Jeff Skilling Opening Merits Brief On Remand

Case: 06-20885 Document: 00511188326 Page: 1 Date Filed: 07/28/2010
06-20885
UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
UNITED STATES OF AMERICA,

Plaintiff-Appellee,
v.
JEFFREY K. SKILLING,
Defendant-Appellant.
JEFFREY K. SKILLING’S OPENING BRIEF ON REMAND

FROM THE U.S. SUPREME COURT
On Appeal From The United States District Court

For The Southern District Of Texas, Houston Division
Crim. No. H-04-25 (Lake, J.)
O’MELVENY & MYERS LLP O’MELVENY & MYERS LLP

WALTER DELLINGER DANIEL M. PETROCELLI
JONATHAN D. HACKER M. RANDALL OPPENHEIMER
SRI SRINIVASAN MATTHEW T. KLINE
1625 Eye Street, N.W. DAVID J. MARROSO
Washington, D.C. 20006 1999 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
RONALD G. WOODS Telephone: (310) 553-6700
5300 Memorial, Suite 1000 Facsimile: (310) 246-6779
Houston, Texas 77007
ATTORNEYS FOR DEFENDANT-APPELLANT JEFFREY K. SKILLING

TABLE OF CONTENTS
Page
INTRODUCTION ......................................................................................... 1
STATEMENT.............................................................................................. 10
FACTUAL BACKGROUND...................................................................... 11
ARGUMENT............................................................................................... 12
I. THE HONEST-SERVICES FRAUD ERROR REQUIRES

REVERSAL OF SKILLING’S CONSPIRACY CONVICTION..... 12
A. The Conspiracy Conviction Can Stand Only If The
Government Can Prove That Its Honest-Services Fraud
Theory Was Identical To Its Securities-Fraud Theory ........... 13
B. The Government Cannot Establish That Its Honest-

Services Fraud Theory Was Identical To Securities Fraud .... 17
II. THE ERRONEOUS HONEST-SERVICES THEORY
INFECTED EVERY OTHER COUNT OF CONVICTION ............ 39
A. Securities Fraud (Counts 2, 14, 16-20, 22-26)........................ 40
B. Insider Trading (Count 51) ..................................................... 51
C. False Statements to Auditors (Counts 31, 32, and 34-36) ...... 54

CONCLUSION............................................................................................ 58
-i-
TABLE OF AUTHORITIES
Pages
CASES
Al Qaadir v. Gallegos,
1995 WL 330628 (9th Cir. June 2, 1995) ................................................. 11
Exxon Shipping Co. v. Baker,

128 S. Ct. 2605 (2008) .......................................................................... 4, 12
Feela v. Israel,
727 F.2d 151 (7th Cir. 1984)..................................................................... 57
Kennedy v. So. Cal. Edison Co.,

268 F.3d 763 (9th Cir. 2001)..................................................................... 11
Kotteakos v. U.S.,
328 U.S. 750 (1946) .............................................................................. 9, 47
McNally v. U.S.,
483 U.S. 350 (1987) .................................................................................. 13
Neder v. U.S.,
527 U.S. 1 (1999) ........................................................................................ 2
Sullivan v. Louisiana,
508 U.S. 275 (1993) .............................................................................. 9, 47
U.S. v. Acker,
52 F.3d 509 (4th Cir. 1995)....................................................................... 53
U.S. v. Alexius,
76 F.3d 642 (5th Cir. 1996)....................................................................... 56
U.S. v. Barona,
56 F.3d 1087 (9th Cir. 1995)............................................................... 56, 57
U.S. v. Brown,
459 F.3d 509 (5th Cir. 2006)................................................................. 3, 15
U.S. v. Edwards,
303 F.3d 606 (5th Cir. 2002)..................................................................... 14
-ii-
(continued)
Pages
U.S. v. Goodner Bros. Aircraft, Inc.,

