who worked on the Conrad Black case, prosecutors will have be cautious about how the use the law in the future. Cramer, who is now the head of the Chicago office of Kroll’s Business Intelligence and Investigations Practice, said the while the law still applied to bribes and kickbacks, it had been curtailed.
“The interesting thing is when it comes to public corruption cases where there is a conflict of interest,” Cramer said. “The opinion seems to say if there’s just a conflict interest, it’s not a crime.”
Elected officials who don’t accept bribes but engage in transactions where there is a conflict of interest could be exempt from honest services charges. In particular, Cramer said this could have an effect on prosecutors in Chicago, New Jersey, Connecticut and New York where there are a high number of public corruption cases.
As for the specific case considered by the court, Cramer said the ruling was ultimately unlikely to have an effect on Skilling and Black , but could impact the Weyhrauch case. The ruling also could affect ongoing cases, including the prosecution of former Illinois governor Rod Blagojevich.
Joshua Berman, a partner at Katten Muchin Rosenman LLP and a former federal prosecutor, said that prosecutors would have to strive harder for precision in some cases, but that the ruling was far from cataclysmic.
“Prosecutors simply no longer can use this law as a ‘catch-all’ when they can’t or don’t want to find another law the has been violated, or don’t want to add more specificity to an indictment,” Berman said. “While certain prosecutors’ offices — most notably the Public Integrity Section — had fallen a bit in love with using the HSF over the past ten years, the section lawyers already had begun to ween themselves off using it in this past year.”
Read the Associated Press story here.
This post has been updated. Additional reporting by Christopher Matthews and Joe Palazzolo.