On June 24, 2010, the U.S. Supreme Court pared down what has been commonly referred to as the “honest services” law, a federal criminal statute often used by federal prosecutors in corruption and fraud cases. Skilling v. United States involved an appeal brought by former Enron CEO Jeffrey K. Skilling regarding his 19-count fraud conviction for engaging in a scheme to mislead investors about Enron’s true financial performance.

In Skilling, the Supreme Court held that 18 U.S.C. § 1346, which prohibits “a scheme or artifice to deprive another of the intangible right of honest services,” encompasses only bribery and kickback schemes.¹   Based on its narrow interpretation of the “honest services” statute, the Supreme Court determined that Skilling had not violated Section 1346 by conspiring to defraud Enron’s shareholders. However, because the government had indicted Skilling for three objects of conspiracy—“honest services” wire fraud, money-or-property wire fraud and securities fraud—the Supreme Court remanded the case back to the Fifth Circuit to determine whether Skilling’s conspiracy conviction should be upheld. Additionally, whether a potential reversal on the conspiracy count would affect Skilling’s other convictions—securities fraud, making false statements to accountants and insider trading—was left an open question by the Supreme Court.

Writing for the majority, on a 6–3 decision, Justice Ruth Bader Ginsburg noted that Section 1346 pertains only to criminal defendants who have participated in bribery or kickback schemes. In reaching this decision, the majority rejected the Justice Department’s argument that Section 1346 should encompass self-dealing. Three other Justices—Antonin Scalia, Clarence Thomas and Anthony M. Kennedy—agreed with the majority, but would have gone further in limiting the scope of Section 1346. These Justices would have struck down the “honest services” statute in its entirety for being unconstitutionally vague.

In a separate 6–3 vote in Skilling, the Supreme Court also rejected Skilling’s second challenge on appeal—that he had not received a fair trial in Houston in 2006 due to pretrial publicity and community prejudice against him. Again writing for the majority, Justice Ginsburg noted that Skilling failed to establish that he had suffered actual prejudice at his trial or that actual bias had infected the jury. In her dissent to this portion of the majority’s opinion, Justice Sonia Sotomayor, joined by Justices Paul Stevens and Stephen G. Breyer, wrote that Skilling’s right to a fair trial had been violated on account of the animosity and prejudice that had infiltrated the community at large.

Since the “honest services” statute has been frequently invoked by federal prosecutors in corruption cases, the Supreme Court’s narrowing of the law holds tremendous implications for both pending cases and future cases involving Section 1346.

¹ Skilling v. U.S., 561 U.S. —, No. 08-1394 (June 24, 2010); 18 U.S.C. § 1346.