966 F.2d 380 (8th Cir. 1992)............................................................... 54, 57
U.S. v. Hands,
184 F.3d 1322 (11th Cir. 1999)................................................................. 11
U.S. v. Holley,
23 F.3d 902 (5th Cir. 1994)........................................................... 13, 14, 24
U.S. v. Howard,
517 F.3d 731 (5th Cir. 2008).............................................................. passim
U.S. v. Johnson,
44 F. App’x 752 (9th Cir. 2002)................................................................ 42
U.S. v. Kaiser,
660 F.2d 724 (9th Cir. 1981)..................................................................... 42
U.S. v. Pettigrew,
77 F.3d 1500 (5th Cir. 1996)..................................................................... 19
U.S. v. Saks,
964 F.2d 1514 (5th Cir. 1992)............................................................. 13, 14
U.S. v. Santos,
201 F.3d 953 (7th Cir. 2000)..................................................................... 53
U.S. v. Sardesai,
125 F.3d 850 (4th Cir. 1997)..................................................................... 42
U.S. v. Skilling,
554 F.3d 529 (5th Cir. 2009)........................................................... 1, 10, 39
U.S. v. Slade,
627 F.2d 293 (D.C. Cir. 1980) .................................................................. 53
U.S. v. Smithers,
27 F.3d 142 (5th Cir. 1994)....................................................................... 14
-iii-
(continued)
Pages
U.S. v. Urcioli,
513 F.3d 290 (1st Cir. 2007) ..................................................................... 38
U.S. v. Washington,
106 F.3d 983 (D.C. Cir. 1997) .................................................................. 42
Yates v. U.S.,
354 U.S. 298 (1957) ........................................................................... passim
Zant v. Stephens,
462 U.S. 862 (1983) .................................................................................. 12
STATUTES
15 U.S.C. § 78m............................................................................................ 10
15 U.S.C. § 78ff ............................................................................................ 10
15 U.S.C. § 78j.............................................................................................. 10
18 U.S.C. § 1346............................................................................................. 1
18 U.S.C. § 371............................................................................................. 10
-iv-
INTRODUCTION
Jeffrey Skilling was convicted in May 2006 for fraud-related offenses
arising out of the sudden collapse of Enron Corp. in late 2001. He has been
incarcerated in federal prison since December 13, 2006—more than three-
and-a-half years—with almost 20 years remaining on the 24-year sentence
imposed initially by the district court.1
On June 24, 2010, the Supreme Court invalidated one of the two
theories of fraud the government asserted against Skilling—i.e., that he
conspired to deprive Enron of its “right to honest services” under 18 U.S.C.
§ 1346 by taking actions he “knew … were not in the best interests of Enron
and its shareholders.” R:36424.2 The Supreme Court unanimously held the
honest-services statute does not permit the government to try such open-
ended theories of wrongdoing, but instead “covers only bribery and kickback
1
This Court vacated the sentence in its 2009 decision, holding that the
district court erred in applying a “financial institution” enhancement. U.S. v.
Skilling, 554 F.3d 529, 595 (5th Cir. 2009). A resentencing has yet to occur.
2
Citations are made as follows: “R:123” refers to the Record on Appeal,
page 123; “SR1:123” refers to Supplemental Record #1; “SR2:123” refers to
Supplemental Record #2; “GX100:123” refers to Government Trial Exhibit
100, page 123; “DX100:123” refers to Defense Trial Exhibit 100, page 123.
Sealed documents are cited by date and title, and identified as “sealed.”
“JKS-1:123” refers to materials cited in Skilling’s Motion to Supplement the
Record on Appeal, Tab 1, page 123. “Skilling Br.” refers to Skilling’s
opening brief on his original appeal (Sept. 7, 2007), and “Skilling Reply”
refers to his reply brief in support of the same (Dec. 21, 2007). “U.S. Br.”
refers to the government’s original brief in opposition (Nov. 13, 2007).
schemes.” Skilling v. U.S., 08-1394, Slip Op. at 2. And “[b]ecause
Skilling’s alleged misconduct entailed no bribe or kickback, it does not fall
within § 1346’s proscription.” Id. at 2; see id. at 50 (“It is … clear that, as
we read §1346, Skilling did not commit honest-services fraud.”).
The Supreme Court did not, however, reverse Skilling’s convictions.
Instead, it remanded the case for this Court to determine whether the district
court’s “constitutional error” in allowing the government to submit its
legally flawed honest-services theory to the jury was harmless as to any of
Skilling’s 19 convictions. Id. at 50.
As the case returns to this Court, Skilling’s convictions are
presumptively invalid, given the conceded error in trying him on a non-
existent theory of criminal liability. The question now is whether the
government can overcome that presumption by proving, beyond any
reasonable doubt, that the erroneous submission of the honest-services
theory to the jury did not affect Skilling’s convictions. See Neder v. U.S.,
527 U.S. 1, 18 (1999) (instructional error on elements of crime not harmless
unless it is “clear beyond a reasonable doubt that a rational jury would have
found the defendant guilty absent the error”); Yates v. U.S., 354 U.S. 298,
312 (1957) (reversal required where it is unclear whether the convictions
rested on legally valid or invalid bases). Unless the government carries that
2
burden through a fact-intensive analysis of each count, the convictions
cannot stand, and Skilling must be retried before a jury not exposed to, and
not invited to convict on, an invalid fraud theory.
The government cannot carry its burden. The district court, in ruling
on bail at sentencing, recognized that the submission of an invalid honest-
services theory to the jury likely required reversal of Skilling’s conviction
for conspiracy—Count 1 of the government’s case. R:41895-98; see also
U.S. v. Brown, 459 F.3d 509, 523 (5th Cir. 2006) (finding error in submitting
honest-services theory to jury in parallel Enron case not harmless as to
conspiracy count). The government did not dispute that conclusion then, nor
did it do so when Skilling appealed the bail ruling to this Court. See U.S.
Resp. to Skilling’s Mot. for Bail Pending Appeal at 2, 12, 15 (Oct. 18, 2006)
(sealed); U.S. Resp. to Appellant’s Mot. for Bail Pending Appeal at 2, 15, 18
(5th Cir. Nov. 27, 2006). In reviewing Skilling’s bail application in late
2006, Judge Higginbotham went further still, noting that error in the honest-
services fraud theory created “serious frailties” in 14 of the 19 counts of
conviction, Order, U.S. v. Skilling (5th Cir. Dec. 12, 2006)—the one
conspiracy count, the 12 securities-fraud counts, and the one insider-trading
count on which Skilling was convicted, leaving only five counts for alleged
false statements to Enron’s auditor, Arthur Andersen (“FSA counts”), see id.
3
Judge Higginbotham was correct as to the 14 counts, but wrong as to
the remaining five. As the district court recognized, reversal of the
conspiracy conviction is required because the government charged Skilling
with multiple objects of the conspiracy—including securities fraud and
honest-services wire fraud—and successfully urged a general verdict form,
ensuring that it would be “impossible to know, in view of the general verdict
returned whether the jury imposed liability on a permissible or an
impermissible ground….” Exxon Shipping Co. v. Baker, 128 S. Ct. 2605,
2615 n.3 (2008); see Hedgpeth v. Pulido, 129 S. Ct. 530, 530 (2008) (a
“conviction based on a general verdict is subject to challenge if the jury was
instructed on alternative theories of guilt and may have relied on an invalid
one”). Given the record evidence, argument, and open-ended honest-
services jury instruction the government fought so hard to obtain, reasonable
jurors easily could have found Skilling guilty on the broad, legally wrong
honest-services wire fraud object without finding him guilty on the more
demanding securities-fraud object.
Reversal on the remaining counts is likewise required, for the same
reason: for every count, the jury was allowed and even encouraged to rely
on the legally incorrect honest-services fraud theory in deciding whether to
convict. On the 12 securities-fraud counts, the government obtained a
4
“Pinkerton” vicarious liability instruction, which allowed jurors to rely on
the conspiracy conviction to convict Skilling for any charged act of
securities fraud committed by any other co-conspirator, even if Skilling
himself did not commit the act. Given the government’s heavy reliance on
the acts of alleged co-conspirators, it is very possible the jurors did exactly
that. For every securities-fraud count, one or more of Skilling’s alleged co-
conspirators testified that they themselves had committed the acts of
securities fraud at issue (and in many cases formally pled guilty to them),
while Skilling himself often had little involvement in the statement (or
underlying conduct affecting the statement), and had substantial defenses to
direct liability for the charge. Accordingly, it is likely—if not virtually
certain—that the jurors relied heavily on the Pinkerton vicarious liability
instruction in convicting Skilling for the admitted acts of securities fraud by
