Sunday, June 27, 2010

Supreme Court limits scope of honest services statute

In ruling on Jeffrey Skilling's appeal of his convictions related to the collapse of Enron, the U.S. Supreme Court decided not to extend the reach of the honest service statute. At trial prosecutors alleged that Mr. Skilling had defrauded Enron shareholders of the benefit of his "honest services." The law was intended, according to Justice Ginsburg, to deal with bribes and kickbacks an executive might receive in exchange for doing something that was not in the shareholders' best interests.
"In view of this history, there is no doubt that Congress intended (this statute) to reach at least bribes and kickbacks. Reading the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine. To preserve the statute without transgressing constitutional limitations, we now hold that (this statute) criminalizes only the bribe-and-kickback core of (earlier) case law." -- Justice Ginsburg, Skilling v. U.S.
Now we can debate all day about the bookkeeping shenanigans that went on behind the doors at Enron and whether they were designed to make a money-losing company look profitable, but I don't think there's much question that the impetus behind the "creative accounting" was to boost quarterly earnings reports and share prices. Sure, some of Mr. Skilling's bonuses were based on meeting quarterly projections -- but meeting those numbers (however it was done) also benefited shareholders of Enron. His actions were meant to deceive accountants, not shareholders.

In its ruling last week, the Court held fast in limiting the expansion of what constitutes white collar crime. And for that, at least, the ruling ought to be applauded.

See also:
"Skilling wins Supreme Court Appeal" Wall Street Journal Law Blog (6/24/2010)
Skilling v. US, No. 08-1394 (U.S. 2010)

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