Source: https://www.scribd.com/document/35380767/Jeff-Skilling-Opening-Merits-Brief-on-Remand
Timestamp: 2016-10-28 09:21:15
Document Index: 611134181

Matched Legal Cases: ['§ 78', '§ 78', '§ 78', '§ 1346', '§ 371', '§ 1346', '§ 1346', '§1346', '§ 371', '§78', '§78', '§78']

BrowseBrowseInterestsBiography & MemoirBusiness & LeadershipFiction & LiteraturePolitics & EconomyHealth & WellnessSociety & CultureHappiness & Self-HelpMystery, Thriller & CrimeHistoryYoung AdultBrowse byBooksAudiobooksComicsSheet MusicBrowse allUploadSign inJoinBooksAudiobooksComicsSheet MusicCase: 06-20885Document: 00511188326
UNITED STATES OF AMERICA, Plaintiff-Appellee, v. JEFFREY K. SKILLING, Defendant-Appellant. JEFFREY K. SKILLING’S OPENING BRIEF ON REMAND FROM THE U.S. SUPREME COURT On Appeal From The United States District Court For The Southern District Of Texas, Houston Division Crim. No. H-04-25 (Lake, J.)
Document: 00511188326
TABLE OF CONTENTS Page INTRODUCTION ......................................................................................... 1 STATEMENT.............................................................................................. 10 FACTUAL BACKGROUND...................................................................... 11 ARGUMENT............................................................................................... 12 I. THE HONEST-SERVICES FRAUD ERROR REQUIRES REVERSAL OF SKILLING’S CONSPIRACY CONVICTION..... 12 A. The Conspiracy Conviction Can Stand Only If The Government Can Prove That Its Honest-Services Fraud Theory Was Identical To Its Securities-Fraud Theory ........... 13 The Government Cannot Establish That Its HonestServices Fraud Theory Was Identical To Securities Fraud .... 17
THE ERRONEOUS HONEST-SERVICES THEORY INFECTED EVERY OTHER COUNT OF CONVICTION ............ 39 A. B. C. Securities Fraud (Counts 2, 14, 16-20, 22-26)........................ 40 Insider Trading (Count 51) ..................................................... 51 False Statements to Auditors (Counts 31, 32, and 34-36) ...... 54
CONCLUSION............................................................................................ 58
TABLE OF AUTHORITIES Pages CASES Al Qaadir v. Gallegos, 1995 WL 330628 (9th Cir. June 2, 1995) ................................................. 11 Exxon Shipping Co. v. Baker, 128 S. Ct. 2605 (2008) .......................................................................... 4, 12 Feela v. Israel, 727 F.2d 151 (7th Cir. 1984)..................................................................... 57 Kennedy v. So. Cal. Edison Co., 268 F.3d 763 (9th Cir. 2001)..................................................................... 11 Kotteakos v. U.S., 328 U.S. 750 (1946) .............................................................................. 9, 47 McNally v. U.S., 483 U.S. 350 (1987) .................................................................................. 13 Neder v. U.S., 527 U.S. 1 (1999) ........................................................................................ 2 Sullivan v. Louisiana, 508 U.S. 275 (1993) .............................................................................. 9, 47 U.S. v. Acker, 52 F.3d 509 (4th Cir. 1995)....................................................................... 53 U.S. v. Alexius, 76 F.3d 642 (5th Cir. 1996)....................................................................... 56 U.S. v. Barona, 56 F.3d 1087 (9th Cir. 1995)............................................................... 56, 57 U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006)................................................................. 3, 15 U.S. v. Edwards, 303 F.3d 606 (5th Cir. 2002)..................................................................... 14
TABLE OF AUTHORITIES (continued) Pages U.S. v. Goodner Bros. Aircraft, Inc., 966 F.2d 380 (8th Cir. 1992)............................................................... 54, 57 U.S. v. Hands, 184 F.3d 1322 (11th Cir. 1999)................................................................. 11 U.S. v. Holley, 23 F.3d 902 (5th Cir. 1994)........................................................... 13, 14, 24 U.S. v. Howard, 517 F.3d 731 (5th Cir. 2008).............................................................. passim U.S. v. Johnson, 44 F. App’x 752 (9th Cir. 2002)................................................................ 42 U.S. v. Kaiser, 660 F.2d 724 (9th Cir. 1981)..................................................................... 42 U.S. v. Pettigrew, 77 F.3d 1500 (5th Cir. 1996)..................................................................... 19 U.S. v. Saks, 964 F.2d 1514 (5th Cir. 1992)............................................................. 13, 14 U.S. v. Santos, 201 F.3d 953 (7th Cir. 2000)..................................................................... 53 U.S. v. Sardesai, 125 F.3d 850 (4th Cir. 1997)..................................................................... 42 U.S. v. Skilling, 554 F.3d 529 (5th Cir. 2009)........................................................... 1, 10, 39 U.S. v. Slade, 627 F.2d 293 (D.C. Cir. 1980) .................................................................. 53 U.S. v. Smithers, 27 F.3d 142 (5th Cir. 1994)....................................................................... 14
TABLE OF AUTHORITIES (continued) Pages U.S. v. Urcioli, 513 F.3d 290 (1st Cir. 2007) ..................................................................... 38 U.S. v. Washington, 106 F.3d 983 (D.C. Cir. 1997) .................................................................. 42 Yates v. U.S., 354 U.S. 298 (1957) ........................................................................... passim Zant v. Stephens, 462 U.S. 862 (1983) .................................................................................. 12 STATUTES 15 U.S.C. § 78m............................................................................................ 10 15 U.S.C. § 78ff ............................................................................................ 10 15 U.S.C. § 78j.............................................................................................. 10 18 U.S.C. § 1346............................................................................................. 1 18 U.S.C. § 371............................................................................................. 10
INTRODUCTION Jeffrey Skilling was convicted in May 2006 for fraud-related offenses arising out of the sudden collapse of Enron Corp. in late 2001. He has been incarcerated in federal prison since December 13, 2006—more than threeand-a-half years—with almost 20 years remaining on the 24-year sentence imposed initially by the district court.1 On June 24, 2010, the Supreme Court invalidated one of the two theories of fraud the government asserted against Skilling—i.e., that he conspired to deprive Enron of its “right to honest services” under 18 U.S.C. § 1346 by taking actions he “knew … were not in the best interests of Enron and its shareholders.” R:36424.2 The Supreme Court unanimously held the honest-services statute does not permit the government to try such openended theories of wrongdoing, but instead “covers only bribery and kickback This Court vacated the sentence in its 2009 decision, holding that the district court erred in applying a “financial institution” enhancement. U.S. v. Skilling, 554 F.3d 529, 595 (5th Cir. 2009). A resentencing has yet to occur. Citations are made as follows: “R:123” refers to the Record on Appeal, page 123; “SR1:123” refers to Supplemental Record #1; “SR2:123” refers to Supplemental Record #2; “GX100:123” refers to Government Trial Exhibit 100, page 123; “DX100:123” refers to Defense Trial Exhibit 100, page 123. Sealed documents are cited by date and title, and identified as “sealed.” “JKS-1:123” refers to materials cited in Skilling’s Motion to Supplement the Record on Appeal, Tab 1, page 123. “Skilling Br.” refers to Skilling’s opening brief on his original appeal (Sept. 7, 2007), and “Skilling Reply” refers to his reply brief in support of the same (Dec. 21, 2007). “U.S. Br.” refers to the government’s original brief in opposition (Nov. 13, 2007).
schemes.” Skilling v. U.S., 08-1394, Slip Op. at 2. And “[b]ecause Skilling’s alleged misconduct entailed no bribe or kickback, it does not fall within § 1346’s proscription.” Id. at 2; see id. at 50 (“It is … clear that, as we read §1346, Skilling did not commit honest-services fraud.”). The Supreme Court did not, however, reverse Skilling’s convictions. Instead, it remanded the case for this Court to determine whether the district court’s “constitutional error” in allowing the government to submit its legally flawed honest-services theory to the jury was harmless as to any of Skilling’s 19 convictions. Id. at 50. As the case returns to this Court, Skilling’s convictions are presumptively invalid, given the conceded error in trying him on a nonexistent theory of criminal liability. The question now is whether the government can overcome that presumption by proving, beyond any reasonable doubt, that the erroneous submission of the honest-services theory to the jury did not affect Skilling’s convictions. See Neder v. U.S., 527 U.S. 1, 18 (1999) (instructional error on elements of crime not harmless unless it is “clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error”); Yates v. U.S., 354 U.S. 298, 312 (1957) (reversal required where it is unclear whether the convictions rested on legally valid or invalid bases). Unless the government carries that
burden through a fact-intensive analysis of each count, the convictions cannot stand, and Skilling must be retried before a jury not exposed to, and not invited to convict on, an invalid fraud theory. The government cannot carry its burden. The district court, in ruling on bail at sentencing, recognized that the submission of an invalid honestservices theory to the jury likely required reversal of Skilling’s conviction for conspiracy—Count 1 of the government’s case. R:41895-98; see also U.S. v. Brown, 459 F.3d 509, 523 (5th Cir. 2006) (finding error in submitting honest-services theory to jury in parallel Enron case not harmless as to conspiracy count). The government did not dispute that conclusion then, nor did it do so when Skilling appealed the bail ruling to this Court. See U.S. Resp. to Skilling’s Mot. for Bail Pending Appeal at 2, 12, 15 (Oct. 18, 2006) (sealed); U.S. Resp. to Appellant’s Mot. for Bail Pending Appeal at 2, 15, 18 (5th Cir. Nov. 27, 2006). In reviewing Skilling’s bail application in late 2006, Judge Higginbotham went further still, noting that error in the honestservices fraud theory created “serious frailties” in 14 of the 19 counts of conviction, Order, U.S. v. Skilling (5th Cir. Dec. 12, 2006)—the one conspiracy count, the 12 securities-fraud counts, and the one insider-trading count on which Skilling was convicted, leaving only five counts for alleged false statements to Enron’s auditor, Arthur Andersen (“FSA counts”), see id.
