Skilling to Appeal 'Egregious' Enron Prosecution

By Scott Cohn,|CNBC Senior Correspondent

Attorneys for former Enron CEO Jeffrey Skilling will argue Wednesday that his 2006 conviction should be overturned because of “shocking” and “egregious” misconduct by prosecutors.

A three-judge panel of the United States Court of Appeals for the Fifth Circuit will hear oral arguments in Skilling’s appeal on Wednesday afternoon in New Orleans. If the panel agrees, not only could Skilling’s case be thrown out—with no prospects for a new trial—but other convictions in the Enron scandal could fall by the wayside as well.

Skilling created Enron’s business model, and rose to CEO in February of 2001. But he abruptly

Former Enron CEO Jeff Skilling (AP Photo/David J. Phillip)
David J. Phillip

resigned in August of that year, less than four months before Enron’s collapse. Skilling was convicted in May of 2006 on 19 criminal counts, including conspiracy, fraud, insider trading and lying to auditors.

At the time, prosecutors with a special Justice Department Enron Task Force argued Skilling conspired with others, including former Chief Financial Officer Andrew Fastow, to cook Enron’s books. But newly unsealed notes from the FBI’s initial interviews with Fastow appear to undercut that claim. Skilling’s attorneys accuse prosecutors of illegally suppressing evidence, a charge the government denies.

“By withholding this evidence,” Skilling’s attorneys argue in a filing made public earlier this month, “the Task Force deliberately deprived Skilling of the ability to confront Fastow with his prior statements contradicting crucial testimony against Skilling.”

For example, according to the filing, Fastow initially told investigators he didn’t think he had discussed with Skilling a list of secret side deals known as “Global Galactic.” But those notes were never disclosed to the defense. By the trial, Fastow swore Skilling did know about the list. Unaware of Fastow’s earlier statements to the FBI, defense attorneys claim they could not effectively cross-examine him.

Under the law, prosecutors are required to turn over evidence that could be used to prove a defendant not guilty. Prosecutors did turn over summaries of the FBI’s notes, which they claim were faithful to the actual notes. In its response, the government says the Skilling brief is filled with “hyperbolic rhetoric.”

Skilling’s attorneys also argue the case should not have been tried in Houston, where animosity toward Enron still runs high. And they claim the government relied on a flawed prosecution theory that Skilling robbed Enron of his “honest services,” a theory the appeals court already struck down in another Enron case.

In addition, Skilling’s appeal cites flaws in the judge’s instructions to the jury, as well as the harshness of Skilling’s sentence. He is currently serving a 24-year term at the Federal Correctional Institution in Waseca, Minnesota, where he has been since December of 2006.

Skilling’s 2006 trial, alongside Enron founder Kenneth Lay, capped a wave of corporate scandals following the technology bubble. Enron, which at the time of its collapse in 2001 was the seventh largest U.S. corporation by revenue, remains one of the most notorious corporate collapse of all time.

Skilling and Lay argued the collapse was merely a “run on the bank” triggered my market uncertainty, concerns about Skilling’s abrupt resignation, and revelations of isolated fraud by Fastow, who is serving a six-year prison term under a plea agreement.

Lay was also convicted, but he died soon after the trial in July of 2006. Because he died before he could appeal the verdict, the court wiped out his convictions.

CNBC will have full coverage of the Skilling appeal Wednesday, April 2, live from New Orleans.