others. In U.S. v. Howard, 517 F.3d 731 (5th Cir. 2008), this Court reversed
a conviction tainted by a Pinkerton instruction in a parallel Enron
prosecution involving one part of the same alleged overarching conspiracy.
The same result as in Howard must obtain here.
Count 51—the insider-trading count—also must fall with the
conspiracy count. The government explicitly urged the jury to convict
Skilling for insider trading on the theory that he sold Enron shares when he
5
became aware that his alleged conspiracy to commit fraud was about to be
exposed. Because the jury could have found that the conspiracy was one to
commit honest-services fraud, then the supposed inside information on
which Skilling traded—the “conspiracy”—was legally nonexistent. The
insider-trading conviction is thus tainted and cannot stand.
The five FSA counts, finally, are also rendered infirm by the
erroneous honest-services theory. For each of these counts, the government
alleged that management representation letters sent by Enron to Arthur
Andersen falsely stated that there was “no material fraud” at Enron. The
government also challenged other statements in the letters as false, but
Skilling had substantial defenses to these statements, including scienter and
reliance, and the government spent only minutes on these charges in the
course of the five-month trial. See Skilling Br. at 56-57; Skilling Reply at
45-46. The jurors easily could have credited Skilling’s defenses, while still
convicting him on the legally impermissible ground that the “no material
fraud” statement was false in light of the honest-services fraud conspiracy.
In short, having elected to press the honest-services fraud theory
throughout trial and to fight vigorously for an instruction permitting jurors to
rely on it, the government cannot now exclude the possibility that the jurors
applied the erroneous honest-services fraud theory to convict Skilling for
6
conspiring to commit an act of “fraud” that does not legally exist, and then
applied that finding to convict Skilling on every other count. After all, the
whole point of the honest-services fraud theory was to secure a path to
conviction less demanding than full-blown securities fraud.
And make no mistake about it: the government did not have a clear-
cut case of securities fraud against Skilling.3 Far from it. The government’s
lead prosecutors conceded before and after trial that the case against Skilling
was plagued by “fundamental weaknesses,” Skilling “took steps seemingly
inconsistent with alleged criminal intent,” there were “no smoking gun
documents,” government witnesses had been “subjected to vicious
impeachment,” and, given the scores of lawyers and accountants who
reviewed and approved the disputed conduct, there were “serious advice of
counsel issues.” Skilling Br. at 19-20. Skilling also presented compelling
evidence that each of the disputed transactions and alleged misstatements
was fully disclosed and known to the public; that Enron’s accounting, even
if aggressive, was correct; and that the alleged misstatements made were
true, or at worst immaterial. See Skilling Br. at 24-55; Skilling Reply at 2-
3
A thorough recitation of the evidentiary failures and weaknesses in the
government’s securities-fraud case is set forth in Skilling’s appellate briefs.
E.g., Skilling Br. at 24-55; Skilling Reply at 2-13. The Court, in this
procedural setting—where error has now been established—does not review
the trial record in the light most favorable to the government. Infra at 11.
7
13. These facts were established not only by defense witnesses, but also by
admission after admission from the government’s own witnesses on every
key point in the case, see id., and even by the prosecutors themselves, who
admitted, for example, that they had less than compelling evidence that
Skilling’s statements materially misled investors, because stock analysts had
not been misled by Enron’s filings, see Skilling Br. at 100-01 n.34.
The honest-services theory gave the government—and the jury—a
path to avoid the vulnerabilities of the government’s securities-fraud case. It
permitted the jury to convict Skilling, in the government’s words, for not
doing his job “appropriately,” for taking “reckless risks,” and for creating an
objectionable “culture” at Enron—one that tolerated “conflicts of interest,”
encouraged “aggressive accounting,” and promoted “taking on increased
risk” to hit short-term earnings targets at the expense of long-term business
fundamentals. R:37066, 22848, 36467, 29822-23, 36446, 36455-56.
Although such acts would not necessarily constitute securities fraud,
Skilling’s jurors were urged to treat them as criminal, on the theory that they
violated fiduciary duties Skilling owed to his employer. That theory of the
“honest services” crime, the Supreme Court has now held, does not exist.
The government cannot now seriously deny the possibility that the
jurors applied the law just as the government urged them to apply it. In the
8
prior appeal, the government’s position was, in essence, that any honest-
services error was harmless because, absent the error, there was sufficient
evidence for a reasonable jury to find that Skilling committed actual
securities fraud and the other crimes charged. But it has long been settled
that the government cannot establish harmlessness merely by showing that
there was sufficient evidence to convict before a jury unexposed to the
erroneous legal theory. See Kotteakos v. U.S., 328 U.S. 750, 767 (1946)
(rejecting argument that error is harmless “if the evidence offered
specifically and properly to convict [the] defendant would be sufficient to
sustain his conviction” absent the error). Rather than marshalling sufficient
evidence on its valid theory of prosecution, the government’s burden now is
to exclude the possibility that a reasonable jury could have relied on the
invalid theory for any count of conviction. The harmless-error question,
thus, “is not whether, in a trial that occurred without the error, a guilty
verdict would surely have been rendered, but whether the guilty verdict
actually rendered in this trial was surely unattributable to the error.”
Sullivan v. Louisiana, 508 U.S. 275, 279 (1993). Because it is impossible to
know whether the jury convicted Skilling on any of the 19 counts without
relying on the honest-services theory, all 19 counts must be reversed, and
9
Skilling must be retried before a jury that is not permitted to rest any count
of conviction on a legally invalid fraud theory.
STATEMENT
Skilling was convicted on May 25, 2006, on 19 counts: one count of
conspiracy to commit securities or wire fraud (18 U.S.C. § 371); 12 counts
of securities fraud (15 U.S.C. §§78j, 78ff); five counts of false statements to
auditors (15 U.S.C. §§78m, 78ff); and one count of insider trading (15
U.S.C. §§78j, 78ff). The jury acquitted Skilling on nine counts of insider
trading. Skilling was sentenced to 292 months and ordered to pay some $40
million in restitution. R:41917-24. Skilling has been incarcerated since
December 2006—first in FCI Waseca, and now in FCI Englewood.
On January 6, 2009, this Court affirmed Skilling’s convictions but
vacated the sentence, holding that the district court erred in applying a
“financial institutions” enhancement. Skilling, 554 F.3d at 595. The Court
remanded the case for resentencing, but before further proceedings were
held, the Supreme Court on October 13, 2009, granted certiorari to review
two questions presented by Skilling in a challenge to his convictions.
On June 24, 2010, the Supreme Court issued its decision. By a 6-3
vote, the Court rejected Skilling’s challenge to the impartiality of the jury.
See Slip Op. at 34. The Court unanimously agreed with Skilling, however,
10
that the exceedingly broad theory of honest-services fraud asserted by the
government at trial could not legally be applied to Skilling. See id. at 50.
The Court remanded the case for this Court to determine whether the
government can establish that the error in submitting its honest-services
theory to the jury was harmless beyond a reasonable doubt. See id. at 50-51.
FACTUAL BACKGROUND
The factual background of the case is set forth in Skilling’s prior
briefing. Specific facts relevant to the harmless-error question are detailed
as appropriate in the Argument section below. To be clear, however:
because this is not a sufficiency-of-the-evidence challenge, the Court does
not review the trial evidence in the light most favorable to the verdict. “In
harmless error review, unlike sufficiency of the evidence review, the
prevailing party is not entitled to have disputed factual issues resolved in his
favor because the jury’s verdict may have resulted from a misapprehension
of law rather than from factual determinations in favor of the prevailing
party.” Kennedy v. So. Cal. Edison Co., 268 F.3d 763, 770 (9th Cir. 2001).4
4
Accord U.S. v. Hands, 184 F.3d 1322, 1330 n.23 (11th Cir. 1999)
(“Harmless error review, unlike a determination of the sufficiency of the
evidence, does not require us to view witnesses’ credibility in the light most
favorable to the government.”); Al Qaadir v. Gallegos, 1995 WL 330628, at
*3 n.5 (9th Cir. June 2, 1995) (“It is impossible to determine whether an
error was harmless beyond a reasonable doubt by construing evidence in the
light most favorable to the prosecution.”).
11
ARGUMENT
Submitting a legally erroneous theory of liability to a jury is a
constitutional error requiring reversal unless the government can prove that
the error is harmless beyond a reasonable doubt. The government cannot
make that showing here on any of the 19 counts of conviction.
I. THE HONEST-SERVICES FRAUD ERROR REQUIRES