Judge Higginbotham was correct as to the 14 counts, but wrong as to the remaining five. As the district court recognized, reversal of the conspiracy conviction is required because the government charged Skilling with multiple objects of the conspiracy—including securities fraud and honest-services wire fraud—and successfully urged a general verdict form, ensuring that it would be “impossible to know, in view of the general verdict returned whether the jury imposed liability on a permissible or an impermissible ground….” Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2615 n.3 (2008); see Hedgpeth v. Pulido, 129 S. Ct. 530, 530 (2008) (a “conviction based on a general verdict is subject to challenge if the jury was instructed on alternative theories of guilt and may have relied on an invalid one”). Given the record evidence, argument, and open-ended honestservices jury instruction the government fought so hard to obtain, reasonable jurors easily could have found Skilling guilty on the broad, legally wrong honest-services wire fraud object without finding him guilty on the more demanding securities-fraud object. Reversal on the remaining counts is likewise required, for the same reason: for every count, the jury was allowed and even encouraged to rely on the legally incorrect honest-services fraud theory in deciding whether to convict. On the 12 securities-fraud counts, the government obtained a
“Pinkerton” vicarious liability instruction, which allowed jurors to rely on the conspiracy conviction to convict Skilling for any charged act of securities fraud committed by any other co-conspirator, even if Skilling himself did not commit the act. Given the government’s heavy reliance on the acts of alleged co-conspirators, it is very possible the jurors did exactly that. For every securities-fraud count, one or more of Skilling’s alleged coconspirators testified that they themselves had committed the acts of securities fraud at issue (and in many cases formally pled guilty to them), while Skilling himself often had little involvement in the statement (or underlying conduct affecting the statement), and had substantial defenses to direct liability for the charge. Accordingly, it is likely—if not virtually certain—that the jurors relied heavily on the Pinkerton vicarious liability instruction in convicting Skilling for the admitted acts of securities fraud by others. In U.S. v. Howard, 517 F.3d 731 (5th Cir. 2008), this Court reversed a conviction tainted by a Pinkerton instruction in a parallel Enron prosecution involving one part of the same alleged overarching conspiracy. The same result as in Howard must obtain here. Count 51—the insider-trading count—also must fall with the conspiracy count. The government explicitly urged the jury to convict Skilling for insider trading on the theory that he sold Enron shares when he
became aware that his alleged conspiracy to commit fraud was about to be exposed. Because the jury could have found that the conspiracy was one to commit honest-services fraud, then the supposed inside information on which Skilling traded—the “conspiracy”—was legally nonexistent. The insider-trading conviction is thus tainted and cannot stand. The five FSA counts, finally, are also rendered infirm by the erroneous honest-services theory. For each of these counts, the government alleged that management representation letters sent by Enron to Arthur Andersen falsely stated that there was “no material fraud” at Enron. The government also challenged other statements in the letters as false, but Skilling had substantial defenses to these statements, including scienter and reliance, and the government spent only minutes on these charges in the course of the five-month trial. See Skilling Br. at 56-57; Skilling Reply at 45-46. The jurors easily could have credited Skilling’s defenses, while still convicting him on the legally impermissible ground that the “no material fraud” statement was false in light of the honest-services fraud conspiracy. In short, having elected to press the honest-services fraud theory throughout trial and to fight vigorously for an instruction permitting jurors to rely on it, the government cannot now exclude the possibility that the jurors applied the erroneous honest-services fraud theory to convict Skilling for
conspiring to commit an act of “fraud” that does not legally exist, and then applied that finding to convict Skilling on every other count. After all, the whole point of the honest-services fraud theory was to secure a path to conviction less demanding than full-blown securities fraud. And make no mistake about it: the government did not have a clearcut case of securities fraud against Skilling.3 Far from it. The government’s lead prosecutors conceded before and after trial that the case against Skilling was plagued by “fundamental weaknesses,” Skilling “took steps seemingly inconsistent with alleged criminal intent,” there were “no smoking gun documents,” government witnesses had been “subjected to vicious impeachment,” and, given the scores of lawyers and accountants who reviewed and approved the disputed conduct, there were “serious advice of counsel issues.” Skilling Br. at 19-20. Skilling also presented compelling evidence that each of the disputed transactions and alleged misstatements was fully disclosed and known to the public; that Enron’s accounting, even if aggressive, was correct; and that the alleged misstatements made were true, or at worst immaterial. See Skilling Br. at 24-55; Skilling Reply at 2A thorough recitation of the evidentiary failures and weaknesses in the government’s securities-fraud case is set forth in Skilling’s appellate briefs. E.g., Skilling Br. at 24-55; Skilling Reply at 2-13. The Court, in this procedural setting—where error has now been established—does not review the trial record in the light most favorable to the government. Infra at 11.
13. These facts were established not only by defense witnesses, but also by admission after admission from the government’s own witnesses on every key point in the case, see id., and even by the prosecutors themselves, who admitted, for example, that they had less than compelling evidence that Skilling’s statements materially misled investors, because stock analysts had not been misled by Enron’s filings, see Skilling Br. at 100-01 n.34. The honest-services theory gave the government—and the jury—a path to avoid the vulnerabilities of the government’s securities-fraud case. It permitted the jury to convict Skilling, in the government’s words, for not doing his job “appropriately,” for taking “reckless risks,” and for creating an objectionable “culture” at Enron—one that tolerated “conflicts of interest,” encouraged “aggressive accounting,” and promoted “taking on increased risk” to hit short-term earnings targets at the expense of long-term business fundamentals. R:37066, 22848, 36467, 29822-23, 36446, 36455-56. Although such acts would not necessarily constitute securities fraud, Skilling’s jurors were urged to treat them as criminal, on the theory that they violated fiduciary duties Skilling owed to his employer. That theory of the “honest services” crime, the Supreme Court has now held, does not exist. The government cannot now seriously deny the possibility that the jurors applied the law just as the government urged them to apply it. In the
prior appeal, the government’s position was, in essence, that any honestservices error was harmless because, absent the error, there was sufficient evidence for a reasonable jury to find that Skilling committed actual securities fraud and the other crimes charged. But it has long been settled that the government cannot establish harmlessness merely by showing that there was sufficient evidence to convict before a jury unexposed to the erroneous legal theory. See Kotteakos v. U.S., 328 U.S. 750, 767 (1946) (rejecting argument that error is harmless “if the evidence offered specifically and properly to convict [the] defendant would be sufficient to sustain his conviction” absent the error). Rather than marshalling sufficient evidence on its valid theory of prosecution, the government’s burden now is to exclude the possibility that a reasonable jury could have relied on the invalid theory for any count of conviction. The harmless-error question, thus, “is not whether, in a trial that occurred without the error, a guilty verdict would surely have been rendered, but whether the guilty verdict actually rendered in this trial was surely unattributable to the error.” Sullivan v. Louisiana, 508 U.S. 275, 279 (1993). Because it is impossible to know whether the jury convicted Skilling on any of the 19 counts without relying on the honest-services theory, all 19 counts must be reversed, and
Skilling must be retried before a jury that is not permitted to rest any count of conviction on a legally invalid fraud theory. STATEMENT Skilling was convicted on May 25, 2006, on 19 counts: one count of conspiracy to commit securities or wire fraud (18 U.S.C. § 371); 12 counts of securities fraud (15 U.S.C. §§78j, 78ff); five counts of false statements to auditors (15 U.S.C. §§78m, 78ff); and one count of insider trading (15 U.S.C. §§78j, 78ff). The jury acquitted Skilling on nine counts of insider trading. Skilling was sentenced to 292 months and ordered to pay some $40 million in restitution. R:41917-24. Skilling has been incarcerated since December 2006—first in FCI Waseca, and now in FCI Englewood. On January 6, 2009, this Court affirmed Skilling’s convictions but vacated the sentence, holding that the district court erred in applying a “financial institutions” enhancement. Skilling, 554 F.3d at 595. The Court remanded the case for resentencing, but before further proceedings were held, the Supreme Court on October 13, 2009, granted certiorari to review two questions presented by Skilling in a challenge to his convictions. On June 24, 2010, the Supreme Court issued its decision. By a 6-3 vote, the Court rejected Skilling’s challenge to the impartiality of the jury. See Slip Op. at 34. The Court unanimously agreed with Skilling, however,
that the exceedingly broad theory of honest-services fraud asserted by the government at trial could not legally be applied to Skilling. See id. at 50. The Court remanded the case for this Court to determine whether the government can establish that the error in submitting its honest-services theory to the jury was harmless beyond a reasonable doubt. See id. at 50-51. FACTUAL BACKGROUND The factual background of the case is set forth in Skilling’s prior briefing. Specific facts relevant to the harmless-error question are detailed as appropriate in the Argument section below. To be clear, however: because this is not a sufficiency-of-the-evidence challenge, the Court does not review the trial evidence in the light most favorable to the verdict. “In harmless error review, unlike sufficiency of the evidence review, the prevailing party is not entitled to have disputed factual issues resolved in his favor because the jury’s verdict may have resulted from a misapprehension of law rather than from factual determinations in favor of the prevailing party.” Kennedy v. So. Cal. Edison Co., 268 F.3d 763, 770 (9th Cir. 2001).4 Accord U.S. v. Hands, 184 F.3d 1322, 1330 n.23 (11th Cir. 1999) (“Harmless error review, unlike a determination of the sufficiency of the evidence, does not require us to view witnesses’ credibility in the light most favorable to the government.”); Al Qaadir v. Gallegos, 1995 WL 330628, at *3 n.5 (9th Cir. June 2, 1995) (“It is impossible to determine whether an error was harmless beyond a reasonable doubt by construing evidence in the light most favorable to the prosecution.”).
ARGUMENT Submitting a legally erroneous theory of liability to a jury is a constitutional error requiring reversal unless the government can prove that the error is harmless beyond a reasonable doubt. The government cannot make that showing here on any of the 19 counts of conviction. I. THE HONEST-SERVICES FRAUD ERROR REQUIRES REVERSAL OF SKILLING’S CONSPIRACY CONVICTION Skilling’s indictment for conspiracy alleged three possible objects: honest-services wire fraud, money-or-property wire fraud, and securities fraud. R:152-59. Skilling requested a special verdict form requiring the jury to identify the object that was the basis for any conviction, but the government objected and the district court declined to give one. R:35899, 36020-21. The government thus expressly invited the error it must now overcome: because of the general verdict on conspiracy, “it is impossible to know … whether the jury imposed liability on a permissible or an impermissible ground,” Exxon Shipping, 128 S. Ct. at 2615 n.3, and under Yates, 354 U.S. at 312, reversal is required “where it is unclear whether the convictions rested on legally valid or invalid bases,” Howard, 517 F.3d at 736; see Zant v. Stephens, 462 U.S. 862, 881 (1983) (reversal required where “uncertain as to the actual ground on which the jury’s decision rested”).
The Conspiracy Conviction Can Stand Only If The Government Can Prove That Its Honest-Services Fraud Theory Was Identical To Its Securities-Fraud Theory
This Court has long held that a Yates-type error can be proved harmless beyond a reasonable doubt, if—as relevant here—the government can prove that the invalid theory it employed at trial was factually identical to a legally valid theory on which the jury could have relied. See, e.g., U.S. v. Holley, 23 F.3d 902 (5th Cir. 1994); U.S. v. Saks, 964 F.2d 1514 (5th Cir. 1992). In Holley and Saks, for example, the defendants were convicted of fraud pursuant to instructions that permitted jurors to find them guilty of either honest-services fraud or substantive bank or money fraud. But the Supreme Court decided in McNally v. U.S., 483 U.S. 350 (1987), that to prove mail or wire fraud, the government had to show that the defendant had stolen (or conspired to steal) money or tangible property. Depriving a victim of one’s “honest services” was not enough, and therefore the jury instructions in Saks and Holley were invalid. After a careful examination of the trial record in both cases, this Court held the errors to be harmless, however, because the only honest-services fraud asserted in either case was a scheme to steal money from the banks at issue. See Holley, 23 F.3d at 910; Saks, 964 F.2d at 1521-22. In other words, the government was able to meet its heavy burden of proving
harmless error because there was a perfect overlap between its honestservices and money/property theories of the case. See Saks, 954 F.2d at 1521 (“the ‘bottom line’ of the scheme or artifice had the inevitable result of effecting monetary or property losses”); Holley, 23 F.3d at 910 (“This scheme [to obtain fraudulent bank loans] had the inevitable, inescapable, and unavoidable result of exposing Peoples [Bank] to at least a risk of loss.”) (emphasis added). In the situation reflected in these cases, the error in submitting an invalid theory to the jury is harmless because the jury that convicted on that theory also necessarily convicted on the valid theory, eliminating all uncertainty as to the ground for conviction. See U.S. Br. at 92. But of course that harmlessness principle does not apply, by its own terms, where the record and instructions permit the jury to choose between a valid trial theory and a factually different legally invalid theory, because in that circumstance it is necessarily “impossible to tell which ground the jury selected.” U.S. v. Edwards, 303 F.3d 606, 641 (5th Cir. 2002); see U.S. v. Smithers, 27 F.3d 142, 146 (5th Cir. 1994) (rejecting government argument that “jury could not have found the defendant guilty without making the proper factual finding” because “we cannot tell from the jury’s answers [to verdict form] how it evaluated the evidence”).
