Honest Services Fraud: Conrad Black and Jeffrey Skilling

Lord Black and Jeffrey Skilling have much in common as both former CEO’s, (Black of Hollinger and Skilling of Enron) have challenged the federal law that was used to convict each of them of honest services fraud. Fraud, bribery and extortion are well known criminal offences but what is “honest services fraud”? It is a “scheme or artifice intended to deprive another of the intangible right of honest services”.

If a person commits fraud and steals money, the law is clear that the fraud is a criminal act. However, where federal prosecutors are not certain whether an accused’s conduct is criminal behavior or just overly aggressive business practices, they will prosecute under honest services legislation.

In Skilling’s case, he was sent to prison for 24 years for his part in a widespread conspiracy to deceive shareholders, employees and investors by concealing the ailing financial health of Enron. His lawyers argue that he did not profit from this deception.

Black was sentenced to six and one half years for siphoning $5 million plus from a Hollinger subsidiary utilizing scam non-compete clauses. He maintains that he made Hollinger so much money that they suffered no loss.

Both cases have now been heard by the United States Supreme Court and decisions are expected next month. How will the Supremes rule in these cases? If Justice Scalia’s recent comments are any indication, it may be that this law is on its way out. He noted that taken literally this law could make it an offence to call in sick to work and go to a baseball game instead!

Former Illinois Governor Rod Blagojevich (recently fired on Celebrity Apprentice) is keeping his fingers crossed. He’s charged under the same law.

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2 thoughts on “Honest Services Fraud: Conrad Black and Jeffrey Skilling

  1. Hey Law Diva:

    Why is Conrad Black serving his prison term in Florida? What about Canada? Is it because Canada’s security regulation is soft and toothless? Mr. Black was not even charged in Canada.

    So, my question for the Law Diva is this: do you think a national securities regulator will help Canada address its poor reputation for regulation?

    First question of course, is it constitutional? I think the SCC will say “yes”, don’t you? Under “federal trade and commerce”. (The resistance is political, really, not constitutional, and Alberta and Quebec will squawk about the Ontario Securities Commission bullying the rest of Canada, and they probably are!)

    Jurisdictional squabbling aside, the alleged benefits to a national regulatory system are (a) efficiency of one set of rules and (b) bigger and better investigative and enforcement powers. I think something is fishy about rationale (b). What about criminal law? The Criminal Code already amply addresses white collar fraud and all other financial crimes. Yet white-collar prosecutions under the Criminal Code are about as common as photographs of Sasquatch. If Harper and Flaherty were really so concerned with protecting the pension funds of this world, why not beef up criminal prosecutions before embarking on such a mega-reshuffle on the quasi-criminal level ?

    Maybe it’s just the “embarrasment factor” of being the only G-country without a national securities regulator, or pressure from the IMF and the global set to be more “normal”? (We want to be one of the cool kids!) In which case it’s window-dressing and won’t really do much to protect mom n pop investors from fraudsters like Conrad Black.

  2. Heather I am 100% with you on this one. Canada’s enforcement record for white collar crime and securities fraud is abysmal. The Howe Street crowd in the 80’s turned Vancouver into the cesspool of the investment world with their pump and dump schemes and crooked stock deals.

    I think that a national securities regulator is essential but have little faith that there is the political will to expend the dollars on investigations that are required to bring these swindlers to justice.

    I also agree that the Criminal Code has the teeth to handle these stock cowboys but our charge approval system doesn’t help either. In Vancouver, the police investigate and recommend charges but then it is up to Crown Counsel to decide whether to prosecute. i understand that unless Crown believes a case is a “sure win” they will not move forward with charges. Frankly, the time, energy and expertise required to prove the elements of these types of offences are in short supply.

    Vancouver Sun columnist David Baines seems to be the only one sounding the alarm. I’ll be blogging more on this topic soon. Stay tuned!

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