REVERSAL OF SKILLING’S CONSPIRACY CONVICTION
Skilling’s indictment for conspiracy alleged three possible objects:
honest-services wire fraud, money-or-property wire fraud, and securities
fraud. R:152-59. Skilling requested a special verdict form requiring the jury
to identify the object that was the basis for any conviction, but the
government objected and the district court declined to give one. R:35899,
36020-21. The government thus expressly invited the error it must now
overcome: because of the general verdict on conspiracy, “it is impossible to
know … whether the jury imposed liability on a permissible or an
impermissible ground,” Exxon Shipping, 128 S. Ct. at 2615 n.3, and under
Yates, 354 U.S. at 312, reversal is required “where it is unclear whether the
convictions rested on legally valid or invalid bases,” Howard, 517 F.3d at
736; see Zant v. Stephens, 462 U.S. 862, 881 (1983) (reversal required where
“uncertain as to the actual ground on which the jury’s decision rested”).
12
A. The Conspiracy Conviction Can Stand Only If The

Government Can Prove That Its Honest-Services Fraud
Theory Was Identical To Its Securities-Fraud Theory
This Court has long held that a Yates-type error can be proved
harmless beyond a reasonable doubt, if—as relevant here—the government
can prove that the invalid theory it employed at trial was factually identical
to a legally valid theory on which the jury could have relied. See, e.g., U.S.
v. Holley, 23 F.3d 902 (5th Cir. 1994); U.S. v. Saks, 964 F.2d 1514 (5th Cir.
1992). In Holley and Saks, for example, the defendants were convicted of
fraud pursuant to instructions that permitted jurors to find them guilty of
either honest-services fraud or substantive bank or money fraud. But the
Supreme Court decided in McNally v. U.S., 483 U.S. 350 (1987), that to
prove mail or wire fraud, the government had to show that the defendant had
stolen (or conspired to steal) money or tangible property. Depriving a
victim of one’s “honest services” was not enough, and therefore the jury
instructions in Saks and Holley were invalid.
After a careful examination of the trial record in both cases, this Court
held the errors to be harmless, however, because the only honest-services
fraud asserted in either case was a scheme to steal money from the banks at
issue. See Holley, 23 F.3d at 910; Saks, 964 F.2d at 1521-22. In other
words, the government was able to meet its heavy burden of proving
13
harmless error because there was a perfect overlap between its honest-
services and money/property theories of the case. See Saks, 954 F.2d at
1521 (“the ‘bottom line’ of the scheme or artifice had the inevitable result of
effecting monetary or property losses”); Holley, 23 F.3d at 910 (“This
scheme [to obtain fraudulent bank loans] had the inevitable, inescapable,
and unavoidable result of exposing Peoples [Bank] to at least a risk of
loss.”) (emphasis added).
In the situation reflected in these cases, the error in submitting an
invalid theory to the jury is harmless because the jury that convicted on that
theory also necessarily convicted on the valid theory, eliminating all
uncertainty as to the ground for conviction. See U.S. Br. at 92. But of
course that harmlessness principle does not apply, by its own terms, where
the record and instructions permit the jury to choose between a valid trial
theory and a factually different legally invalid theory, because in that
circumstance it is necessarily “impossible to tell which ground the jury
selected.” U.S. v. Edwards, 303 F.3d 606, 641 (5th Cir. 2002); see U.S. v.
Smithers, 27 F.3d 142, 146 (5th Cir. 1994) (rejecting government argument
that “jury could not have found the defendant guilty without making the
proper factual finding” because “we cannot tell from the jury’s answers [to
verdict form] how it evaluated the evidence”).
14
The Court applied a corollary of this rule to reverse the convictions in
Howard—another Enron-related case tainted by an invalid “honest services”
conspiracy charge. In Howard, the CFO of Enron’s Broadband division was
charged with conspiracy to commit money-and-property wire fraud and/or
honest-services wire fraud, and with falsifying Enron’s “books and records.”
517 F.3d at 732-33. The government asserted that Howard’s work on the
disputed “Braveheart” transaction—also at issue in Skilling’s case—allowed
Enron falsely to report earnings. It contended that by working on this
fraudulent transaction Howard deprived Enron of his honest services. See
id. When this Court rejected the government’s expansive reading of honest-
services liability in yet another Enron case involving the “Nigerian Barges”
transaction also at issue in Skilling’s—U.S. v. Brown, 459 F.3d 509 (5th Cir.
2006)—the government conceded that Howard’s conspiracy conviction, like
Brown’s, had to be reversed, because the conspiracy count the government
pursued (in all three cases) included both legally valid and legally invalid
objects, and the jury had returned (in all three cases) a general verdict on that
count. See Howard, 517 F.3d at 735.
The government disputed, however, whether Howard’s substantive
“books and records” fraud conviction had to be reversed. As in Skilling’s
case, even though Howard’s books-and-records conviction was tied directly
15
to the tainted conspiracy conviction by a Pinkerton instruction, the
government argued the jury surely found that Howard himself—and not one
of his conspirators—was responsible for falsifying Enron’s books. See id.
This Court squarely rejected that kind of speculative approach to
determining the basis for the jury’s verdict. “The jury may have found
Howard guilty under Count 5 for his own acts or acts caused or directed by
him,” the Court acknowledged, but it also “may have concluded that
although Howard was not guilty of personally making or causing to be made
the false entries charged in Count 5, he was culpable because the false
entries were made by a coconspirator in furtherance of the conspiracy
charged in Count 1.” Id. at 736 (emphasis added). A “careful review of the
record” established that there was sufficient evidence that a reasonable jury
could have relied on the invalid honest-services conspiracy. Id. at 736-37
(“a reasonable jury could have found that [other alleged co-conspirators]
were responsible for making the false entries”). Because it was “impossible
to determine whether the jury convicted Howard on Count 5 based on his
guilt on the conspiracy count plus acts by [his alleged co-conspirators],” the
Court was required to reverse Howard’s conviction. Id. at 737.
As these cases establish, the government cannot prove a Yates-type
error harmless merely by speculating about what jurors might have found
16
based on a hotly contested record. As noted above, supra at 2, 4, 9, 13-16, it
has long been settled that the Government must do more than prove that a
reasonable jury could have found the defendant guilty beyond a reasonable
doubt on the legally invalid theory. The Government instead must exclude
the possibility that the jurors relied on the invalid theory, either by showing
that there was insufficient evidence for reasonable jurors to have relied upon
it, or by showing that there was actually only one theory asserted, such that
the jurors necessarily relied on the valid theory in returning a conviction.
See id.; infra at 38, 41-42, 56-57. When the legally invalid theory is distinct
and factually supportable on its own terms, then it is impossible to know on
which theory the jury relied, and the convictions must be reversed. See id.
B. The Government Cannot Establish That Its Honest-Services