The Court applied a corollary of this rule to reverse the convictions in Howard—another Enron-related case tainted by an invalid “honest services” conspiracy charge. In Howard, the CFO of Enron’s Broadband division was charged with conspiracy to commit money-and-property wire fraud and/or honest-services wire fraud, and with falsifying Enron’s “books and records.” 517 F.3d at 732-33. The government asserted that Howard’s work on the disputed “Braveheart” transaction—also at issue in Skilling’s case—allowed Enron falsely to report earnings. It contended that by working on this fraudulent transaction Howard deprived Enron of his honest services. See id. When this Court rejected the government’s expansive reading of honestservices liability in yet another Enron case involving the “Nigerian Barges” transaction also at issue in Skilling’s—U.S. v. Brown, 459 F.3d 509 (5th Cir. 2006)—the government conceded that Howard’s conspiracy conviction, like Brown’s, had to be reversed, because the conspiracy count the government pursued (in all three cases) included both legally valid and legally invalid objects, and the jury had returned (in all three cases) a general verdict on that count. See Howard, 517 F.3d at 735. The government disputed, however, whether Howard’s substantive “books and records” fraud conviction had to be reversed. As in Skilling’s case, even though Howard’s books-and-records conviction was tied directly
to the tainted conspiracy conviction by a Pinkerton instruction, the government argued the jury surely found that Howard himself—and not one of his conspirators—was responsible for falsifying Enron’s books. See id. This Court squarely rejected that kind of speculative approach to determining the basis for the jury’s verdict. “The jury may have found Howard guilty under Count 5 for his own acts or acts caused or directed by him,” the Court acknowledged, but it also “may have concluded that although Howard was not guilty of personally making or causing to be made the false entries charged in Count 5, he was culpable because the false entries were made by a coconspirator in furtherance of the conspiracy charged in Count 1.” Id. at 736 (emphasis added). A “careful review of the record” established that there was sufficient evidence that a reasonable jury could have relied on the invalid honest-services conspiracy. Id. at 736-37 (“a reasonable jury could have found that [other alleged co-conspirators] were responsible for making the false entries”). Because it was “impossible to determine whether the jury convicted Howard on Count 5 based on his guilt on the conspiracy count plus acts by [his alleged co-conspirators],” the Court was required to reverse Howard’s conviction. Id. at 737. As these cases establish, the government cannot prove a Yates-type error harmless merely by speculating about what jurors might have found
based on a hotly contested record. As noted above, supra at 2, 4, 9, 13-16, it has long been settled that the Government must do more than prove that a reasonable jury could have found the defendant guilty beyond a reasonable doubt on the legally invalid theory. The Government instead must exclude the possibility that the jurors relied on the invalid theory, either by showing that there was insufficient evidence for reasonable jurors to have relied upon it, or by showing that there was actually only one theory asserted, such that the jurors necessarily relied on the valid theory in returning a conviction. See id.; infra at 38, 41-42, 56-57. When the legally invalid theory is distinct and factually supportable on its own terms, then it is impossible to know on which theory the jury relied, and the convictions must be reversed. See id. B. The Government Cannot Establish That Its Honest-Services Fraud Theory Was Identical To Securities Fraud
The government cannot fairly deny that it asserted a theory of honestservices fraud against Skilling at trial that was factually distinct from securities fraud.5 In fact, on direct appeal before this Court, the government
The government all but formally abandoned the money-or-property wire fraud theory, conceding in closing that this was “not a case about greed.” R:37065. The government and its witnesses also admitted Skilling never stole any money from Enron; just the opposite, when it was good for the company, he gave back to it money to which he had contractually been entitled. See R:21622-27, 21685, 21690, 21720-25, 21771 (Fastow admitted he concealed his thefts from Skilling); R:15954, 18024-25, 22986, 24548-49 (government witnesses testified that Skilling “loved the company” and “was
did not even attempt to establish a complete identity between the honestservices and securities-fraud theories. Rather, it argued only that the honestservices fraud acts alleged were “primarily methods of committing securities fraud.” U.S. Br. at 88 (emphasis added). As shown above, however, it is not enough to show that the valid theory was the “primary” basis for liability asserted. The government must show that the valid theory was the only factually supportable basis on which the jury could have convicted. The government cannot possibly carry that burden here.6 The government recently made the same argument unsuccessfully in U.S. v. Black, No. 07-4080 (7th Cir. 2010)—a case that became a companion to Skilling’s in the Supreme Court. In opposing Black’s application for bail on remand, the government argued that the honest-services fraud theory in very committed” and “dedicated” to it); R:28481-86 (Skilling declined $50 million in compensation in order to set an example for management). At oral argument before this Court, the government changed its description of its trial presentation from one in which it said it pursued “primarily” a securities-fraud case, to the more aggressive claim that “virtually every” aspect of its case was aimed at prosecuting “classic” securities fraud. Indeed, the government argued “the jury must have found” that securities fraud was the object of the conspiracy. Ex. E at 41:4-5 (oral argument transcript). As Judge Prado rightly pointed, however—and as is fatal to the government’s speculation about what the jury might or “must” have decided—“It would have been helpful … to have the kind of special charges breakdown, then we’d know for sure….” Id. at 41:7-9. But, of course, Skilling’s requests for a special verdict form were refused, and because it is impossible to know on which ground the jury relied, Skilling’s convictions must be reversed. See Yates, 354 U.S. at 312.
Black’s case was “based on the same fraudulent conduct that supported the [valid] money-fraud theory” and, thus, “the honest-service liability was coextensive with the money-fraud liability.” Ex. B at 2-3. The government cited page after page of the trial record where it referred to the two theories in similar terms. See id. at 3-15. But as Black pointed out in reply, that was not always the case, the jury instructions expressly treated the two theories differently, and the record showed there was not complete factual identity between the two theories of liability. See Ex. C at 3-7 (Black reply); Ex. A at 6-11 (Black motion). The Seventh Circuit ordered Black released from federal prison on bail pending further remand proceedings. See Ex. D. The government’s “coextensive theories” argument is even more starkly wrong here. Indeed, it is sheer nonsense to suggest that the extensive trial record on honest-services fraud was limited to, and thus by definition coextensive with, the record on securities fraud. As shown below, prosecutors clearly and repeatedly invited the jury to convict on an honestservices fraud theory precisely because it was distinct from—and easier to prove than—securities fraud. Consequently, it is impossible to determine, on any fair review of the record and given the verdict form the government demanded, which object offense the jury selected. See U.S. v. Pettigrew, 77 F.3d 1500, 1511-12 (5th Cir. 1996) (“Because we are unable to determine on
review which object offense the jury selected, we reverse.”); infra at 38, 42, 56-57 (collecting cases). 1. To start, the jury instructions expressly advised the jury that the government was asserting “two different” theories of fraud, and that jurors were free to convict on either theory. R:36412-14. The instruction emphasized that “[t]he Government does not have to prove both of these for you to return a guilty verdict on Count 1,” and the prosecutors exploited this repeatedly in closing, arguing there were two separate and distinct paths to conviction of both defendants, or either defendant, on Count 1, see R:3706566, 37042, 37047, 37013-14. The instructions also defined the securities fraud and honest-services fraud very differently. The securities-fraud instruction included a lengthy recitation of the various specific and demanding elements, elaborating each separately. R:36416-23. The honest-services fraud instruction, by contrast, broadly defined Skilling’s “honest services” duty as his “fiduciary duty to Enron and its shareholders,” R:36424, and invited jurors to convict him for breaching that duty if they found that he did not act as a “totally faithful employee” and took actions “not in the best interests of Enron.” Id. 2. Consistent with this wide-ranging instruction, the government repeatedly elicited testimony from witnesses that Skilling and his alleged
conspirators breached their “fiduciary responsibility,” R:21224-25, and their duties of “loyalty,” “honesty,” and “honest services,” R:37013-14; R:1586467 (breached Enron Code of Ethics, which required “honesty, candor, fairness”); R:22769-70 (expectation of “honesty and candor”); R:32262-64 (duty of “honesty, candor, fairness”); R:36568 (“duty” of “honest services”); R:37043 (duty of “honest services”). Indeed, in successfully arguing for a capacious honest-services instruction, the government equated honestservices with a mere breach of any fiduciary duty—not the limited securities-fraud theory it now posits: “[T]he government’s evidence shows that defendants committed (or conspired to commit) honest-services fraud by breaching their fiduciary duties to Enron and its shareholders.” R:41328. 3. In fact, nowhere in that submission on jury-instruction issues—nor at any other point during trial—did the government contend that the honestservices theory it fought so vigorously to present to the jury was actually just redundant of its securities-fraud case. The government cannot credibly contend now that it wasted the trial court’s time and resources wrestling over legal theories and instructions that were unnecessary and meaningless. Nor did the government (or district court) ever advise jurors that they should only apply the broad honest-services instruction to conduct that already qualified as securities fraud, or that the only fiduciary breaches the
government wanted to criminalize were those already criminalized as securities fraud. To the contrary, as noted above, the jurors’ instructions expressly advised them that the government was asserting “two different” theories. R:36412-13. And the government wound up its rebuttal closing argument—some of the last minutes of a five-month trial—by specifically calling out the “honest services” theory and emphasizing to jurors that they could rely on that theory alone to convict Skilling for conspiracy: [M]ake no mistake, they got wealthy…. And in exchange for that money, they owed their employees a duty, a duty of good faith and honest services, a duty to be truthful, and a duty to do their job, ladies and gentlemen, to do their job and to do it appropriately. The indictment in this case -- please read the instructions. Please look at the indictment. You do not have to -- we do not have to prove every count in the conspiracy. We just need to prove that there was an agreement to do something illegal. R:37065-66 (emphasis added). The “something illegal” the jury was invited to find expressly included Skilling’s failure to provide his “honest services,” or his mere alleged failure to do his job “appropriately”—an encapsulation of the ill-defined overbroad honest-services theory the Supreme Court has now denounced. These arguments and the Count 1 jury instruction they specifically invoke require the reversal of Count 1. Indeed, in ruling on Skilling’s bail motion, and in finding that Count 1 conviction likely had to be reversed, the
