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Supreme Court Limits Scope of White-Collar Fraud

June 24, 2010 at 12:00 AM EST
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The U.S. Supreme Court ruled Thursday to limit the definition of a federal fraud law. Jeffrey Brown talks with Marcia Coyle of the National Law Journal about what the ruling could mean for several well-known cases of white-collar crime.
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JEFFREY BROWN: And we turn to the Supreme Court, which issued a series of rulings today, including dramatically narrowing the scope of a fraud law used by federal prosecutors in some very high-profile cases of white-collar crime.

Marcia Coyle of “The National Law Journal” was in the courtroom, as always, and joins us now.

Welcome back.

MARCIA COYLE, “The National Law Journal”: Thanks, Jeff.

JEFFREY BROWN: So, some very prominent convictions were involved. Give us some background on these cases.

MARCIA COYLE: There were three cases before the court.

Enron’s chief, Jeffrey Skilling, he had challenged his conviction. He was charged by the government and convict of conspiracy to commit honest services fraud, among other charges, basically in connection with an accounting scheme and false and misleading statements about Enron’s financial health led to the collapse and, according to the government…

JEFFREY BROWN: One we covered for a long, long time here, yes.

MARCIA COYLE: Absolutely, and, according to the government, enriched him in the form of salary, bonuses, stock options, and other benefits.

The second case involved newspaper magnate Conrad Black. He also was convicted of honest services fraud and obstruction of justice in connection with an unusual corporate compensation scheme, according to the government. He said it wasn’t an illegal scheme; it had to do with non-competition fees.

And, finally, the third case involved an Alaska state legislator, Bruce Weyhrauch. He hasn’t been convicted. He’s scheduled to go on trial. A lower court said his trial could go forward on a charge of honest services fraud because he failed to disclose the government charges that he was looking for work from an oil company that, at the same time, was lobbying him in the state legislature on tax policy.

JEFFREY BROWN: All right. Now, you used a key phrase there three times…

MARCIA COYLE: Yes, I did.

JEFFREY BROWN: … honest services fraud. Now, we’re going to put up the — it’s a short law, and it says, “For the purposes of this chapter, the term, scheme, or artifice to defraud includes a scheme or artifice” — and the key words — “to deprive another of the intangible right of honest services.”

JEFFREY BROWN: Now, what does that mean, or is that what the Supreme Court had to decide here?

MARCIA COYLE: Well, actually, that’s part of what the court had to decide.

Justice Ginsburg wrote the main opinion today. And it came in the Skilling case. And I think she gave perhaps the best way to explain honest services fraud. She read a summary from the bench.

And she said, here’s an example. A mayor takes a bribe in return for awarding a contract to a party. The bribe is from that party who wants the contract. The contract’s terms are the same as if they had been negotiated at arm’s length. The city and its citizens have not lost anything tangible in terms of property or money. The citizens have lost something intangible: the right to the honest services of the mayor.

JEFFREY BROWN: But, in the cases of these very high-profile corporate folks, Skilling and Conrad Black in particular, prosecutors were using this — that law — to get at them, right?

MARCIA COYLE: Exactly.

Mr. Skilling brought a two-pronged challenge to the law. He said — or to his conviction, actually. He said first that he didn’t get a fair trial because of pretrial publicity and community prejudice. But the core of the case here had to do with this law. He said it was unconstitutionally vague. It didn’t define the behavior it prohibited.

Justice Ginsburg, writing for the majority on the court, said, well, we’re not going to condemn Congress’ act if we can construe this in a constitutional way.

And so she looked at the law and what Congress intended in 1988, when it was enacted, and she said that the core of this law gets at bribery and kickbacks taken by people who have some type of fiduciary duty or duty of loyalty. And that’s how the law is going to be narrowed and confined.

JEFFREY BROWN: She’s essentially saying that federal prosecutors have overstretched in their use of it.

MARCIA COYLE: In fact, the government in this case had urged the court to go farther than — further than bribery and kickbacks to include self-dealing and conflicts of interest. It’s been a powerful, widely used tool, successfully, by the prosecution.

JEFFREY BROWN: And three justices wanted to go even further, right, and just get rid of the law altogether?

MARCIA COYLE: Justice Scalia, Kennedy, and Thomas would have struck down the entire law as unconstitutional.

Justice Scalia said the majority here was basically writing the terms of a new federal crime, and it shouldn’t do that.

JEFFREY BROWN: All right, so what happens next in these convictions?

MARCIA COYLE: Well, the court made it — the majority made it very clear that Mr. Skilling was improperly convicted of honest services fraud, and so his case will go back to the lower court.

He was convicted of, I believe, 19 other counts, so the lower court will have to decide if this count, honest services fraud, the error, infected all those other counts and charges. Mr. Black’s case also goes back, because, as the court — since the court found that the honest services fraud here only applies to bribery and kickbacks, it infected the jury instructions in his case, and he — the lower court will also have to decide whether it can go forward there.

And Mr. Weyhrauch is probably the luckiest of the three. I don’t think his case will go forward unless the prosecution has some other basis to charge him.

JEFFREY BROWN: Now, what are the wider implications here, because, as we started by saying, federal prosecutors have used this quite widely?

MARCIA COYLE: There are other prominent names. Right now, in Chicago, former Governor Blagojevich is on trial, and this honest services fraud is one of the charges against him. The HealthSouth CEO Richard Scrushy and former Governor Don Siegelman, they also have been convicted, and part of their conviction rests on honest services fraud.

All those cases — and I’m sure there are many others — will have to be reexamined.

JEFFREY BROWN: And advocate groups for good governance in public and private sector, they’re already sending — we got many press releases today saying this will make it much harder to go after officials…

MARCIA COYLE: Absolutely, Jeff, because it was a widely used and very successful tool in white-collar crime and public corruption cases.

JEFFREY BROWN: All right, and before we go, this — we’re near the end of the term, right?

MARCIA COYLE: Monday. Four more decisions are expected to come down. And right after that will be the start of the Senate hearings on Elena Kagan’s nomination.

JEFFREY BROWN: All right, Marcia Coyle, we will turn back to you on Monday.

Marcia Coyle of “The National Law Journal,” thanks again.

MARCIA COYLE: My pleasure.