Fraud Theory Was Identical To Securities Fraud
The government cannot fairly deny that it asserted a theory of honest-
services fraud against Skilling at trial that was factually distinct from
securities fraud.5 In fact, on direct appeal before this Court, the government
5
The government all but formally abandoned the money-or-property wire
fraud theory, conceding in closing that this was “not a case about greed.”
R:37065. The government and its witnesses also admitted Skilling never
stole any money from Enron; just the opposite, when it was good for the
company, he gave back to it money to which he had contractually been
entitled. See R:21622-27, 21685, 21690, 21720-25, 21771 (Fastow admitted
he concealed his thefts from Skilling); R:15954, 18024-25, 22986, 24548-49
(government witnesses testified that Skilling “loved the company” and “was
17
did not even attempt to establish a complete identity between the honest-
services and securities-fraud theories. Rather, it argued only that the honest-
services fraud acts alleged were “primarily methods of committing securities
fraud.” U.S. Br. at 88 (emphasis added). As shown above, however, it is
not enough to show that the valid theory was the “primary” basis for liability
asserted. The government must show that the valid theory was the only
factually supportable basis on which the jury could have convicted. The
government cannot possibly carry that burden here.6
The government recently made the same argument unsuccessfully in
U.S. v. Black, No. 07-4080 (7th Cir. 2010)—a case that became a companion
to Skilling’s in the Supreme Court. In opposing Black’s application for bail
on remand, the government argued that the honest-services fraud theory in
very committed” and “dedicated” to it); R:28481-86 (Skilling declined $50

