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Skilling to Supremes: Define “Honest Services”

March 1, 2010

There are many nuances to former Enron CEO Jeff Skilling’s argument, now before the Supreme Court, that he should be released from the minimum-security federal prison that houses him. There is the question of venue—should he have been tried in Houston, where the bulk of the 5,000 people who lost their jobs (and $2 billion in pensions) resided? The New York Times has a sober analysis of that.

And there is the fascinating and all-important question, addressed last Friday by the Wall Street Journal’s law blogger, Ashby Jones, of just how brilliant Skilling’s lawyer really is.

But the real attention is focused on the so-called “honest services” statute which, since 1988, has made it a crime for someone to commit fraud that deprives someone with a stake in a given matter—a voter, a shareholder—of the “honest services” of the accused.

The questions surrounding the “honest services” statute are complex and nuanced, as this primer in last week’s scotusblog attests.

There really are problems of definition at the margins, as there is always the possibility that overzealous federal agents will target some poor schmuck unfairly. Conservative true believers have blasted this statute for its (salutary, IMHO) role in jailing the odious Conrad Black. Former Illinois Governor Rod Blagojevich (accused of trying to sell President Obama’s Senate seat, among other entrepreneurial ventures) was re-indicted without reference to the statute last month. Prosecutors don’t always need the statute to make charges stick.

Still, here’s the thing. Skilling took $56 million out of Enron in 1999 alone. He was paid a reported $130 million in 2001. He sold $60 million worth of Enron stock just before the company went down in flames. He personally directed the accounting maneuvers that hid the rot on Enron’s balance sheet. All it would have taken for Enron to have developed a less meteoric trajectory was elemental logic and kindergarten morality.

The fight over the statute is about whether we should legally require our CEOs and other leaders to possess those attributes.

Skilling’s case is part of a broader effort by big business and reactionary ideologues to roll back laws that were not necessary until the finance system uncoupled itself from the real economy and birthed “modern” (read: “routinely fraudulent”) finance and accounting innovations. For another strand in this tapestry, consider the continuing effort to gut the post-Enron (and Tyco, Adelphia, ImClone, WorldCom, and Global Crossing) rule requiring CEOs to attest to the truthfulness of their company’s annual report, and auditors to actually audit. That battle reached the Supreme Court in December; the decision is pending.

Skilling himself has his fans as well. If you disagree with their position, then

Your socialist crap is not welcome here, weasel.

All nuance aside, the question boils down to this: Do ordinary citizens and shareholders have the clout to force businesspeople and politicians to be honest?

The smart money says no.

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