The United States Supreme Court took a substantial step toward doing just that yesterday when it vacated Skilling’s conviction under the federal “honest services” wire fraud statute, and remanded the case to the 5th Circuit Court of Appeals to determine whether Skilling’s conviction on other charges against him was so tainted by the government’s reliance on the “honest services” theory that they all must be dismissed. Tom Kirkendall, Larry Ribstein and Stephen Bainbridge, all of whom have blogged extensively on the Enron case and the over-criminalization of business over the years, have more details on their various sites.

Skilling’s case – which is perhaps the most egregious example of the criminalization of business conduct in the most recent generation of ani-business prosecutions – now heads back to the lower courts and further litigation. In addition to the honest services question now put into play by yesterday’s ruling, there remain issues relating to Skilling’s sentencing and his motion for a new trial based upon prosecutorial misconduct to resolve. It would certainly appear that the convictions that the government managed to claim are but a house of cards waiting to topple. Here’s hoping that yesterday’s ruling is a further step toward not only freeing Jeff Skilling, but to also reigning in the nonsensical criminalization of bad business decisions and poor judgment.

Former Pennsylvania State Senator Vince Fumo was convicted yesterday on all 137 corruption related charges in which he had been indicted. The Philadelphia Inquirer has a lengthy story regarding the verdict that can be found here. I am not surpised that umo was convicted, although I am slightly surprised that he was convicted on ALL counts. While Fumo appears to have some viable appellate issues, I would be stunned if his motion for a new trial were to granted, and even more stunned if the Third Circuit were to overturn the conviction. Bottom line is that Vince will almost certainly end up doing prison time. The Inquirer story indicates that prosecutors are expected to seek a sentence in the range o 10 years. I haven’t done the math, but I expect that 10 years might be a little below the guidelines range. Nonetheless, I would anticipate that the judge would impose a sentence of something less than that. More to come on this one.

The man on the right is Salim Ahmed Hamdan. He was Osama bin Laden’s driver. He was convicted of materially aiding terrorists. He was sentenced to 5 1/2 years in prison. The man on the left is Jamie Olis. He was an accountant for Dynergy Corp., and was convicted of materially aiding activities that were later determined to be “fraudulent tax planning.” He was sentenced to more than 24 years in prison (reduced to 6 years – still 6 months more than bin Laden’s driver – after appeal). Tell me, who is more dangerous. And what do these two sentences tell us about the priorities of our justice system and our political classes. Free Jamie Olis!

Another of State Senator Vice Fumo’s former aide’s has agreed to plead guilty and testify against their former boss. Looks like the rats are deserting the ship – with emphasis on the word rat. The Philly.com has the story:

In another blow to State Sen. Vincent J. Fumo, a computer technician who prosecutors said carried out an electronic cover-up for Fumo has agreed to plead guilty and is expected to testify against his former boss.

Leonard P. Luchko, 51, who worked in Fumo’s South Philadelphia office, is scheduled to plead guilty on Monday before a federal judge, according to a document filed yesterday in U.S. District Court.

Luchko and another computer technician are charged with systematically deleting e-mails and other potential evidence from computers used by Fumo and Fumo aides as well as by staffers at a key nonprofit organization that figured in the federal investigation.

The cleansing of the computers was allegedly done at Fumo’s behest and for the sole purpose of thwarting the federal investigation into Fumo’s activities.

Fumo, 65, a Philadelphia Democrat who has been a political powerhouse for decades in Harrisburg, is to stand trial in a sweeping corruption case starting next month.

He is accused of defrauding the state Senate and two nonprofit groups, misusing their employees and money for personal and political advantage. He is also charged with staging a cover-up to obstruct the FBI and IRS investigations.

Luchko is the second new prosecution witness to emerge in the months leading up to the trial before U.S. District Judge William H. Yohn Jr.

In June, political consultant Howard J. Cain, for years one of Fumo’s closest confidants, pleaded guilty to tax evasion and agreed to testify against Fumo.

Another computer aide in Fumo’s office, Donald Wilson, has been cooperating with federal prosecutors since before the indictment. He, too, is on the prosecution’s witness list.

James C. Schwartzman, a longtime friend of Fumo’s who is representing Luchko, did not respond to e-mail or phone messages. Fumo’s lead defense attorney, Dennis J. Cogan, would not comment about Luchko’s decision to plead guilty.

Assistant U.S. Attorneys John Pease and Robert Zauzmer also declined to comment about the scheduled guilty plea.

Luchko and a second computer technician, Mark C. Eister, were charged with leading an effort to cleanse computers used by Fumo, his staff, and workers at Citizens’ Alliance for Better Neighborhoods, a civic nonprofit organization funded with millions of dollars through Fumo’s efforts. Eister is awaiting trial with Fumo. His lawyer, Brian P. McMonagle, could not be reached for comment.