million in compensation in order to set an example for management).
6
At oral argument before this Court, the government changed its
description of its trial presentation from one in which it said it pursued
“primarily” a securities-fraud case, to the more aggressive claim that
“virtually every” aspect of its case was aimed at prosecuting “classic”
securities fraud. Indeed, the government argued “the jury must have found”
that securities fraud was the object of the conspiracy. Ex. E at 41:4-5 (oral
argument transcript). As Judge Prado rightly pointed, however—and as is
fatal to the government’s speculation about what the jury might or “must”
have decided—“It would have been helpful … to have the kind of special
charges breakdown, then we’d know for sure….” Id. at 41:7-9. But, of
course, Skilling’s requests for a special verdict form were refused, and
because it is impossible to know on which ground the jury relied, Skilling’s
convictions must be reversed. See Yates, 354 U.S. at 312.
18
Black’s case was “based on the same fraudulent conduct that supported the
[valid] money-fraud theory” and, thus, “the honest-service liability was
coextensive with the money-fraud liability.” Ex. B at 2-3. The government
cited page after page of the trial record where it referred to the two theories
in similar terms. See id. at 3-15. But as Black pointed out in reply, that was
not always the case, the jury instructions expressly treated the two theories
differently, and the record showed there was not complete factual identity
between the two theories of liability. See Ex. C at 3-7 (Black reply); Ex. A
at 6-11 (Black motion). The Seventh Circuit ordered Black released from
federal prison on bail pending further remand proceedings. See Ex. D.
The government’s “coextensive theories” argument is even more
starkly wrong here. Indeed, it is sheer nonsense to suggest that the extensive
trial record on honest-services fraud was limited to, and thus by definition
coextensive with, the record on securities fraud. As shown below,
prosecutors clearly and repeatedly invited the jury to convict on an honest-
services fraud theory precisely because it was distinct from—and easier to
prove than—securities fraud. Consequently, it is impossible to determine,
on any fair review of the record and given the verdict form the government
demanded, which object offense the jury selected. See U.S. v. Pettigrew, 77
F.3d 1500, 1511-12 (5th Cir. 1996) (“Because we are unable to determine on
19
review which object offense the jury selected, we reverse.”); infra at 38, 42,
56-57 (collecting cases).
1. To start, the jury instructions expressly advised the jury that the
government was asserting “two different” theories of fraud, and that jurors
were free to convict on either theory. R:36412-14. The instruction
emphasized that “[t]he Government does not have to prove both of these for
you to return a guilty verdict on Count 1,” and the prosecutors exploited this
repeatedly in closing, arguing there were two separate and distinct paths to
conviction of both defendants, or either defendant, on Count 1, see R:37065-
66, 37042, 37047, 37013-14.
The instructions also defined the securities fraud and honest-services
fraud very differently. The securities-fraud instruction included a lengthy
recitation of the various specific and demanding elements, elaborating each
separately. R:36416-23. The honest-services fraud instruction, by contrast,
broadly defined Skilling’s “honest services” duty as his “fiduciary duty to
Enron and its shareholders,” R:36424, and invited jurors to convict him for
breaching that duty if they found that he did not act as a “totally faithful
employee” and took actions “not in the best interests of Enron.” Id.
2. Consistent with this wide-ranging instruction, the government
repeatedly elicited testimony from witnesses that Skilling and his alleged
20
conspirators breached their “fiduciary responsibility,” R:21224-25, and their
duties of “loyalty,” “honesty,” and “honest services,” R:37013-14; R:15864-
67 (breached Enron Code of Ethics, which required “honesty, candor,
fairness”); R:22769-70 (expectation of “honesty and candor”); R:32262-64
(duty of “honesty, candor, fairness”); R:36568 (“duty” of “honest services”);
R:37043 (duty of “honest services”). Indeed, in successfully arguing for a
capacious honest-services instruction, the government equated honest-
services with a mere breach of any fiduciary duty—not the limited
securities-fraud theory it now posits: “[T]he government’s evidence shows
that defendants committed (or conspired to commit) honest-services fraud by
breaching their fiduciary duties to Enron and its shareholders.” R:41328.
3. In fact, nowhere in that submission on jury-instruction issues—nor
at any other point during trial—did the government contend that the honest-
services theory it fought so vigorously to present to the jury was actually just
redundant of its securities-fraud case. The government cannot credibly
contend now that it wasted the trial court’s time and resources wrestling over
legal theories and instructions that were unnecessary and meaningless. Nor
did the government (or district court) ever advise jurors that they should
only apply the broad honest-services instruction to conduct that already
qualified as securities fraud, or that the only fiduciary breaches the
21
government wanted to criminalize were those already criminalized as
securities fraud. To the contrary, as noted above, the jurors’ instructions
expressly advised them that the government was asserting “two different”
theories. R:36412-13. And the government wound up its rebuttal closing
argument—some of the last minutes of a five-month trial—by specifically
calling out the “honest services” theory and emphasizing to jurors that they
could rely on that theory alone to convict Skilling for conspiracy:
[M]ake no mistake, they got wealthy…. And in exchange for