district court—which sat through the trial, and heard the government’s case—concluded that the jury instructions compelled this result: [T]he court instructed the jury in this case that it could convict Skilling of conspiracy by finding that he conspired, inter alia, to deprive Enron of its intangible right to honest services…. [T]he jury returned only a general verdict making it impossible to tell on which of the various objects of the conspiracy the jury based Skilling’s conviction. R:41897. The government notably did not contest that judgment when Skilling appealed the bail-pending-appeal issue. See supra at 3. 4. Finally, for every transaction and business decision challenged by the government at trial as securities fraud, Skilling presented forceful defenses, as illustrated by Skilling’s acquittal on nine insider-trading counts—one-quarter of the government’s case against him. As to the remaining transactions, Skilling was able to rebut the government’s securities-fraud case at every turn—often from the mouths of the government’s own witnesses—leaving no assurance whatsoever that the jurors found Skilling guilty on the securities-fraud object of conspiracy. By contrast, for each transaction, the government consistently articulated a fallback honest-services version of its case, which gave the jurors a basis for finding Skilling separately liable on that legally invalid theory. On the record here, unlike in cases like Saks and Holley, one cannot plausibly even suggest—much less conclude beyond a reasonable doubt—that any juror
who convicted Skilling for conspiracy on an honest-services theory “inevitabl[y], inescapabl[y], and unavoidabl[y]” also found him guilty based on the securities-fraud object. Holley, 23 F.3d at 910. a. EES. When the accounting resegmentation of a part of the EES business unit was attacked as an effort to mislead investors, Skilling established through each of the government witnesses, as well as his own, that the accounting for this transaction was “rock solid” and complied with the disclosure rules. Skilling Br. at 45-48; Skilling Reply at 2-4; R:1997678, 20277-79, 28996, 29009, 29323-29. And when the government asserted that Enron had hidden losses in EES’ business, Skilling showed that these losses had either not occurred, had not occurred in the way the government’s witnesses described, or were only speculative losses that had to be reserved against, and that proper reserves had been taken on all accounts. Skilling Br. at 48-49 (collecting evidence); Skilling Reply at 4 (same). With the securities-fraud version of its EES case directly challenged, the government fell back on the argument that Enron’s actions—like the EES resegmentation—lacked a “business purpose.” U.S. Br. at 15. While this charge is not necessarily a species of securities fraud (given the disclosures that were made and the accounting rules with which Enron complied), it is an open-ended honest-services fraud theory, which rests on the premise that
Skilling and others failed to do their jobs appropriately. Thus, while the jury could have rejected the securities-fraud version of these allegations the government presented, it had a second, invalid basis on which to convict. b. LJM. LJM was a private-investment fund created by Andrew Fastow that engaged in off-balance sheet and other transactions with Enron. LJM was a major focus of the government’s case at trial. In the securitiesfraud version of its LJM case, the government argued that Fastow entered into secret, oral side-deals with Rick Causey, Skilling, or others on LJMEnron transactions that rendered the accounting and disclosure of those transactions materially false. But the government also attacked the very creation of LJM, claiming Skilling never should have approved its formation. U.S. Br. at 39-42. Under this bad-business-judgment theory of its case—the honest-services theory—the government contended that Skilling acted recklessly in approving the structure for LJM, including approving Fastow’s conflict of interest in running LJM—Fastow served as general partner of LJM, worked as Enron’s CFO, and negotiated with Enron on LJM’s behalf. Id. at 40-41. The arrangement and Fastow’s conflict, however, were not conceivably acts of securities fraud (and the government did not dispute this), as both were fully vetted and approved by Enron’s Board on the advice
of outside legal and accounting advisors, GX995:61; GX996:50-51; GX1023:14-15; GX1024:16; GX1025:35; GX1026:101; GX1027:13; GX1029:14-15; GX1031:27; GX1032:76-77; GX1033:12-13; GX1034:13; JKS-1, and Fastow’s conflicting role in LJM and Enron had been fully disclosed in Enron’s SEC filings. For example, Enron’s 2000 10-K disclosed that, “[i]n 2000 and 1999, Enron entered into transactions with limited partnerships (the Related Party) whose general partner’s managing member is a senior officer of Enron.” GX1032:76-77. Enron’s proxy disclosed that Fastow was that senior officer, GX1025:34, and the company’s annual report disclosed the magnitude of LJM’s transactions: “In 2000, Enron entered into derivative transactions with the Entities with a combined notional amount of approximately $2.1 billion to hedge certain merchant investments and other assets.” GX1032:77. Despite these disclosures, the government challenged LJM’s creation and Fastow’s role in it as part of its honest-services version of its case. It argued that Skilling’s approval of LJM was itself a crime, given the risks inherent in the Fastow conflict. U.S. Br. at 40. And it had its witnesses testify that they and other Enron executives believed that the LJM transactions were misguided and harmed Enron because of Fastow’s conflict—and that Skilling had been told of their views. R:17242-43,
29826-27. The government stressed that Skilling and the Enron Board had been warned about the “Wall Street Journal risk” inherent in LJM—not a risk that the conflict would violate securities laws, but that the disclosure of this conflict—which all agreed occurred—would “look terrible” to Wall Street and thereby reflect badly on Enron as a company. R:36529-30. The government leaned heavily on this honest-services, breach-offiduciary-duty theory in its closing argument: Let’s just talk a little bit about LJM. You’ve heard a lot about it in this trial. First and foremost, extremely, extremely unusual to have a chief financial officer of a Fortunate 500 company controlling a private fund that was doing deals with Enron. Huge risks associated with it. Biggest risk? “Wall Street Journal” risk. They talked about it. They discussed it among the board, among Mr. Lay and Mr. Skilling. Mr. Fastow told you that if the “Wall Street Journal” picked it up it would look terrible for Enron…. Why would you do this? Why would a company do this? The reason why they did it is exactly the reason that Mr. Fastow told you, to make their numbers. So they had a tool, a device, a vehicle to make their numbers look the way they wanted them to look. People at the company raised concerns to Mr. Skilling about LJM. You heard Mr. Rice. He called him up, and he said, “I don’t understand why we’re doing this.” Mr. Rice told you that he had talked to Mr. Baxter, another senior executive, who also raised concern about LJM. Mr. Kaminski raised vigorous concerns about the conflict of interest. You heard Mr. Skilling acknowledge in his testimony that Mr. McMahon, the treasurer before Ben Glisan, also raised concerns about LJM.
Mr. Skilling suggested it to you. So he’s getting all this information. People are saying, “Why are we doing this? This looks bad. This is weird. Why do we have our CFO negotiating against Enron people? That seems crazy.” R:21414-15 (emphasis added). And even on appeal before this Court— when the government did not anticipate the Supreme Court’s invalidation of its honest-services theory—the government cited as evidence of criminal conduct the testimony of witnesses who claimed that the fully disclosed LJM conflict reflected “excessive” and “reckless risks.” U.S. Br. at 41-42 (citing R:22848); see also R:22843-44. None of those concerns about “unusual” or “crazy” business decisions and “reckless” but disclosed risks would necessarily establish that Skilling conspired to commit securities fraud. But they all would suffice to establish honest-services fraud under the government’s broad and erroneous theory that not doing one’s job “appropriately” is a federal crime. R:37065-66. Indeed, the government argued exactly this when opposing Skilling’s bail motion before this Court in 2006. It contended that Skilling’s mere acts of approving Fastow’s LJM conflict was a “straightforward example” of an act of “fraud” coming to Skilling’s attention and of his wrongly countenancing such acts. U.S. Resp. to Appellant’s Mot. for Bail Pending Appeal at 11 (5th Cir. Nov. 27, 2006). Because Fastow’s conflict was disclosed to shareholders, this could only be an honest-services theory of fraud. And
given the substantial flaws in its reliance on “secret side deals” to prove securities fraud in connection with LJM, see Skilling Br. at 29-36; Skilling Reply at 9-14, 74-78, the government cannot conceivably exclude the possibility that the jury relied on the simpler, easier, and more direct honestservices theory urged by the government to convict Skilling for conspiracy to commit fraud in connection LJM.7
Two specific LJM transactions illustrate this basic point, but the evidentiary gaps in the government’s securities-fraud-based LJM case were legion: • The government’s appeal brief explicitly highlighted LJM’s first deal with Enron—the so-called “Rhythms” transaction—as an example of Skilling’s criminal conduct in taking “excessive [and] reckless risks,” R:22848, and “‘gambling in [a] casino that is insolvent’”—i.e., an honest-services-based allegation. R:22843; see U.S. Br. at 41-42. Yet there was no conceivable securities-fraud version of this alleged crime to argue or pursue; the government never argued that there was a secret-side deal underlying this transaction rendering its accounting false, and everyone agreed that, though risky, the Rhythms hedged had worked. See R:28621-22, 24550-51, 23019-21. • Similarly, Fastow and Causey negotiated an LJM-Enron hedge for the privately held Avici stock that Enron owned. R:21414-15. The government complained it was “weird” and “crazy” for Fastow to be negotiating with Enron on the deal—the honest-services attack on the Avici transaction. R:36530. The separate securities-fraud attack ran into a major problem. The government accused Fastow and Causey of backdating the pricing terms on the hedge (rendering the accounting false), R:858, but Kevin Hannon, a government witness, conceded the hedge was not backdated, despite Fastow’s claim to the contrary. Skilling Reply at 13-14. In his appellate briefing, Skilling provided many other reasons why the Government’s securities fraud case with respect to LJM was weak and infirm, see, e.g., id. at 9-14, and every one of those infirmities cements why
c. Enron’s Wholesale Business. The government also asserted distinct theories of fraud in connection with Enron’s extremely successful Wholesale energy business. In the honest-services version, the government contended that it was wrong for Enron to focus on short-term earnings targets, and that this focus led the Wholesale business to take on far too much trading risk by steadily increasing the company’s overall “Value at Risk” (or “VaR”) exposure in its energy trading portfolios. R:19710-11, 19847, 22389, 36508-12. As the government argued in closing: The wholesale business, as you heard, at this point in time had been taking on increased risk. They were continuing to -- the traders were continuing to make bigger and bigger bets to meet their increased earnings targets. R:36446. The alternative, more demanding securities-fraud version of the Wholesale trading allegations took a different tack and added several difficult elements to the government’s proof. The government could not argue that Enron hid its overall or shifting risk profile from the investing public, because Enron disclosed its VaR numbers every quarter in SEC filings. Skilling Br. at 43. So the government claimed instead that Skilling mischaracterized Enron’s business model by calling it a “logistics” company the government cannot meet its burden of proving harmless error as to the separate honest-services theory it pursued.
