The Supreme Court Redefines Honest-Services Fraud

Author:Mr Robert Ullmann and Sarah P. Kelly
Profession:Nutter McClennen & Fish LLP
 
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Originally published 12/05/2011 On June 24, 2010, the United States Supreme Court issued a decision fundamentally changing the scope of the federal statute prohibiting "honest-services" mail and wire fraud, 18 U.S.C. § 1346. In Skilling v. United States1,  the Court held that the statute, which criminalizes the participation in a scheme to defraud another of "the intangible right to honest services,"  applies only to two discrete kinds of conduct:  bribes and kickbacks.  Before Skilling, the statute had been a favorite of prosecutors seeking to criminalize a wide variety of conduct (of both of private individuals and public officials), including bribery, kickbacks, corporate self-dealing, and the failure to disclose material information. It was against this backdrop that three cases involving honest-services fraud came before the Supreme Court this term, Skilling v. United States, Black v. United States2,  and Weyhrauch v. United States.3 All three petitioners challenged the application of the honest-services law, and Skilling challenged the constitutionality of the statute, arguing that the term "intangible right to honest services" was unconstitutionally vague.  The Court used Skilling's case as an opportunity to redefine the law of honest-services fraud. Background In 2006, Jeffrey Skilling, the former chief executive officer of Enron Corporation, was convicted of, among other crimes, conspiracy to commit honest-services fraud; specifically, the government charged Skilling with conspiring to defraud Enron's shareholders by misrepresenting the company's true financial status, thereby overstating the company's stock price. The government argued that Skilling had received a benefit for his conduct (his handsome salary, bonuses, and Enron stock), and the jury convicted Skilling of conspiring to deprive Enron's shareholders of his honest services. On appeal, Skilling argued, among other things, that the statute was unconstitutionally vague.   The Decision The Supreme Court did not strike down the entire statute as unconstitutionally vague, but instead decided to save the statute by severely limiting its reach. The Court held that the statute is limited to bribery and kickbacks and does not encompass conduct (like Skilling's) such as self-dealing or the failure to disclose material information. The Court based this new limitation on the majority's view of what Congress understood the term "the intangible right to honest services" to mean in 1988, the...

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