According to the federal indictment, the effort began in earnest Jan. 25, 2004, after The Inquirer reported that the FBI was investigating Fumo.

“The FBI probe into the Senator has really set him off. . . . He wants all the Blackberries wiped,” Luchko wrote in an e-mail to Eister that evening.

Even as Luchko and Eister worked assiduously to clean others’ computers, they failed to cleanse their own, an oversight exploited by the FBI to obtain copies of hundreds of e-mails.

In those messages to other staffers and Senate contractors, Luchko repeatedly cited demands from “the Boss” that potentially damaging e-mails be deleted.

“Mail from the Boss needs to be deleted!” Luchko wrote to one Senate contractor. “. . . You really have to clean your mailbox up this is the kind of s- that can get us in trouble.”

In another, Luchko boasted about his ability to outwit the FBI, saying investigators could never extract data from a particular Citizens’ Alliance computer.

“Good Luck to them because they are going to need it,” Luchko wrote. “They aren’t getting s- off that PC.”

In the e-mails, Luchko portrayed Fumo as absolutely determined to have the staff’s computer cleansed.

“The Boss is driving us ALL nuts with this FBI madness. . . . Life just got so complicated it isn’t even funny and the killer is I can’t tell anyone about it.”

Now, it appears, Luchko is talking about it, to prosecutors.

Might not look good for Fumo, but I still wouldn’t bet against him. Dude has more than nine lives.

Source: Philly.com

That’s the general thesis of a very interesting article in the Winter 2008 issue of The City Journal. The criminalization of bad business decisions, previously dealt with in civil courts through claims for civil fraud or other liability theories, has been a troubling trend since the spectacular collapse of Enron. If recent reports concerning the conduct of the Justice Department’s Enron Task Force in the prosecution of Ken Lay and Jeff Skilling, Enron’s former chairman and CEO, respectively, turn out o be true, it would appear, in fact, that the zeal for imposing criminal liability on businessmen with poor judgment has gone beyond zealous into the realm of unseemly and, perhaps, unethical. And, if the author of the City Journal article is correct, all to the detriment of the shareholders. It is, perhaps, time to rethink the way our legal system deals with business failures.

The manager of a billion-dollar hedge fund, the billionaire head of a buyout firm, and the ex-wives of a television actor and a major real estate developer all will be crucial witnesses at the racketeering trial beginning next week for Anthony Pellicano, the infamous Hollywood private eye.The four will testify that they paid Mr. Pellicano to wiretap their adversaries illegally and listened as he played back the results, the prosecutors say. Former employees and co-conspirators will testify that he built a network of corrupt police officers and telephone-company workers to live up to his image as someone “who reliably obtained information that other investigators could not,” according to a 129-page trial brief filed late Thursday.

Prosecutors have zeroed in on a dozen matters to make their case, apparently setting aside cases involving such onetime Pellicano clients as Chris Rock and Courtney Love and the actor Sylvester Stallone, who Mr. Pellicano investigated. Instead, the government says it will call, among others:

*Adam D. Sender, a noted art collector and the manager of Exis Capital, , a hedge fund at one time valued at $1.5 billion, to testify that Mr. Pellicano wiretapped a movie producer he accused of bilking him out of more than $1 million. Mr. Sender will admit listening to five to 10 wiretapped calls.

*Alec E. Gores, the wealthy head of the Gores Group LLC, a buyout company, to testify that Mr. Pellicano wiretapped his wife and his younger brother to confirm his suspicions about the nature of their relationship, and that he listened to wiretapped calls three times. The wife and brother will also testify.

*Sandra Will Carradine, the ex-wife of the actor Keith Carradine, to testify that she listened to Mr. Pellicano’s illegal recordings of Mr. Carradine’s phone calls during a property dispute in her divorce case.

*Susan Reddan Maguire, the ex-wife of Robert Maguire, a developer of skyscrapers in Los Angeles and many other cities, to testify that Mr. Pellicano wiretapped her ex-husband during their divorce. She will testify that Mr. Pellicano played intercepted calls for her including conversations Mr. Maguire had with his psychiatrist and girlfriend.

Mr. Pellicano, who is representing himself and remains jailed without bail, faces trial alongside a former Los Angeles police detective, Mark Arneson; a retired phone-company worker, Rayford Earl Turner; a computer programmer, Kevin Kachikian; and a businessman, Abner Nicherie.

Mr. Arneson, prosecutors say, illegally searched law-enforcement databases some 2,500 times. Mr. Turner installed wiretaps. Mr. Kachikian designed and built some 50 devices for recording and speedily analyzing wiretapped calls – which he and Mr. Pellicano even tried to trademark under the name “Telesleuth.” Prosecutors say Mr. Nicherie was a minor player who hired Mr. Pellicano to wiretap an adversary and then personally translated the eavesdropped calls, many of them in Hebrew.

