January 6, 2009 / 6:17 PM / 11 years ago

Court orders Enron's Skilling resentenced

HOUSTON (Reuters) - A U.S. court upheld the 19 felony convictions of former Enron Corp President and Chief Executive Jeffrey Skilling stemming from his role in the collapse of the energy trading company, but said he must be resentenced.

The ruling, handed down by the U.S. Court of Appeals for the Fifth Circuit in New Orleans on Tuesday, said the lower court erred when applying federal sentencing guidelines, so the former executive could now receive a shorter sentence.

Skilling, who was convicted along with former Chairman Kenneth Lay in May 2006 on conspiracy and fraud changes, is serving a 24-year term at a minimum security prison in Colorado. His lawyers could not immediately be reached for comment.

The court ruled Skilling must be resentenced but that is a largely a technicality, said Jacob Frenkel, a former federal prosecutor now in private practice at Shulman Rogers in Rockville, Maryland.

“The bedrock of the case is intact. This guy is staying in jail - the court upheld the conviction,” Frenkel said.

HONEST SERVICES

Skilling’s lawyers had argued in lengthy appeals that all 19 of the counts against the executive should have been tossed out because government prosecutors had used a flawed legal theory to win the case.

Skilling’s attorney also said that the Houston jury was biased and the prosecutors in the case acted improperly.

But the three-judge panel wrote that Skilling’s appeal “failed to demonstrate the government’s case rested on an incorrect theory of law or that any reversible errors infected his trial.”

Acting Assistant Attorney General Matthew Friedrich of the Criminal Division said, “Today’s ruling is a victory for all those harmed by Jeff Skilling and his co-conspirators. We are gratified that the Court, in a 105-page opinion, rejected all of Skilling’s challenges to his conviction. Skilling was an architect of the crimes that caused Enron’s collapse, the fallout of which is still being felt today.”

The New Orleans appeals court has a track record of overturning Enron convictions. In 2006, it overturned most of the convictions against four former Merrill Lynch bankers for their role in a bogus deal with Enron, citing prosecutor’s improper reliance on the “honest services” theory.

Skilling’s lawyers had also said the government wrongly used that theory, which says employees are bound to provide honest services and not put their interests ahead of a company’s.

But Skilling’s personal interests — through the structure of his compensation plan — were aligned with the company’s goal of meeting earnings targets, the judges wrote.

That led “Skilling to undertake fraudulent means to achieve the goal,” making the honest-services theory applicable in this case, the opinion said.

The Houston energy trading company’s fortunes unraveled after it was revealed that Enron had used off-the-books deals to hide billions of dollars in debt.

“This is a significant precedent, validating the honest services fraud theory applied to the corporate boardroom,” Frenkel said. “This is a significant ruling beyond its implication on Jeff Skilling. It will ring fear throughout corporate boardrooms.”

Prior to filing bankruptcy in December 2001, Enron rose to become the seventh-largest U.S. corporation.

Lay died of a heart attack in July 2006. His convictions were thrown out because he died before his appeals were exhausted.

Additional reporting by Chris Baltimore in Houston; Editing by Phil Berlowitz

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