or a market “intermedi[ary],” when he should have called it a “trading” business, akin to a Wall Street firm like Goldman Sachs. R:869, 10753. But of course Enron, unlike Goldman Sachs’ energy traders, owned one of the largest pipeline and energy distribution systems in the world, and those “logistics” and “intermediary” parts of Enron’s business not only made it far more than a pure trading company, but allowed Enron to meet supply and demand and cover trading positions and made it perhaps the most knowledgeable player in the energy business in the world. R:28866-916. It was thus not only possible, but indeed likely, that if the jury found that Skilling conspired to commit any fraud in connection with the Wholesale business, it was honest-services fraud for taking on too much risk (an appealing jury theory, given that Enron eventually went bankrupt), not securities fraud for mislabeling the Wholesale business (a largely theoretical, semantic debate about which Skilling showed opinions could differ). d. EBS. The government also attacked the EBS business unit, arguing both that Skilling and others lied about the health of the business R:36494-508, and that Enron had made significant business misjudgments in betting on the emergence of the broadband and technology markets, R:29034-35, 29178-81, 28207-08, 29239-40, 29414. But as Skilling has shown, the government’s evidence that Skilling or others lied or misled
anyone about the health of the EBS business was based on selective editing of the relevant statements at issue, which in full context were true and clearly disclosed the market difficulties that the EBS business was facing— as amply reflected in stock analysts’ valuations of the business. See Skilling Br. at 50-55; Skilling Reply at 4-6. Skilling likewise showed that EBS’s revenues were fully and accurately disclosed, so that investors knew exactly how EBS was positioned, regardless of any cheerleading and puffery about the business by Enron executives. The government’s failure of proof on its EBS case is hardly surprising—it outright lost a separate trial focused specifically on EBS. U.S. v. Hirko, No. 03-93 (S.D. Tex. 2005). But for present purposes, the point is not that there was insufficient evidence on which to find Skilling guilty of the securities-fraud object for EBS-related actions—it is that reasonable jurors could just as well have rejected the government’s EBS case, and found Skilling guilty of the honest-services object for some other conduct, or even for EBS-related conduct on the theory that Skilling made a bad business judgment investing so heavily in the broadband business when the market was turning against it and the socalled “tech-stock bubble” was bursting. R:14759-60, 36497-98. e. Reserve Accounting. GAAP requires that each quarter companies take reserves against certain contingent business risks. The government
asserted that Enron’s use of reserves was fraudulent in two different ways. The securities-fraud version was that Enron over- or under-reserved in certain accounts and in certain quarters to meet Wall Street earnings targets, resulting in inaccurate earnings. U.S. Br. at 33-39. But with respect to every one of these quarters, there was extensive—most-often uncontradicted—evidence that the final reserve amounts were wholly accurate, carefully reflected and predicted contingent litigation and market risks, and that even if the reserves were marginally inaccurate, any deviation was immaterial from an accounting perspective. Skilling Br. at 36-42; Skilling Reply at 7-9. Again, the record establishing the sound business reasons for the reserves, the accuracy of their amounts, the ways these amounts had been tested at Enron and by Arthur Andersen, and the immateriality of any deviations in the reserves came not only from Skilling and an accounting expert, but from the government’s own witnesses. R:33927-30, 23555-56, 23559-60, 33920-23, 34029-31, 19599-60.8
Indeed, in one quarter (Q2 2000) in which the government alleged that Enron set a litigation reserve number too low in order to show an extra “penny” of earnings to Wall Street, its own witness who adjusted the litigation reserve (Wes Colwell) admitted that the new litigation reserve number accurately predicted the settlement value of the underlying litigation at issue, and that, if anything, Enron’s reserves for that quarter, understated the company’s earnings because “credit reserves” were more substantially over-reserved. See R:21742-45, 19594-98; see also R:23555-56, 23559-60,
Critically, however, the erroneous honest-services theory gave the jurors an easy fall-back way to convict even if they found the final earnings to be materially accurate. As the government and its witnesses argued, it was simply inappropriate and “wrong” for a company to have earnings expectations in mind when establishing reserve amounts, even if the final reserve amounts were wholly accurate. E.g., R:36525 (“The earnings are what the earnings are. It’s not supposed to be reverse engineered. It’s not supposed to be backwards like that.”). A dramatic example of this honest-services theory of reserves “manipulation” concerned an alleged Fourth Quarter 1999 reserve adjustment. Two investor-relations executives who had nothing to do with setting reserves—Mark Koenig and Paul Rieker—testified for the government that Enron’s final earnings for that quarter changed by a penny the day before earnings numbers were released and the day after Wall Street’s earnings forecast changed. Without any knowledge about where this extra penny came from, R:16119-22, 16130, 16140-41, 19177-80, both argued that the mere fact this change had been made was “wrong” and implicated Skilling in criminal activity, R:16140 (“I think that’s wrong”); 18377 (“I felt it was wrong”). And, of course, while the undisputed 33920-23, 34029-31, 23577, 33923; SR3:4025; R:33923-24, 33926-27; R:19607-09; DX8548.
evidence showed that a reserves adjustment had actually been made several days earlier than Koenig and Rieker speculated and had been vetted by Arthur Andersen, R:16123-24, 19179-80, 33919—thereby eviscerating any securities-fraud version of the 4Q 1999 reserves adjustment—the government nevertheless emphasized the issue in closing. R:36515-18. Given the record showing accurate reserves, coupled with the erroneous “fiduciary breach” honest-services theory the government pursued, the jury easily could have determined that Enron’s earnings reports were accurate, but agreed with the government’s alternative theory that Skilling’s fiduciary duties of “honesty” and “candor” required him to avoid the process Enron used to set reserves. R:29610, 37013-14. f. Enron’s “Culture.” The government’s approach to reserves reflected a more general theory of criminality advocated by the government. Not willing to rely solely on its contentions that Skilling made affirmative, material misrepresentations to shareholders about Enron’s finances, constituting securities fraud, R:36492; U.S. Br. at 24-33, the government also relied on the distinct proposition that Skilling inappropriately directed Enron’s focus toward short-term earnings reports at the expense of the company’s long-term business fundamentals, an argument for the invalid
legal theory of “honest services.” U.S. Br. at 79 (“Skilling completely corrupted his position and subverted the entire corporate culture at Enron”). In keeping with the theme, the government insisted in closing argument there was “tremendous pressure at Enron to generate earnings and hit earnings targets,” R:36466, and the “culture” at Enron was to “do transactions that maximized financial reporting earnings as opposed to maximizing the economic value of the transactions.” R:36467; see also R:36512 (“We’ve been talking about this culture at Enron. The witnesses told you about this culture at Enron, have to hit the number, have to hit the number.”). “In 2000 and 2001,” the government asked jurors rhetorically, “[W]hat was the most important thing? The actual operations of the company? ‘No. Meeting the [Wall Street] consensus estimate.’” R:36513 (quoting Koenig). And as part of its attack on Enron’s “culture,” the government argued that Enron employees “routinely engaged in aggressive accounting to make the numbers look the way that they wanted them to look.” R:36455-56; see also R:36456 (“You heard about a culture, ladies and gentlemen, where somebody like Wanda Curry -- you remember her. She was an earlier witness in the case. She worked at the company for 22 years. You heard about a culture where she was fired from her job because she couldn’t make aggressive accounting decisions.”).
These remaining arguments by the government perfectly illustrate the alternative, legally erroneous view of honest-services fraud that so pervasively distorted this case: on its view, a corporate executive commits a criminal act by fostering a culture where employees engage in “aggressive accounting”—not inaccurate accounting—to meet short-term earnings targets, rather than focusing on “company operations” and “maximizing” “economic value.” These are arguments about sound management and how to run a company. They are not arguments about the ultimate disclosures Enron made to shareholders—which the government’s witnesses were repeatedly forced to concede were accurate. The Supreme Court has now made clear, however, that alleged “bad business management” and risk taking that constitutes a breach of fiduciary duties is not the crime of mail or wire fraud. But, in Skilling’s case, the prosecutors expressly urged the jury to convict him on exactly that invalid basis—and they did so because, from the outset, they knew their case was plagued by “fundamental weaknesses” and their evidence of material misstatements to investors was less impressive than hoped. Supra at 7-8. * * * As the foregoing discussion shows, for every transaction the government attacked at trial, reasonable jurors easily could have rejected the
government’s factually and legally demanding theory that his conduct in each instance satisfied all the elements of securities fraud, while finding instead that Skilling committed honest-services fraud—as the crime was erroneously defined for them—simply by breaching his fiduciary duties. And because every transaction involved multiple alleged co-conspirators, jurors needed only to find that Skilling conspired to commit honest-services fraud as to any one transaction (e.g., approving the Fastow-LJM conflict) to convict him for conspiracy to commit honest-services wire fraud. In other words, to return a verdict of guilty on conspiracy, jurors never needed even to consider whether Skilling himself conspired to commit any act of securities fraud. For every transaction, there was substantial evidence that he did not commit securities fraud, but what matters here is that because of the distinct alternative honest-services fraud theory, the jury was never required to find beyond a reasonable doubt that Skilling conspired to commit securities fraud. Because jurors could have relied instead on the legally erroneous alternative, his conspiracy conviction must be reversed. See, e.g., U.S. v. Urcioli, 513 F.3d 290, 297 (1st Cir. 2007) (reversing conviction where prosecutors urged honest-services conviction on legally valid and invalid factual predicates—reversing conviction even though “an
argument could be made … the convictions would arguably have occurred without” reliance on the invalid honest-services theory).9 II. THE ERRONEOUS HONEST-SERVICES THEORY INFECTED EVERY OTHER COUNT OF CONVICTION Judge Higginbotham correctly recognized that submission of a legally erroneous honest-services theory to the jury casts substantial doubt on 14 of the 19 counts of conviction—the 12 securities-fraud counts and the insidertrading count, in addition to the conspiracy conviction. He incorrectly
In ruling on Skilling’s initial appeal, this Court notably observed that if the government’s honest-services theory was erroneous, reversal of Skilling’s Count 1 conspiracy conviction was required. See 554 F.3d at 543. In concluding that the government’s honest-services theory was in error, and remanding to this Court the question of what the impact that error had on Skilling’s convictions was, the Supreme Court directed this Court to take a “fresh look” at the harmless-error arguments. In the Court’s view, this Court “appeared to prejudge” the harmless-error issue by applying a rule of automatic reversal for this Yates error, rather than considering whether the error may be harmless. Skilling, Slip Op. 50 n.47. The Supreme Court may have misunderstood this Court’s opinion, as well at its jurisprudence. As this Court’s opinions in cases like Saks, Holley, and Howard show, this Court has always held that Yates errors are subject to harmless-error review. See supra at 13-16. Indeed, in arguing the original appeal, Skilling and the government vigorously disputed whether the harmlessness standard was satisfied on the record of this case—and they discussed cases like Saks and Holley at length. See, e.g., Skilling Reply at 29-46. This Court’s statement that reversal would be required if the honestservices theory was erroneous likely reflected the (quite accurate) judgment that such an error could not be proved harmless on the record of this case, which Skilling and the government had so thoroughly dissected. See id. Because of the Supreme Court’s remand order, that prior ruling is not binding, but it remains instructive.
concluded that an honest-services error would not affect the five FSA counts. In fact, the jury easily could have rested its convictions on those five counts directly on the flawed honest-services fraud allegation: each FSA alleged that Skilling was responsible for the statement that there was “no material fraud” at Enron—a statement that is necessarily false if one accepts the legally erroneous theory that Skilling was participating in a broad conspiracy to commit honest-services fraud. See infra at 54-58. As shown below, all of the convictions were directly affected by the erroneous submission of the honest-services fraud theory to the jury. A. Securities Fraud (Counts 2, 14, 16-20, 22-26) The substantive securities-fraud counts were explicitly tied to the conspiracy count by a “Pinkerton instruction”—again urged by the government, over Skilling’s objection, R:25880-82—which permitted the jurors to use the conspiracy conviction to hold Skilling vicariously liable for any charged act of securities fraud so long as it was committed by a coconspirator, even if the jurors did not believe that he personally committed the charged act of securities fraud: A conspirator is responsible for offenses committed by other conspirators if the conspirator was a member of that conspiracy when the offense was committed and if the offense was committed in furtherance of, or as a foreseeable consequence of, the conspiracy.