Talks between the government and Mr. Arneson, Mr. Turner and Mr. Nicherie did not produce any last-minute pleas this week. Mr. Kachikian, who is accused of destroying the Telesleuth software to stymie investigators, maintains he believed Mr. Pellicano intended to sell it only to law-enforcement agencies.

Terry Christensen, the head of a Hollywood law firm, will be tried separately on charges that he paid Mr. Pellicano $100,000 to wiretap the ex-wife of his biggest client, the billionaire Kirk Kerkorian, during a child-support dispute. Prosecutors still hope to use recordings of Mr. Pellicano and Mr. Christensen discussing the wiretaps as evidence of the wider conspiracy.

Source: The New York Times

Three British bankers are to be sentenced Friday for their roles in a fraudulent scheme involving collapsed U.S. energy company Enron.David Bermingham, Giles Darby and Gary Mulgrew each face up to five years in prison and a fine of up to $250,000.In November, the three men each pleaded guilty to one count of wire fraud as part of a plea agreement after initially saying they were innocent of colluding with former Enron Chief Financial Officer Andrew Fastow in a secret financial scam in 2000 to enrich themselves at their employer’s expense.

Federal prosecutors are recommending that U.S. District Judge Ewing Werlein Jr. sentence each of the men to just over three years in prison.

All three have also agreed to pay their former employer more than $13 million.

Their attorneys have said they will work with prosecutors to see if the bankers can serve part of their sentences in Britain.

The three former executives at Greenwich NatWest, a unit of Royal Bank of Scotland Group PLC, became a cause celebre in Britain throughout extradition proceedings that lasted two years. They were dubbed the “NatWest Three.”

In the United States, their case is a loose end from Enron’s collapse.

Greenwich NatWest had invested in a subsidiary of an Enron partnership controlled by Fastow, the architect of myriad fraudulent Enron schemes that helped fuel its spiral into bankruptcy proceedings.

In early 2000, the bank had valued its interest in the subsidiary at zero, but the three British men knew it actually had significant value.

A company under the control of Michael Kopper, Fastow’s former top aide, purchased the bank’s interest in the subsidiary for $1 million.

The bankers, who came to Houston, paid Kopper $250,000 for an interest in this company. Fastow falsely represented to Enron that the energy company would pay $20 million to Greenwich NatWest for its shares of the subsidiary.

But the $20 million actually went to the British bankers, Fastow and others. The bankers got $7.3 million while Fastow, Kopper and others skimmed about $12.3 million, according to the plea deal.

For their roles in Enron’s collapse, Fastow is serving a six-year sentence while Kopper was given a three-year, one-month sentence.

Enron, once the nation’s seventh-largest company, crumbled into bankruptcy in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

Enron founder Kenneth Lay and former chief executive Jeffrey Skilling were convicted in 2006 for their roles in the company’s collapse. Skilling is serving a sentence of more than 24 years. Lay’s convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease in 2006.

Source: The Associated Press (via Law.com)

Update: Each of the three former NatWest bankers were sentenced on Friday to terms of imprisonment of 37 months.

Fortune’s Roger Parloff reported Friday at his Legal Pad blog on a significant recent development in the options backdating case of former Brocade CEO Gregory Reyes. Although he was convicted on 10 bacdating related charges, Reyes will likely receive a minimal prison term – if he in fact is sentenced to any prison time at all. Seems the judge presiding over Reyes’ trial has concluded that Reyes’ conduct caused no economic losses, notwithstanding the Government’s assertions that Reyes caused as much as $2.5 to 3 billion. The Court rejected the Government’s various loss calculations as unproven or having no basis in fact or law. Thank Heaven we have the feds to protect us from all those non-loss causers.

By now you have likely heard that former Brocade CEO Greg Reyes was convicted today on all counts in the Government’s misguided options backdating related prosecution. Larry Ribstein of Ideoblog has this excellent post in which he critically assesses the weak premise that undegirds the Government’s pursuit of these cases. Ribstein raises the possibility that the Government may now be emboldened to pursue further cases, possibly against such high profile executives as Apple CEO Steve Jobs. There are reasons to believe that the Government may not take such steps, not the least of which is the live possibility that some or all of the Reyes verdict may very well not withstand post-trial motions, let alone appeal. It is certain, however, that the continuing criminalization of poor business judgment is a very troublling trend indeed.

In an earlier post I criticized the government’s case against Lord Conrad Black and labeled its prosecution a “jihad” against business. In the interest of being fair and balanced, I commend to you this post by Professor Bainbridge, which makes a cogent argument that Lord Black plundered his company and its shareholders.