Tag: honest services fraud

The Unbearable Vagueness of “Honest Services Fraud”

Cato adjunct scholar Tim Sandefur, who authored an amicus brief in the case of Skilling v. U.S., writes on his home blog:

Today, the Supreme Court decided the case of Jeffrey Skilling, the CEO of Enron, who had been convicted of the crime of “honest services fraud.” The statute, however, is so vague, that nobody knows what the term “honest services fraud” actually means. Pacific Legal Foundation (joined by our friends at the Cato Institute) filed a brief in the case arguing that statutes that are so vague violate the constitutional guarantee of due process of law—and that the constitutional protection against vague laws should apply in the business realm the same as anywhere else. Vague laws are dangerous because you cannot know what they prohibit and cannot therefore avoid breaking the law. It is unfair and unconstitutional to hold vague statutes over their head in such a way.

Unfortunately, the Court has in the past been reluctant to apply it outside the regular criminal context, on the theory that businesses are wealthier and can afford expert legal advice. But in a case like this, even the experts have no idea what the statute actually means. The federal circuit courts are in disarray as to what it means. And nobody should be convicted under a statute that is so broadly and vaguely worded, that even the prosecuting lawyer can’t tell you what that law actually means.

As they say, read the whole thing.

Vague Laws Defy the Rule of Law

Following Enron’s downfall, the federal government charged company CEO Jeffrey Skilling with “honest services fraud” connected to the alleged manipulation of Enron’s market value (and other securities irregularities).  This charge — also at issue in two other cases before the Court this term — is based on a statute which says, in its entirety: “For the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”

Skilling was convicted, and his conviction was upheld by the Fifth Circuit.  The Supreme Court agreed to review the application of the “honest services fraud” statute to Skilling (as well as the issue of potential jury bias stemming from pretrial publicity in Houston).  Cato, joined by the Pacific Legal Foundation, filed an amicus brief supporting neither party, arguing simply that vague statutes such as the one at issue here offend due process.

We take no position on whether Skilling committed a crime, or even the crime at issue here (whatever that may be).  Instead, we argue that the Court should clarify that the constitutional prohibition on vague laws protects sophisticated and unsophisticated defendants alike in the realm of economic regulation, as well as in criminal law.  The due process requirements of fair warning and definiteness apply equally in the contexts of white collar business crimes, business torts, and civil regulations.

Vague laws involve three basic dangers:  First, they may harm the innocent by failing to warn of the offense.  Second, they encourage arbitrary and discriminatory enforcement because vague laws delegate enforcement and statutory interpretation to individual government officials.  Third, because citizens will take extra precautions to avoid violating the law, vague laws inhibit our individual freedom.

For more on this issue, see Tim Lynch’s posts here and here, Gene Healy’s op-ed, or the related policy forum and podcast.