Therefore, if you have first found Jeffrey K. Skilling … guilty of the conspiracy charged in Count 1 and if you find beyond a reasonable doubt that during the time [Skilling] was a member of the conspiracy other conspirators committed the offenses in Counts 2 and 14, 16 through 20, and 22 through 29 in furtherance of or as a foreseeable consequence of that conspiracy, then you may find [Skilling] guilty of Counts 2 and 14, 16 through 20, and 22 through 29, even though [Skilling] may not have participated in any of the acts which constitute the offenses described in those counts of the indictment. R:36409-10. The Pinkerton instruction creates the same problem for each securities-fraud count that is inherent within the conspiracy count itself: for each count of conviction, it is impossible to tell whether the jurors relied on the legally invalid theory (conspiracy) to convict Skilling vicariously for the acts of others, or on the legally permissible theory (securities fraud) to convict Skilling for his own acts. In Howard, 517 F.3d at 737-38, this Court held that the use of an erroneous honest-services theory in a conspiracy charge required reversal not only of the conspiracy conviction, but also of a separate books-andrecords count linked to the conspiracy charge by a Pinkerton instruction. The record included evidence that Howard’s co-conspirators committed books-and-records crimes themselves, and because the jury could have convicted the defendant not for his own acts but for the acts of coconspirators, the error in the conspiracy charge was not harmless beyond a reasonable doubt as to the collateral books-and-records charge. See id. at
738. Other courts have consistently reached the same conclusion under similar circumstances, i.e., where a Pinkerton instruction ties a legally erroneous conspiracy conviction to other substantive counts.10 The same result must obtain here. The government cannot come close to showing beyond a reasonable doubt that the jurors did not rely on the legally invalid conspiracy conviction to find Skilling vicariously liable for each count of securities fraud. In closing, the government quoted the Pinkerton instruction as providing a sufficient basis for convicting Skilling for each count of securities fraud based on the acts of his alleged conspirators. See R:37018 (“[Y]ou may find the Defendant guilty even though he may not have participated in any of the acts which constitute the offenses described. If it was reasonably foreseeable to him that this was going to happen, ladies and gentlemen, he’s responsible.”). Lest there be See U.S. v. Washington, 106 F.3d 983, 1014 (D.C. Cir. 1997) (for firearms charge, jury could have returned guilty verdict predicated on impermissible conspiracy, requiring reversal of the firearms conviction); U.S. v. Kaiser, 660 F.2d 724, 732 (9th Cir. 1981) (reversal of conspiracy conviction precludes vicarious liability for acts of co-conspirators; reversal of other counts required when impossible to tell whether jury relied on vicarious liability theory); U.S. v. Johnson, 44 F. App’x 752, 755 (9th Cir. 2002) (reversing charges linked to flawed conspiracy conviction with a Pinkerton instruction where it was not clear, “beyond a reasonable doubt, that the jury would have found Defendants guilty without the Pinkerton instruction”); U.S. v. Sardesai, 125 F.3d 850 (tbl.) (4th Cir. 1997) (reversal of collateral charges required where a “Pinkerton charge spread[] the taint from the … error in the false statement charges to the other substantive charges of the indictment”).
any doubt who those alleged co-conspirators were, the government emphasized their names, testimony, and confessions to fraud: Witness after witness after witness came into this courtroom, ladies and gentlemen, and they said, “I lied. We lied. I stole. We stole. I committed fraud. We committed fraud.” These people, Ben Glisan, Dave Delainey, Wes Colwell, Ken Rice, Kevin Hannon, Mark Koenig, Paula Rieker, some of the most senior executives at Enron, came in and told you that. “I lied. We lied. I stole. We stole.” R:36452; see R:36993-94 (“Investor relations, finance, wholesale, EBS, and EES, the upper echelon, ladies and gentlemen. They’ve all admitted lying to investors…. They got up and said ‘I committed crimes. We committed crimes. We lied.’”); U.S. Br. at 98 (“other conspirators made false statements during some of the calls and at the conference”). The government even displayed for the jury demonstrative exhibits during closing argument that tied each and every securities fraud count directly to the conspiracy count. JKS-7:12-13, 15, 21; JKS-4:6, 24, 25. The government’s heavy reliance on the so-called “Global Galactic” document exemplified this approach. In closing argument, the government called the document “three pages of lies” and said it makes LJM and its transactions with Enron a complete “sham.” R:35637, 36541. Every Enron financial statement from late 1999 through 2001—the bases for the securities fraud counts against Skilling—was false, the government told the
jury, because the supposed “secret side deals” listed on the Global Galactic document negated proper accounting treatment. But, as the government conceded, “[t]he document is signed … at the bottom by Mr. Causey and Mr. Fastow”—not by Skilling. R:35637. Thus, the jury could have convicted Skilling of all the securities fraud counts based on his participation in an “honest-services conspiracy” combined with the acts of alleged coconspirators Fastow and Causey for their alleged role in Global Galactic. The problem extends beyond Global Galactic. As shown in the individual-count analysis that follows, for every charged act of securities fraud, the government always presented another Enron employee (and sometimes many Enron employees) who admitted to the acts of securities fraud in question. Accordingly, for every specific securities-fraud count, the jurors easily could have accepted the government’s invitation to convict Skilling vicariously for others’ acts, while rejecting the government’s alternative theory that Skilling’s own conduct satisfied all the elements of securities fraud. Indeed, it is not only possible, but likely, that the jurors relied on the invalid conspiracy charge to convict Skilling for the securities fraud to which others openly admitted. As shown below, Skilling was never accused of acting alone, and most often he was far less involved than other Enron executives in the charged acts and statements. Moreover, unlike
many of his accused co-conspirators, he did not concede guilt. He pressed substantial defenses—including especially scienter and truth—to each and every charge that he personally committed securities fraud. 1. Count 2 (Raptors) The Raptors transactions challenged in Count 2 were designed, implemented, and discussed by alleged co-conspirators Causey, Fastow, and Glisan—among many others. At trial, the government emphasized that Glisan, Fastow, and Causey in particular were responsible for Raptors, and the jury heard Fastow and Glisan each testify that they had pleaded guilty to securities fraud committed in connection with Raptors. See GX3216; R:21327-28, 21653-57; GX10000; R:24294-96, 24495-504. Skilling was indisputably much less involved, and in fact denied any knowledge at all of any Raptors side-deals or of any improprieties with the structures. R:28826, 28833-36. Glisan, who was the architect of Raptors, provided extensive testimony that he knew of no “side deals” and that LJM was truly at risk in the deal. See R:24591-95, 24660-61, 25008-09. Glisan said he met twice with Skilling and conceded he never told Skilling there was anything fraudulent or improper with the Raptors. R:24571-72, 24579. Based on Glisan’s testimony—and there was much more supporting Skilling’s defenses on the Raptors, Skilling Br. at 29-32; Skilling Reply at 9-
14—the jury easily could have credited Skilling’s position that he himself had engaged in no wrongdoing with respect to the Raptors, but still convicted him vicariously for the alleged criminal acts of Fastow, Causey, Glisan, or others. R:24248, 36532. Indeed, the government in closing urged the jury to rely on the conspiracy charge, the vicarious liability instruction, and the acts of others to convict on Count 2. See JKS-7:25; R:37018. 2. Counts 14, 16-20 (Forms 10-Q and 10-K) Skilling’s alleged co-conspirators prepared and made the SEC filings at issue in these counts. R:21822-23, 36537; GX1026-29, 1032-34. And the alleged fraud in each of them involved negotiations between Fastow and Causey in which Skilling was not directly involved (Raptors, Cuiaba, and Nigerian Barges), or conduct by others (Colwell’s alleged “reserve manipulation”) in which Skilling was concededly not directly involved: Count 14: Causey, Lay, Fastow, and others signed the 1999 10-K, which was allegedly rendered false by a purported promise made by Fastow to Merrill Lynch regarding the Nigerian Barges deal. GX1026; U.S. Br. at 57-58, 46-47; JKS-7:13, 15; JKS-4:6. Count 16: Causey signed the Q2 2000 10-Q, which was allegedly rendered false by reserve adjustments made by Wes Colwell—a reserve adjustment he conceded he made on his own and never discussed with Skilling. GX1028; Skilling Br. at 38-40; JKS-7:13, 15; JKS-4:6. Count 17: Causey signed the Q3 2000 10-Q, which was allegedly rendered false by Causey and Fastow’s agreement concerning the
Avici-Raptors hedge. GX1029; U.S. Br. at 58-59, 55-56; Skilling Reply 13-14; see also R:36496-97. Count 18: Causey, Lay, Fastow, and others signed the 2000 10-K, which was allegedly rendered false by Colwell’s later reserve manipulation to decrease stated earnings and the Raptors structure created by Fastow, Glisan, and Causey. GX1032; U.S. Br. at 59, 3539; Skilling Br. at 38-42; JKS-7:13, 15; JKS-4:6. Count 19: Causey signed the Q1 2000 10-Q, which was allegedly rendered false by the EES resegmentation conceived of and approved by Causey and Colwell. GX1033; U.S. Br. at 59-60; Skilling Br. at 45-49; JKS-7:21. Count 20. Causey signed the Q2 2001 10-Q, which was allegedly rendered false by the Cuiaba side-deal purportedly brokered by Causey and Fastow. GX1034; U.S. Br. at 60, 48-49; JKS-7:21. Even though other co-conspirators signed the filings and were the primary actors for the conduct involved in each of these counts, the government has argued that the jury could have found that when Enron submitted the filing charged in each count, Skilling “knew that Enron had fraudulently manipulated earnings or engaged in other behavior that rendered the forms false.” U.S. Br. at 97. But as discussed above, the government’s burden is not merely to show there was sufficient evidence on which the jury could have convicted Skilling directly on each count. See Kotteakos, 328 U.S. at 767; Sullivan, 508 U.S. at 279; Howard, 517 F.3d at 737-38; supra at 9, 16. The government instead must show beyond a reasonable doubt that the jurors did not rely on the flawed conspiracy count
to convict Skilling vicariously. See id. The government cannot possibly make that showing. If anything, given the paucity of evidence connecting Skilling directly to the 10-Qs and 10-Ks and most of the conduct underlying their statements, it is highly probable that the jurors bypassed or rejected the government’s theory of direct liability, and instead used the conspiracy count to convict Skilling vicariously for the admitted acts of fraud committed by others. 3. Counts 22-26 (Analyst Calls/Conference) Skilling’s alleged co-conspirators (Koenig, Rieker, Rice, Hannon, and/or Kean) prepared the scripts for and participated in the analyst calls and conference charged in these counts. Indeed, Rieker admitted she described herself in a review as the “key architect” of Enron’s message during this time period. R:19063-67. The government conceded on appeal that these “other conspirators” made statements about earnings and performance during the calls and at the conference—and even pled guilty for doing so. U.S. Br. at 26, 30-32. Those co-conspirators admitted on the record that they made material, significant misrepresentations amounting to securities fraud, and at least one (Koenig) repeatedly conceded that while he disagreed with the veracity of certain of Skilling’s statements, he had no basis to believe that Skilling knew he was speaking falsely. R:15599-900, 16217,
