The Latest on Jeffrey Skilling

Okay, I'm late on this. Almost two months late. But it's worth noting: on January 6 the 5th circuit issued a lengthy opinion in response to Jeffrey Skilling's appeal from his conviction and sentence.

You'll remember that Skilling is the former chief executive of Enron who in May 2006 was convicted on 19 counts of securities fraud and related matters and sentenced to 292 months imprisonment (twenty four years and four months). He had appealed both the convictions and the severity of the sentence.

A panel of the appellate court upheld the convictions, but agreed with Skilling that there were improprieties in the sentencing. He'll get a new hearing in the trial court on that.

The decision makes for a fascinating read, and although I've read a good deal about Enron over the last eight years, there are certain points that I've never seen laid out as well as they are here. Take the matter of Enron Broadband Services (EBS) for example. The former finance chief of EBS, Kevin Howard, has been tried twice, yet his fate still hangs in the balance. The first jury hung. The second jury brought in a conviction, which was overturned on appeal. A third trial for Howard is expected some time this year.

Yet the appellate panel in Skilling's case ably summarized the EBS aspect of the case as it relates to JS.

Enron Broadband Services was, as the appellate court says, "Enron's attempt to enter the telecommunications industry." In 2000, EBS met its earning targets but only by means that the government considers suspect in two respects: (1) the core business activities failed to meet the target, non-core activities made up the difference, and Enron failed to make this clear to stockholders, (2) some of the non-core earnings came from the sale of a portion of Enron's fiber optics network to LJM2, one of the Fastow creations, a pseudo-third-party, and (3) improper hedging of EBS' investment in Avici, an internet company, through an SPE that was itself "arguably an instrumnent of fraud."

One of Skilling's arguments against his conviction involved the notion of "materiality." The judge properly instructed the jury that false statements or omissions (about EBS' earnings for example) can support a fraud conviction only if they are "material." The judge instructed the jury on what "materiality" means, but Skilling contended that instruction was inadequate.

Skilling's lawyers at trial submitted their own instruction to the judge on this issue, and he rejected their wording. The defense proposal was that the jury be given a "puffery" instruction, i.e. that some statements are "so lacking in specificity, or so clearly [constitute] the opinions of the speaker, that no reasonable investor could find the statement important to the total mix of information he or she would consider when making an investment decision," and that these statements are immaterial as a matter of law.

It does not appear that the statements on which the prosecution relies fit that description at all. On this, I have to say that the court was right to uphold the instruction actually given, and thereby the conviction.

The litigation will rage on. Skilling gets to fight to have his sentence reduced (I'm too lazy right now to write about that aspect of the decision, but you can find the whole thing here) at the trial court level, and he is appealing the panel's decision to the appeals court en banc.