that money, they owed their employees a duty, a duty of good
faith and honest services, a duty to be truthful, and a duty to do
their job, ladies and gentlemen, to do their job and to do it
appropriately. The indictment in this case -- please read the
instructions. Please look at the indictment. You do not have to
-- we do not have to prove every count in the conspiracy. We
just need to prove that there was an agreement to do something
illegal.
R:37065-66 (emphasis added). The “something illegal” the jury was invited
to find expressly included Skilling’s failure to provide his “honest services,”
or his mere alleged failure to do his job “appropriately”—an encapsulation
of the ill-defined overbroad honest-services theory the Supreme Court has
now denounced.
These arguments and the Count 1 jury instruction they specifically
invoke require the reversal of Count 1. Indeed, in ruling on Skilling’s bail
motion, and in finding that Count 1 conviction likely had to be reversed, the
22
district court—which sat through the trial, and heard the government’s
case—concluded that the jury instructions compelled this result:
[T]he court instructed the jury in this case that it could convict
Skilling of conspiracy by finding that he conspired, inter alia, to
deprive Enron of its intangible right to honest services…. [T]he
jury returned only a general verdict making it impossible to tell
on which of the various objects of the conspiracy the jury based
Skilling’s conviction.
R:41897. The government notably did not contest that judgment when
Skilling appealed the bail-pending-appeal issue. See supra at 3.
4. Finally, for every transaction and business decision challenged by
the government at trial as securities fraud, Skilling presented forceful
defenses, as illustrated by Skilling’s acquittal on nine insider-trading
counts—one-quarter of the government’s case against him. As to the
remaining transactions, Skilling was able to rebut the government’s
securities-fraud case at every turn—often from the mouths of the
government’s own witnesses—leaving no assurance whatsoever that the
jurors found Skilling guilty on the securities-fraud object of conspiracy. By
contrast, for each transaction, the government consistently articulated a fall-
back honest-services version of its case, which gave the jurors a basis for
finding Skilling separately liable on that legally invalid theory. On the
record here, unlike in cases like Saks and Holley, one cannot plausibly even
suggest—much less conclude beyond a reasonable doubt—that any juror
23
who convicted Skilling for conspiracy on an honest-services theory
“inevitabl[y], inescapabl[y], and unavoidabl[y]” also found him guilty
based on the securities-fraud object. Holley, 23 F.3d at 910.
a. EES. When the accounting resegmentation of a part of the EES
business unit was attacked as an effort to mislead investors, Skilling
established through each of the government witnesses, as well as his own,
that the accounting for this transaction was “rock solid” and complied with
the disclosure rules. Skilling Br. at 45-48; Skilling Reply at 2-4; R:19976-
78, 20277-79, 28996, 29009, 29323-29. And when the government asserted
that Enron had hidden losses in EES’ business, Skilling showed that these
losses had either not occurred, had not occurred in the way the government’s
witnesses described, or were only speculative losses that had to be reserved
against, and that proper reserves had been taken on all accounts. Skilling Br.
at 48-49 (collecting evidence); Skilling Reply at 4 (same). With the
securities-fraud version of its EES case directly challenged, the government
fell back on the argument that Enron’s actions—like the EES
resegmentation—lacked a “business purpose.” U.S. Br. at 15. While this
charge is not necessarily a species of securities fraud (given the disclosures
that were made and the accounting rules with which Enron complied), it is
an open-ended honest-services fraud theory, which rests on the premise that
24
Skilling and others failed to do their jobs appropriately. Thus, while the jury
could have rejected the securities-fraud version of these allegations the
government presented, it had a second, invalid basis on which to convict.
b. LJM. LJM was a private-investment fund created by Andrew
Fastow that engaged in off-balance sheet and other transactions with Enron.
LJM was a major focus of the government’s case at trial. In the securities-
fraud version of its LJM case, the government argued that Fastow entered
into secret, oral side-deals with Rick Causey, Skilling, or others on LJM-
Enron transactions that rendered the accounting and disclosure of those
transactions materially false. But the government also attacked the very
creation of LJM, claiming Skilling never should have approved its
formation. U.S. Br. at 39-42. Under this bad-business-judgment theory of
its case—the honest-services theory—the government contended that
Skilling acted recklessly in approving the structure for LJM, including
approving Fastow’s conflict of interest in running LJM—Fastow served as
general partner of LJM, worked as Enron’s CFO, and negotiated with Enron
on LJM’s behalf. Id. at 40-41.
The arrangement and Fastow’s conflict, however, were not
conceivably acts of securities fraud (and the government did not dispute
this), as both were fully vetted and approved by Enron’s Board on the advice
25
of outside legal and accounting advisors, GX995:61; GX996:50-51;
GX1023:14-15; GX1024:16; GX1025:35; GX1026:101; GX1027:13;
GX1029:14-15; GX1031:27; GX1032:76-77; GX1033:12-13; GX1034:13;
JKS-1, and Fastow’s conflicting role in LJM and Enron had been fully
disclosed in Enron’s SEC filings. For example, Enron’s 2000 10-K
disclosed that, “[i]n 2000 and 1999, Enron entered into transactions with
limited partnerships (the Related Party) whose general partner’s managing
member is a senior officer of Enron.” GX1032:76-77. Enron’s proxy
disclosed that Fastow was that senior officer, GX1025:34, and the
company’s annual report disclosed the magnitude of LJM’s transactions:
“In 2000, Enron entered into derivative transactions with the Entities with a
combined notional amount of approximately $2.1 billion to hedge certain
merchant investments and other assets.” GX1032:77.
Despite these disclosures, the government challenged LJM’s creation
and Fastow’s role in it as part of its honest-services version of its case. It
argued that Skilling’s approval of LJM was itself a crime, given the risks
inherent in the Fastow conflict. U.S. Br. at 40. And it had its witnesses
testify that they and other Enron executives believed that the LJM
transactions were misguided and harmed Enron because of Fastow’s
conflict—and that Skilling had been told of their views. R:17242-43,
26
29826-27. The government stressed that Skilling and the Enron Board had
been warned about the “Wall Street Journal risk” inherent in LJM—not a
risk that the conflict would violate securities laws, but that the disclosure of
this conflict—which all agreed occurred—would “look terrible” to Wall
Street and thereby reflect badly on Enron as a company. R:36529-30.
The government leaned heavily on this honest-services, breach-of-
fiduciary-duty theory in its closing argument:
Let’s just talk a little bit about LJM. You’ve heard a lot about it
in this trial. First and foremost, extremely, extremely unusual
to have a chief financial officer of a Fortunate 500 company
controlling a private fund that was doing deals with Enron.
Huge risks associated with it.
Biggest risk? “Wall Street Journal” risk. They talked about it.
They discussed it among the board, among Mr. Lay and
Mr. Skilling. Mr. Fastow told you that if the “Wall Street
Journal” picked it up it would look terrible for Enron….
Why would you do this? Why would a company do this? The reason
why they did it is exactly the reason that Mr. Fastow told you, to make
their numbers. So they had a tool, a device, a vehicle to make their
numbers look the way they wanted them to look.
People at the company raised concerns to Mr. Skilling about LJM.