16741-42. Rieker also admitted she never had an agreement with Skilling to lie or conspire or present Enron in a false way. R:19086-93, 19151-52. Looking at each of these counts, the jury easily could have relied on the infirm conspiracy theory and the Pinkerton instruction to convict Skilling: Count 22 (Jan. 22, 2001 conference call): Koenig testified and pleaded guilty to lying on this call. The government stressed Koenig’s admission in closing and showed the jury a slide referring to the “MEK [Koenig] Lie” made on the call, as well as the “Rieker/Koenig Email about Dark Fiber Lie.” Koenig testified that his investor relations department prepared the script for the call. Cf. Hollin v. Scholastic Corp., 252 F.3d 63, 75-76 (2d Cir. 2001) (investor relations executive could be directly liable for statements released by company when he was “involved in the drafting, producing, reviewing, and/or disseminating of the false and misleading statements”). Koenig admitted that he did not know if Skilling knew if Koenig’s statements were false. Koenig also testified that “no one told [him] to give a false answer” and that he did not “blam[e]” Skilling for giving his false answer. U.S. Br. at 25-26, 98; R:36507, 36997, 15201-02, 16288-89, 16290-91; JKS-7:12, 14. Count 23 (Jan. 25, 2001 analyst conference): Rice and Hannon pleaded guilty to and testified to portraying EBS falsely at this conference. Koenig testified that Ken Lay made false statements at the conference, but he could not identify any made by Skilling. U.S. Br. at 26; R:17289-90, 17288-89, 18042, 17559-60, 20706, 20868, 21217-18, 16316-27, 37038; GX3213; JKS-7:14. Count 24 (Mar. 23, 2001 analyst call): Koenig and/or Rice prepared the script for this call. Koenig admitted not correcting what he knew to be misstatements made on the call. On the call, Koenig discussed the EBS business and Steve Kean discussed the EES business—both of which the government said Enron falsely touted. Koenig testified—and his plea agreement (which the jury saw) stated—that he lied on various calls. Koenig admitted, however, that Skilling was
“not trying to fool the analysts about the state of the [EBS] business.” And while Skilling defended all of his own statements about EBS and EES, in closing, the government argued that Kean, his alleged coconspirator, knew that EES was being “overhyp[ed].” R:15583, 16498-99, 16519-21, 36555; GX4437, GX3210; JKS-7:12, 14, 16. Count 25 (Apr. 17, 2001 analyst call): Koenig testified and pleaded guilty to lying on this call. In closing, the government pointed to Koenig’s plea and argued that Rice and Koenig lied on the call. The government emphasized the same evidence in its appellate brief to this Court. The government showed the jury a closing argument slide referring to the “MEK Lie” made on the call. Koenig’s department prepared the script for the call. Koenig admitted that he did not know if Skilling knew Koenig’s statements were false. U.S. Br. at 32 & n.4; R:15592-96, 16290-302, 16734-45, 15534-36, 17364-68, 36508, 15201-02, 16311-12; JKS-7:12, 14, 16, 21; JKS-4:24. Count 26 (July 12, 2001 analyst call): Koenig answered questions on the call related to the resegmentation of EES and Enron’s use of monetizations. Kean spoke on the call regarding the California energy crisis and its impact on Enron’s wholesale business. Koenig’s group prepared the script for the call. Koenig admitted that the resegmentation of EES may have resulted in “efficiencies,” refuting the government’s claim that Skilling lied when he said the resegmentation was done to “achieve efficiencies.” R:16745, 15583, 15576-79, 15905-08, 16744-58; DX20605; JKS-7:21; JKS-4:25. Although the record was undisputed that other conspirators admitted to frauds sufficient to convict on each of Counts 22-26, the government has contended that the evidence was also sufficient for the jury to find that Skilling himself knowingly “made false and misleading statements to the investing public about Enron’s financial condition.” U.S. Br. at 98. Not only is this contention wrong as a matter of fact, it is legally irrelevant.
Sufficiency of the evidence is not the harmlessness standard. The question is whether the government can exclude the possibility that the jurors followed their Pinkerton instruction and convicted Skilling vicariously for the admitted securities fraud committed by Koenig and others. See Howard, 517 F.3d at 734. The government cannot conceivably make that showing on this trial record, and, as in Howard, and the many cases like it involving Pinkerton instructions that spread the taint of error, see supra at 41-42, these 12 counts of conviction must be reversed. B. Insider Trading (Count 51) The government asserted 10 counts of insider trading against Skilling. The jury rejected all but one of them. That one count on which it convicted—Count 51—addressed sales of shares Skilling made in mid-September 2001, well after he resigned from Enron. The government argued at trial that Skilling sold the shares after Lay advised him in a September 6, 2001, meeting that, among other things, the alleged conspiracy was about to be exposed. R:36446 (“In the three weeks after Mr. Skilling’s abrupt resignation, Mr. Lay is repeatedly informed about more and more bad news. Sherron Watkins warns the company could implode in a wave of accounting scandals.”). The jury was urged to find, in other words, that knowledge of the conspiracy was the inside information on
which Skilling allegedly traded. As it argued in closing: “[Y]ou can conclude, based on the evidence of the conspiracy that’s been presented to you … whether Mr. Skilling had information that he used to sell his stock.” R:37010; see R:844, 899-900, 7692-93, 11908. For this reason, as Judge Higginbotham rightly recognized, the jury readily could have relied on the erroneous honest-services instruction to find that Skilling participated in a conspiracy to commit fraud, and then found that he sold his shares knowing the conspiracy was about to be disclosed. The government has argued that the record includes other inside information known to Skilling on September 2001, on which the jury could have convicted on Count 51. U.S. Br. at 62-65. But as already explained, it is irrelevant whether the evidence would have been sufficient (or even convincing, and it was not) to support a conviction before a jury unexposed to the error. Again, the question is whether the government can prove beyond a reasonable doubt that the error did not affect this jury. Because this jury was expressly invited by the government to convict Skilling on a legally impermissible basis, the government cannot make that showing. Further, though not necessary to defeat the government’s harmlesserror argument, it is relevant that the jury rejected almost the entirety of the government’s insider-trading theory—acquitting Skilling on nine of 10
insider-trading counts. See U.S v. Santos, 201 F.3d 953, 965 (7th Cir. 2000) (“The jury acquitted Santos of about half the counts in the indictment and might have acquitted her of some or even all the rest had the trial judge not committed the litany of errors we have enumerated.”).11 The nine acquitted counts were all based on Skilling’s supposed knowledge of undisclosed financial weaknesses throughout 2000 and 2001—the same information the government says the jury could have relied on to convict on Count 51. U.S. Br. at 62-63. The principal difference for Count 51 was Lay’s alleged September 6 warning that the conspiracy was about to be disclosed. It is thus especially difficult to say that this jury—which rejected the government’s theory underlying the nine acquitted counts that Skilling was trading on knowledge that Enron was weaker than he was representing to investors—could not have been influenced by the distinct theory, applicable uniquely to Count 51, that Skilling traded on the “knowledge” that an honest-services fraud conspiracy was about to be exposed.
See also U.S. v. Acker, 52 F.3d 509, 518 (4th Cir. 1995) (“The defendant was tried on four counts of bank robbery and was acquitted on two of these counts, and we are in no position to say that, absent the hearsay testimony, she would not have been acquitted on the other counts.”); U.S. v. Slade, 627 F.2d 293, 308 (D.C. Cir. 1980) (finding error not harmless because “[t]he jury did not believe most of the evidence against Watson,” who was “acquitted on four substantive counts”).
C. False Statements to Auditors (Counts 31, 32, and 34-36) The FSA counts charged Skilling with aiding and abetting false statements in five management representation letters that Enron sent to Arthur Andersen. The indictment explicitly alleged the following statement to be knowingly and materially false: there was no material fraud or any other irregularities that, although not material, involved management or other employees who had a significant role in Enron’s system of internal control, or fraud involving other employees that could have a material effect on the financial statements. R:166 (emphasis added). The jury was instructed it could convict if it found any one “particular statement” in a letter to be false or misleading. R:36429. The jury instructions did not define “fraud” specifically for purposes of these counts, but the instructions certainly did advise jurors that fraud in the use of interstate wires included the deprivation of “honest services,” R:36412-25, and jurors could have looked at that admittedly “circular” definition of honest-services fraud for guidance. Ex. E at 48-49. Jurors were given no reason to understand the term “fraud” differently in the two counts. See U.S. v. Goodner Bros. Aircraft, Inc., 966 F.2d 380, 385 (8th Cir. 1992) (invalid jury-instruction definition in one count can infect other counts). Against this backdrop, the government in closing argument urged the jury to rely on the “no material fraud” statement in Enron’s letters to
Andersen to convict Skilling on the five FSA counts. To make its point plain, it displayed a large demonstrative exhibit that specifically identified the “No material fraud” statement in the five letters as a ground for convictions on all five of the FSA counts. JKS-4:3. Skilling urged a special verdict form that would permit the jury to specify which alleged misrepresentation it relied on, and again the government successfully objected. R:35886-87, 37189-94. The government thus again invited the problem it now faces, viz., it is impossible to tell whether the jury impermissibly relied on the invalid honest-services theory to find the “no material fraud” statement false, or permissibly relied on some other statement untainted by the conceded honest-services error. In fact, the jury easily could have relied on the invalid honest-services fraud theory to find that Skilling was aware of a fraud conspiracy at Enron, then found the “no material fraud” statements to be knowingly false. Indeed, any juror who followed the Count 1 instruction and found that Skilling conspired to commit honest-services fraud would necessarily find that the “no fraud” statements the government challenged in Counts 31, 32, and 34 through 36 were false. There would have been no reason for the jury even to consider any other statement.
