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Former Enron CEO Skilling to Ask for Early Prison Release

Thursday, 20 Jun 2013 | 9:45 AM ET
Former Enron Chief Executive Jeffrey Skilling
Getty Images
Former Enron Chief Executive Jeffrey Skilling

One of the world's most infamous and longest-running white collar crime cases could come to a dramatic end Friday, when Jeffrey Skilling and federal prosecutors go before a judge in Houston to ask that the former Enron CEO be released early from prison.

The hearing before U.S. District Judge Sim Lake—Skilling's first public appearance in more than six years—is the result of a proposed sentencing agreement first reported by CNBC on April 4.

(Read More: Enron's Jeff Skilling Could Get Early Release)

Skilling, now 59, developed Enron's business model as an "asset-light" energy trading company. He rose to CEO in February 2001, only to abruptly resign six months later "for personal reasons." He claimed the seventh-largest U.S. company was healthy. But by December, Enron collapsed in what was at the time the largest bankruptcy in the nation's history.

Under the proposal to be presented to Lake, Skilling's 24-year, four month prison sentence—one of the longest ever at the time in a white collar case—would be reduced to around 14 years. With credit for time served and for good behavior, Skilling could be out of prison in 2017. At that point, he will have served a little over 10 years.

In exchange, Skilling would drop all remaining appeals, including a potentially explosive motion for a new trial based on alleged misconduct by the Justice Department's elite Enron task force that prosecuted the case. Skilling's convictions on 19 criminal counts including conspiracy, fraud and insider trading would stand. What's more, $40 million that Skilling had agreed to forfeit if his appeals were unsuccessful would be turned over to victims.

DOJ Statement on Skilling
Former Enron CEO Skilling will be out of prison in 2017 under a new deal. CNBC's Scott Cohn reports what Skilling's attorney and the DOJ said about the deal.

Approval of the agreement by Lake, who presided over Skilling's 2006 trial, is not a foregone conclusion. In imposing his original sentence, Lake brushed off suggestions that 24 years was too harsh.

"As the many victims have testified, his crimes have imposed on hundreds if not thousands a life sentence of poverty," Lake said in court.

Nonetheless, Lake has been kept apprised of the sentencing negotiations, holding several closed door hearings with attorneys as talks progressed.

Skilling was already due for a reduction under a 2009 federal appeals court ruling that said Lake improperly calculated the sentencing guidelines. The ruling called for a sentence of around 15 years. A Justice Department spokesman said the government agreed to the additional time off in order to finally bring the case to a close.

"Today's agreement will put an end to the legal battles surrounding this case," Justice Department spokesman Peter Carr said in a statement when the agreement was announced May 8. "Mr. Skilling will no longer be permitted to challenge his conviction for one of the most notorious frauds in American history, and victims of his crime will finally receive the more than $40 million in restitution they are owed."

(Read More: Skilling Strikes Deal to Get Out of Prison in 2017)

Ending the legal battles was also a goal of the Skilling camp, as was getting him out of prison sooner.

"The proposed agreement brings certainty and finality to a long painful process," Skilling defense attorney Daniel Petrocelli said in May. "Although the recommended sentence for Jeff would still be more than double any other Enron defendant, all of whom have long been out of prison, Jeff will at least have the chance to get back a meaningful part of his life."

But the agreement is far short of what Skilling had hoped for following his 2006 sentencing.

"I believe that I'm innocent," Skilling told reporters outside the courthouse. "I think when we review this maybe in a somewhat calmer atmosphere than has existed for the last five years I think people will really look at that and I hope that it'll work out fine."

But his efforts to clear his name have largely failed.

While a three-judge panel of the Fifth Circuit Court of Appeals overturned Skilling's sentence in 2009, the panel upheld the conviction. In 2010, the Supreme Court struck down the legal theory prosecutors relied on in the trial and sent the case back to the appellate court for review, but the panel ruled the error was "harmless."

Skilling's last remaining leverage was the motion for a new trial based on new evidence, but that could have dragged the case on for years with an uncertain outcome.

Skilling's 2006 trial alongside his mentor, Enron founder and Chairman Kenneth Lay, was a flashpoint—capping a wave of corporate scandals that began with Enron's sudden collapse in 2001. Lay was also found guilty, but he died before he could appeal, so the convictions were wiped out.

The case has become even more controversial in light of a lack of similar high profile prosecutions following the 2008 financial crisis.

(Read More: A Rogues Gallery of Financial Crime)
(Watch: Illegal Billionaires & World's Richest Criminals)

In early 2004, with investor confidence and Houston's psyche still wounded from the Enron collapse, a handcuffed Skilling was paraded before cameras behind the federal courthouse following his indictment. The "perp walk," along with a similar display involving Lay a few months later, set the standard for some on calling corporate executives to account.

But others saw it as an example of extreme overreach by the Enron task force, which was appointed by the Bush administration while the scandal was in full bloom.

In a sensational, three-month trial, prosecutors alleged Skilling employed an elaborate web of accounting tricks to hide Enron's liabilities, even entering intro secret side deals with former Chief Financial Officer Andy Fastow to move money-losing assets off the books.

Fastow, who admitted illegally enriching himself through those deals, was among a string of former Enron executives who pleaded guilty to reduced charges and testified against their former bosses.

Skilling argued all of Enron's accounting was approved by outside auditors and attorneys, and he denied any involvement in side deals with Fastow. Attorneys for Skilling and Lay said their clients were being prosecuted for normal business conduct, and that the failure of Enron, while regrettable, was not a crime. The jury sided with the government, although it acquitted Skilling on nine of the 10 insider trading charges he faced.

The guilty verdicts were billed as a crowning achievement for the task force, whose leaders had specialized in organized crime cases and approached the Enron investigation the same way—securing guilty pleas from lower-level associates and working their way up the chain of command.

One former director of the task force, Andrew Weissmann, is now general counsel of the FBI. Kathryn Ruemmler, who delivered the government's closing argument in the Skilling and Lay trial, is now President Barack Obama's White House counsel.

Attorneys for Skilling and Lay argued the task force was self-fulfilling by design. Skilling's motion for a new trial—which will not be filed if the sentencing agreement is approved—was believed to center on allegations the task force withheld key evidence from the defense.

Skilling, currently housed at a federal prison in Littleton, Colo., has served his time quietly, granting no interviews. Petrocelli said at one point Skilling was teaching Spanish to other inmates—after first teaching himself the language.

In 2011, Skilling's youngest child, 20-year-old John Taylor "J.T." Skilling, was found dead of an accidental overdose of prescription medication. The U.S. Bureau of Prisons denied Skilling's request for a temporary release from prison to attend his son's funeral.

—By CNBC's Scott Cohn. Follow him on Twitter at @ScottCohnCNBC.

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