78053698.jpgDown, but not out.  The Supreme Court significantly pared the scope and effectiveness of the federal “honest services” law that has been used against high-profile public officials and infamous executives, perhaps most notably, Enron’s former Chief Executive Officer Jeffrey Skilling.  See Skilling v. United States, No. 08-1394 (U.S., June 24, 2010). The Court, however, did not rule the statute unconstitutional.

The honest services provision expands the federal mail and wire fraud statutes to proscribe any scheme or artifice to defraud another not only of tangible property, but also of “the intangible right of honest services.”  (18 U.S.C. § 1346.)  This broadly-phrased provision has become a favorite of prosecutors precisely because of its malleability.  Following Enron’s spectacular collapse, prosecutors indicted Skilling for, among other crimes, conspiring to commit honest services wire fraud by misrepresenting Enron’s financial health to inflate its stock price, thus depriving Enron of his “honest services.”  Skilling argued that this language was unconstitutionally vague and that it criminalized complex business decisions.

Although the Supreme Court acknowledged that Skilling’s argument had force, the Court declined to rule the statute unconstitutional.  Instead, the Court narrowly construed the law, holding that the law properly criminalizes only acts of bribery or kickback schemes.  In so holding, the Court rejected the government’s contention that the statute also proscribes undisclosed self-dealing by a public official or a private employee (yet the Court left open the door for Congress to amend the statute to “speak more clearly than it has”).

The Court found that Skilling did not violate the honest services provision because the government had not alleged that Skilling solicited or received bribes or kickbacks in connection with the alleged fraudulent scheme.  Because Skilling’s indictment alleged “honest services fraud” as one of three objects of the conspiracy for which he was convicted, the Court concluded that his conviction was “flawed,” and remanded the matter to the Fifth Circuit Court of Appeals to determine whether the error was “harmless” as to the conspiracy conviction and whether it tainted all of Skilling’s myriad other convictions.  Thus, it remains questionable whether Skilling’s victory will provide him any actual relief.

The Court’s ruling does, however, clearly undermine the continued viability of the honest services law.  Gone are the days when prosecutors can freely use the law as a means to introduce evidence of immoral or unethical behavior by public officials or private executives.  Now they will have to adduce evidence that those persons engaged in bribery or kickbacks – actual criminal violations.