The legal error in submitting the honest-services theory thus cannot be deemed harmless as to the five FSA convictions, as the caselaw shows. In U.S. v. Alexius, 76 F.3d 642, 646-47 (5th Cir. 1996), for example, the defendant was accused of making a number of perjurious statements. One witness, who the district court erroneously prevented defendant from crossexamining about a pending federal felony charge, testified that defendant made one false statement in particular. The government argued that any error in limiting cross-examination as to this witness was harmless because other witnesses, who were fully cross-examined, testified to other false statements that defendant had made. This Court rejected that speculative line of argument. Because the jury returned a general verdict, the jury “may have” relied on legally tainted testimony. “Consequently, the error cannot be harmless beyond a reasonable doubt.” Id. at 647. Alexius confirms that an error directly affecting one count of conviction can infect other counts even absent a specific instruction “spreading” the error, as in the Pinkerton situation. It is enough that the Government’s factual presentation invites reliance on the error. Other cases confirm the same point. See, e.g., U.S. v. Barona, 56 F.3d 1087, 1096-98 (9th Cir. 1995) (where government presented jury with a list of possible “supervisees” to prove defendants were “supervisors” of criminal enterprise,
and some alleged supervisees were individuals whom “the jury was not allowed to choose as a matter of law,” the conviction could have been premised on a legal error and had to be reversed); Goodner Bros., 966 F.2d at 385 (reversal of conviction required where jury instructed, in separate counts, on legally valid and invalid definitions of hazardous waste; even though the jury was not given these definitions with respect to the count at issue, they could have relied on the invalid definition in the other parts of their instructions and returned a guilty verdict on that basis); Feela v. Israel, 727 F.2d 151, 154-55 (7th Cir. 1984) (reversing conviction where it was “impossible to tell” whether jury relied on erroneously or properly admitted evidence to convict defendant on conspiracy charge; prosecutors featured both sets of evidence at trial and in closing argument). Finally, reliance on the easy-to-prove, but legally wrong, honestservices-fraud theory was the jury’s simplest route to conviction on the five FSA counts for yet another reason: the record on these counts as to Skilling is virtually non-existent. The charges were directed at Rick Causey (who dealt with Enron’s auditors on a regular basis), who pled guilty before trial started. The proof at trial on the FSA counts was thus reduced to a few minutes of the government’s nine-week case-in-chief. R:23536-46, 2383940. The government put on just one witness—Anderson accountant Thomas
Bauer—to testify about the letters, but all Bauer did was authenticate them, read portions of them, and testify that management representations are “important.” R:23839-40. That was the entirety of the proof on these counts. Skilling, by contrast, put on substantial defenses to these counts, including a robust reliance defense, which showed that Skilling only signed these letters after the key executives, lawyers, and accountants at Enron had reviewed them and verified their veracity. Skilling Br. at 56-57. The prosecutors, in moments of candor, acknowledged the force of Skilling’s reliance defenses, R:13286-87, and Bauer himself conceded that he expected that Skilling had relied on others in signing these letters, R:23746-47. In short, given the thin reed of proof the government offered on these five counts, it is all the more probable the jurors simply relied on an honestservices fraud finding to return a conviction on the FSA counts because the letters said “no fraud” existed. CONCLUSION For the foregoing reasons, Skilling’s convictions must be reversed, and the case must be remanded for retrial before a jury that is not exposed
to, and not allowed to convict on, the legally erroneous honest-services theory. Dated: July 28, 2010 Respectfully submitted, By: O’MELVENY & MYERS LLP WALTER DELLINGER JONATHAN D. HACKER SRI SRINIVASAN 1625 Eye Street, N.W. Washington, D.C. 20006 RONALD G. WOODS 5300 Memorial, Suite 1000 Houston, Texas 77007 /s/ Daniel M. Petrocelli
CERTIFICATE OF COMPLIANCE WITH RULE 32(a) 1. This Brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(b) because it contains 13,750 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced 14-point Times New Roman typeface using Microsoft Word 2003. /s/ Matthew T. Kline Matthew T. Kline
CERTIFICATE OF SERVICE This is to verify that true and correct copies of the following document (Jeffrey K. Skilling’s Opening Brief On Remand From The U.S. Supreme Court) has been filed electronically and served by both Federal Express and electronic mail on this 28th day of July, 2010 on counsel listed below. /s/ Matthew T. Kline Matthew T. Kline J. Douglas Wilson U.S. Attorney’s Office 450 Golden Gate Avenue, 11th Floor San Francisco, CA 94102 Facsimile: (415) 435-7234 Counsel for Appellee
CC1:833714
Jeff Skilling Opening Merits Brief on RemandUploaded by Tom KirkendallJuryFraud6.6K viewsDownloadEmbedDescription: Jeff Skilling's Opening Merits Brief to the Fifth Circuit Court of Appeals on why the remaining counts of his conviction should be reversed and the entire case against him remanded to the District ...See MoreJeff Skilling's Opening Merits Brief to the Fifth Circuit Court of Appeals on why the remaining counts of his conviction should be reversed and the entire case against him remanded to the District Court for retrial.Copyright: Attribution Non-Commercial (BY-NC)Download as PDF, TXT or read online from ScribdFlag for inappropriate content
Documents similar to Jeff Skilling Opening Merits Brief on RemandUtah Sound Money ActDick Bove Note on Goldman SachsMarkit ABX.primE IndicesFinancial System Supply-Chain Cross-Contagion - A Study in Global Systemic CollapseUnited States v. Lynn Richardson Hartz, 64 F.3d 660, 4th Cir. (1995)United States v. William M. Conover and Anthony R. Tanner, 772 F.2d 765, 11th Cir. (1985)Part a-Jury SystemUnited States v. Craig Stanley Toll, 11th Cir. (2015)United States v. Stephon Edwards, United States of America v. John E. Brown, 188 F.3d 230, 4th Cir. (1999)United States v. Amy Hicks, 4th Cir. (2011)United States v. Charles H. Gillilan, Albert A. Finer, Joseph R. Synder, Apex Distributing Company, Inc., Wilshire Sales Associates, Inc. And Melrose Corporation, 288 F.2d 796, 2d Cir. (1961)United States v. Dazey, 403 F.3d 1147, 10th Cir. (2005)United States v. Frank Antico, 275 F.3d 245, 3rd Cir. (2001)United States v. Trevayne D. Jones, 11th Cir. (2015)United States v. Tamika Riley, 3rd Cir. (2010)United States v. Romer, 4th Cir. (1998)United States v. Hines, 10th Cir. (2000)UNITED STATES OF AMERICA -V- ZACARIAS MOUSSAOUIBruce Bereano Memo to Overtun Convictionsthe evil genius by wilkie collins previewGeorge L. Weber v. Brunswick Corporation, 368 F.2d 480, 10th Cir. (1966)In Re Matter of Grand Jury Applicants, C. Schmidt & Sons, Inc., Joseph J. Reinert, David Verna, David F. Herrala, Paul P. Marchese, Charles P. McDevitt and Joseph H. McDevitt, 619 F.2d 1022, 3rd Cir. (1980)United States v. King, 4th Cir. (2007)United States v. Donald M. Tinsley, A/K/A "Wiseman," Ss Hsg-Sk-Vvdq, 800 F.2d 448, 4th Cir. (1986)United States v. Herman Graulich, 35 F.3d 574, 10th Cir. (1994)Principles of Auditing Harris County District Attorney Responds to Runaway Grand Jury StatementBOTTI James Redacted IndictmentInstructions and VerdictBooks similar to Jeff Skilling Opening Merits Brief on RemandBRAIN DAMAGEAnatomy of a JuryA View from the Jury BoxThe Missing JurorsA Journey To JusticeA Theory of the TrialStorytelling for the DefenseFBI ReportDoing LifeThe Twelfth VictimLife in StrangewaysReasonable DoubtCriminal IntentDrunk Driving DefenseDepartment ThirtyA View From The HoleBurnt EarthWomen-in-Prison Short StoriesAustralia's BirthstainThe Good Prison GuideRonnie Biggs - The Inside StoryThe Ethics of EvilGetting LifeSupreme Justice101Hanged for MurderDelmarva’s Patty CannonIf I Did ItThree Weeks In JuneBooks about JuryPunitive DamagesThe Juror HangsUnder OathMegrahiThe JuryDeadly VerdictThe Jurors Who Knew Too MuchThe Jury RulesSeventh CrisisThe Zimmerman Trial Follies90 Daily Devotions for Lawyers and JudgesA Cautionary TalePoint Source (The First Mack Stedman Story)Crown's JusticeJury DoodyThe VerdictAll AroundConviction of InnocenceModel Constitution for United States of AmericaThe Jury in Lincoln’s AmericaDiana InquestJuror #6The Angel of TerrorDiana InquestThe Assize of the DyingStorytelling for the DefenseConfessions of a Used Car DealerBlinding as a Solution to BiasDocuments about JuryAmended Complaint Filed 9/30/2016 Doe v. Trump et al refiled complaint 9/30/16Bundy wants govt to ID informants09-20-2016 ECF 1305 USA v SHAWNA COX - Notice That the U.S. Attorneys' Office Has Been Caught Coaching WitnessesChristopher "Moot" Poole Testimony in Palin Email TrialEmployee ManualMike Hubbard IndictmentEmployee HandbookLawsuit against Hillary ClintonSolid Oak Sketches v Take-TwoPokemon Go lawsuitRoss Ulbricht Sentencing Carlsbad Police Brutality ComplaintPocket ConstitutionMumford Emergency MotionLinx Bracelet v. Origami OwlBrief of Amici Curiae 212 Songwriters, Composers, Musicians, And Produce...Apple WiFi Assist LawsuitSilk Road Appeal Brief1-mainDearie v. Gannon3-9-16 ECF 282 U.S.A. v A. BUNDY et al - Superseding IndictmentElaine Miller vs. ToyotaRyan Bundy Mistrial MotionRamsey County Attorney RemarksCommon Sense Rules of Advocacy for Lawyers, Softcover, by Keith EvansFraudulent Conveyance Quiet Title PacketSamsung vs Apple - Samsung's Appeal to the Supreme CourtMosby Bar Complaint 50 Cent v. World Star Hip Hop OpinionBooks about FraudA Pyramid SchemeCraxer Must StealWhistleblowerThe Fire ManFraud SmartsThe Complete Guide to Spotting Accounting Fraud & Cover-upsSomeone Has Taken My PlaceUniversal Scams & Fraud DetectionThe Bernie Madoff Ponzi SchemeDocuments about FraudiPhone Touch Screen - Amended Complaint [CONFORMED COPY]179125570172Blockchain in Insurance — Opportunity or ThreatThe Open Banking StandardIntroducing the Open Banking StandardProfiles in Innovation - May 24, 2016 (1)20160718 - Wwe Cte LawsuitDistributed Ledger TechnologyPECB bill - SenateClass Action Lawsuit Filed Against EOS Lip BalmChip-and-PIN Card Hack AnalysisPublication 6744, Volunteer Assistor's Test/RetestThe CabalA Guide to Understanding a Residential AppraisalLinx Bracelet v. Origami OwlInside Job - The Documentary That Cost $20,000,000,000,000 to ProduceFifty Years of the Deep StateSworn Affidavit by AZ CCP Investigator Michael Zullo Obama ID Docs Forged Provided to AL Supreme Court1-mainRipple Protocol Consensus Algorithm Review_Peter Todd_May 2015Uniform Commercial Code UCC – The Note The Transferee and the WardrobeDearie v. GannonApple ACCC SubmissionReport on Fraudulent & Forged Assignments of Mortgages & Deeds in U.S. ForeclosuresBarack Obama's Blueprint For ChangeClass Action vs Mortgage Electronic Registration Systems, Gmac, Deutsche Bank, Nation Star, Aurora, Bac, Citi, Us Bank, Lps, Et AlMosby Bar Complaint Mortgage Assignments as Evidence of FraudSecuritization is IllegalSpecial prosecutors' review of complaints in Texas v. Battleground TexasMore from Tom KirkendallA&M SEC letterJeff Skilling's Motion to Stay Fifth Circuit Mandate Pending Appeal to U.S. Supreme CourtSam Sparks OrderUS v. Ferguson, Et Al 2nd Cir DecisionWilliam Roger Clemenss Motion to Prohibit Retrial and Dismiss the IndictmentPetition for en Banc Review and Hrg2Petition for Panel Rehearing 3Fifth Circuit Skilling Decision 06-20885-CR1.wpdDkt 1252 Brown's Opposition to ContinuanceJeff Skilling's Reply Brief on his Motion for BailJeff Skilling's Motion to the Fifth Circuit Court of Appeals for Release Pending RetrialJames Brown Supplemental Memorandum in Support of Motion for a New TrialDOJ's Clearing Letter in Sergio Masvidal Case