Supreme Court Reconsiders Corporate Fraud and Conrad Black
For the past two decades, when federal prosecutors have gone
after high-profile criminal fraud cases — think Enron's
href="http://www.msnbc.msn.com/id/15389150/">Jeffrey Skilling, former
Illinois Gov. Rod
Blagojevich, and
href="http://money.cnn.com/2009/06/29/news/economy/madoff_prison_sentence/index.htm?postversion=2009062909">Bernard
Madoff — they've relied on one specific phrase in the
law to help build their cases. According to the wire and mail fraud statute, it's
a crime to carry out any scheme that "
href="http://www.law.cornell.edu/uscode/18/usc_sec_18_00001346----000-.html">deprive[s]
another of the intangible right of honest services." The only
problem is that this thorny bit of legalese leaves a lot to interpretation.
Or at least that's what the legal team for Conrad
Black is arguing before the Supreme Court on December 8. Black, one of
the biggest newspaper moguls in the world, was convicted of fraud in 2007 and
is now serving a six-and-half-year prison term.
The case in brief:
For more than 30 years, Black controlled the publishing
conglomerate Hollinger International, which owned among other newspapers the Chicago
Sun-Times and the UK’s Daily Telegraph. At its peak in
1999, Hollinger’s revenues were $2.1 billion.
In the late 1990s, Black advised Hollinger to start
selling its smaller newspapers before the Internet began to crush their
profits. It was lucrative for Black and three other Hollinger execs who
structured the newspaper deals so that they personally received millions of
dollars in noncompete fees from the buyers. Hollinger’s board knew
nothing of these noncompetition agreements.
In 2007 an Illinois jury
href="http://www.npr.org/templates/story/story.php?storyId=11948939">convicted Black on three counts of
fraud (amounting to more than $6 million)
and one count of obstruction of justice.
Black’s appeal asks the court to consider a
fundamental question: If an executive’s dishonest actions cause no
discernible economic harm to a company or its shareholders, is it still
considered criminal fraud?
Why it matters:
Black’s will be a test case to rule whether the “honest
services” clause is so broad that it should be invalidated.
Critics of the statute say it is so vague that it has
become a relatively easy way for prosecutors to go after those in government
and business who participate in activities that are, as one court put it “something
close to bribery,” but not actual bribery.
“First, its unintelligible language fails to
give ordinary citizens fair notice of what is prohibited,” argues the
Chamber of Commerce in a friend-of-the-court brief. “Second, the
statute’s capacious language invites arbitrary and unpredictable
enforcement. As real-life examples show, the statute is a catch-all that can be
used to target almost any imaginable form of dishonesty in government or
business.”
If the court decides the language is too vague, it could invalidate parts of
the convictions of Black, Skilling, Madoff, and any number of other corporate
fraud cases, says Thomas Goldstein, a partner at Akin Gump Strauss Hauer &
Feld. “Congress would surely move to amend the law to make it more
detailed and clear,” he adds.
A more likely outcome, legal scholars say, is that the
court will attempt to define what it means to deprive someone of “honest
services,” which could send Black back to a lower court for a new
trial in light of the new definition. It could also result in further confusion
as judges attempt to interpret the clarified law.
The court is also hearing two other cases this term,
including
href="http://www.huffingtonpost.com/2009/10/13/supreme-court-will-hear-j_n_318536.html">one brought by Skilling,
that challenge different applications of the honest services clause —
an indication that it is considering narrowing the definition of what exactly
qualifies as criminal fraud.
Other cases to watch:
- Sarbanes-Oxley: The post-Enron reform law that companies love to hate.
- Campaign finance: Do corporations have the right to free speech when it comes to politics?
- Botched pension plans: Who determines how much retirees get?
- Patent law: Is it outdated in this digitally driven, idea-oriented era?