Former Enron Corp. CEO Jeffrey Skilling, convicted for his role in the once might energy giant’s collapse, took risks when he ran the company but they were always for its benefit, his attorney told an appeals court Wednesday.
His well-intentioned actions negate his convictions, which rest on a legal theory that Skilling deprived Enron of his “honest services” and put his own interests above those of the company, defense attorney Daniel Petrocelli told a three-judge panel of the 5th U.S. Circuit Court of Appeals.
But prosecutors argued Skilling’s actions were dishonest and contrary to the needs of the company’s shareholders and its financial stability.
The appeals court was expected to rule at a later date on Skilling’s appeal to have his conviction overturned.
Skilling was convicted in May 2006 on 19 counts of fraud, conspiracy, insider trading and lying to auditors for his role in the collapse of Houston-based Enron, once the nation’s seventh-largest company.
Skilling, who is serving a 24-year sentence in a federal prison in Minnesota, was not present during Wednesday’s arguments. But his wife and siblings were there.
Company founder Kenneth Lay also was convicted, but he died less than two months later and his convictions were vacated.
Petrocelli made the honest services theory the centerpiece of his arguments. Legal experts say that is Skilling’s best chance at overturning some or possibly all of his convictions.
Prosecutors theorized at trial that Enron employees were bound to serve honestly and not put their interests ahead of the company’s. If they failed to do so, they deprived the company of “honest services” and committed a crime.
The 5th Circuit has already overturned several Enron-related convictions that were based on the honest services theory, ruling that executives did only what Enron wanted them to do and did not profit at its expense.
Petrocelli characterized Skilling as a loyal employee who at times might have bent the rules, but only for the company’s benefit.
Skilling and Lay “may not have done their job appropriately, but that is not a crime,” Petrocelli said.
But federal prosecutor J. Douglas Wilson told the judges that Skilling’s actions were inconsistent with the short-term or long-term goals of the company’s shareholders.
“At Skilling’s level, the corporation is the shareholders,” Wilson said. “Skilling works for the shareholders and if his actions are contrary to (their) long-term or short-term goals, then that is a violation of honest services.”
Skilling is the highest-ranking executive to be punished for the accounting tricks and shady business deals that led to the loss of thousands of jobs, more than $60 billion in Enron stock value and more than $2 billion in employee pension plans after the company imploded in 2001.
Petrocelli told the judges the conspiracy count against Skilling was based on the honest services theory and if that count is thrown out, the 18 other ones should fall as well because they are tied to that count by either flawed jury instructions or because prosecutors made the conspiracy claim the basis of their entire case against Skilling.
Wilson said even if the conspiracy count was dismissed, the rest of the counts should remain because prosecutors proved those charges independently of that conspiracy count.
Petrocelli’s other main argument was that prosecutors hid important evidence by not turning over more than 400 pages of notes from FBI interviews with former Enron Chief Financial Officer Andrew Fastow.
At Lay and Skilling’s trial, Fastow testified his bosses were aware of fraudulent financial structures engineered by Fastow and his staff. Fastow, considered the mastermind behind financial schemes that doomed Enron, is serving a six-year sentence.
Prosecutors gave summaries of the notes to Skilling’s defense team. The trial judge, U.S. District Judge Sim Lake, denied requests to turn over the full notes to Skilling’s lawyers.
After the trial, the 5th Circuit ordered the notes be turned over.
Petrocelli told the judges that after finally getting the notes, he discovered that Fastow’s initial statements of whether Skilling knew about secret side deals to manipulate Enron’s financial statements differed from his testimony, in which he asserted that Skilling did know.
“That’s crucial,” Petrocelli said.
But Wilson said the notes Petrocelli was referencing actually referred to another Enron deal that had nothing to do with the trial.
The judges asked Wilson if the trial’s jury selection — which lasted one day — was sufficient, if the trial should have been held outside of Houston, and if Skilling’s 24-year sentence was justified.
Wilson said jury selection was thorough and resulted in Skilling getting a fair trial in Houston and that sentencing guidelines justified the prison term.
After the court hearing, Petrocelli said Skilling has learned Spanish in prison and that he is teaching it to his fellow prisoners.
“Jeff wants to come home. He hopes very much the court sees it our way,” he said.