On the heels of last monthís filing with the U.S. Supreme Court of Jeff Skillingís brief on the merits of his appeal to the U.S. Supreme Court, the Department of Justice filed its brief on the merits of Skillingís appeal earlier this week.
A copy of the brief is below, but I recommend downloading it so that you will have the version bookmarked in Adobe Acrobat that facilitates review of the brief.
The DOJís brief is surprising in a couple of key respects.
First, the DOJís case against Skilling has shrunk dramatically. The DOJ now bases its entire case on Skillingís involvement in alleged misrepresentations that were made to the market regarding two Enron divisions, Enron Broadband Services and Enron Energy Services. Nothing in regard to the dubious Nigerian Barge transaction. No mention of the theory that Enronís earnings were lagging in 1999 and thatís why the reason why Skilling supposedly had former CFO Andrew Fastow engineer the allegedly corrupt LJM special purpose entity. Heck, there is not even a mention of the supposedly key Global Galactic Agreement. I mean really ñ is the DOJ even talking about the same case that it tried?
Stated simply, has the DOJís entire case against Skilling now been reduced to his optimistic statements about those two divisions?
The other surprising aspect of the brief is the DOJís apparent surrender on the lack of private gain issue in regard to Skillingís conviction on honest services wire fraud. Check out this reasoning from p. 50 of the brief:
Petitioner had, and acted upon, his personal financial interests, which conflicted with those of the shareholders to whom he owed a fiduciary duty. The company and its shareholders attempted to align their long-term interests with petitionerís by linking his compensation to stock price. But the obvious premise of that arrangement was that petitioner would act to maximize shareholder wealth. Petitioner subverted that premise, and placed his interests in conflict with that of the shareholders,when, for his own financial benefit, he engaged in an undisclosed scheme to artificially inflate the stockís price by deceiving the shareholders and others about the companyís true financial condition. That conduct constituted fraud. The only question here is whether the public nature of petitionerís compensation scheme prevents his conduct from constituting honest services fraud. It does not. Although petitionerís basic compensation scheme was public, his scheme to artificially inflate the companyís stock price by misrepresenting its financial condition, in order to derive additional personal benefits at the expense of shareholders, was not. Petitionerís deception deprived shareholders of the information they needed to make informed decisions and thereby defrauded them of his honest services.
So, what about the shareholders who sold stock at the allegedly inflated price resulting from Skillingís supposed deceptions? Did Skilling defraud them, too? If so, I can think of quite a few investors who wouldnít mind being defrauded like that.
And what about Skilling himself, who continued to acquire large amounts of Enron stock right up to the time he resigned from the company several months before its collapse. Did Skillingís alleged ìdeception deprive [Skilling] of the information [he] needed to make informed decisions and thereby defrauded [himself] of his honest services.î
Iíll bet that reasoning will raise a few questions during oral argument, which is currently scheduled for the afternoon of March 1st.