You heard Mr. Rice. He called him up, and he said, “I don’t
understand why we’re doing this.” Mr. Rice told you that he had
talked to Mr. Baxter, another senior executive, who also raised
concern about LJM. Mr. Kaminski raised vigorous concerns about
the conflict of interest. You heard Mr. Skilling acknowledge in his
testimony that Mr. McMahon, the treasurer before Ben Glisan, also
raised concerns about LJM.
27
Mr. Skilling suggested it to you. So he’s getting all this

information. People are saying, “Why are we doing this? This
looks bad. This is weird. Why do we have our CFO
negotiating against Enron people? That seems crazy.”
R:21414-15 (emphasis added). And even on appeal before this Court—
when the government did not anticipate the Supreme Court’s invalidation of
its honest-services theory—the government cited as evidence of criminal
conduct the testimony of witnesses who claimed that the fully disclosed LJM
conflict reflected “excessive” and “reckless risks.” U.S. Br. at 41-42 (citing
R:22848); see also R:22843-44.
None of those concerns about “unusual” or “crazy” business decisions
and “reckless” but disclosed risks would necessarily establish that Skilling
conspired to commit securities fraud. But they all would suffice to establish
honest-services fraud under the government’s broad and erroneous theory
that not doing one’s job “appropriately” is a federal crime. R:37065-66.
Indeed, the government argued exactly this when opposing Skilling’s bail
motion before this Court in 2006. It contended that Skilling’s mere acts of
approving Fastow’s LJM conflict was a “straightforward example” of an act
of “fraud” coming to Skilling’s attention and of his wrongly countenancing
such acts. U.S. Resp. to Appellant’s Mot. for Bail Pending Appeal at 11 (5th
Cir. Nov. 27, 2006). Because Fastow’s conflict was disclosed to
shareholders, this could only be an honest-services theory of fraud. And
28
given the substantial flaws in its reliance on “secret side deals” to prove
securities fraud in connection with LJM, see Skilling Br. at 29-36; Skilling
Reply at 9-14, 74-78, the government cannot conceivably exclude the
possibility that the jury relied on the simpler, easier, and more direct honest-
services theory urged by the government to convict Skilling for conspiracy
to commit fraud in connection LJM.7
7
Two specific LJM transactions illustrate this basic point, but the
evidentiary gaps in the government’s securities-fraud-based LJM case were
legion:
• The government’s appeal brief explicitly highlighted LJM’s first
deal with Enron—the so-called “Rhythms” transaction—as an example
of Skilling’s criminal conduct in taking “excessive [and] reckless risks,”
R:22848, and “‘gambling in [a] casino that is insolvent’”—i.e., an
honest-services-based allegation. R:22843; see U.S. Br. at 41-42. Yet
there was no conceivable securities-fraud version of this alleged crime to
argue or pursue; the government never argued that there was a secret-side
deal underlying this transaction rendering its accounting false, and
everyone agreed that, though risky, the Rhythms hedged had worked.
See R:28621-22, 24550-51, 23019-21.
• Similarly, Fastow and Causey negotiated an LJM-Enron hedge for
the privately held Avici stock that Enron owned. R:21414-15. The
government complained it was “weird” and “crazy” for Fastow to be
negotiating with Enron on the deal—the honest-services attack on the
Avici transaction. R:36530. The separate securities-fraud attack ran into
a major problem. The government accused Fastow and Causey of
backdating the pricing terms on the hedge (rendering the accounting
false), R:858, but Kevin Hannon, a government witness, conceded the
hedge was not backdated, despite Fastow’s claim to the contrary.
Skilling Reply at 13-14.
In his appellate briefing, Skilling provided many other reasons why the
Government’s securities fraud case with respect to LJM was weak and
infirm, see, e.g., id. at 9-14, and every one of those infirmities cements why
29
c. Enron’s Wholesale Business. The government also asserted
distinct theories of fraud in connection with Enron’s extremely successful
Wholesale energy business. In the honest-services version, the government
contended that it was wrong for Enron to focus on short-term earnings
targets, and that this focus led the Wholesale business to take on far too
much trading risk by steadily increasing the company’s overall “Value at
Risk” (or “VaR”) exposure in its energy trading portfolios. R:19710-11,
19847, 22389, 36508-12. As the government argued in closing:
The wholesale business, as you heard, at this point in time had

been taking on increased risk. They were continuing to -- the
traders were continuing to make bigger and bigger bets to meet
their increased earnings targets.
R:36446.
The alternative, more demanding securities-fraud version of the
Wholesale trading allegations took a different tack and added several
difficult elements to the government’s proof. The government could not
argue that Enron hid its overall or shifting risk profile from the investing
public, because Enron disclosed its VaR numbers every quarter in SEC
filings. Skilling Br. at 43. So the government claimed instead that Skilling
mischaracterized Enron’s business model by calling it a “logistics” company
the government cannot meet its burden of proving harmless error as to the
separate honest-services theory it pursued.
30
or a market “intermedi[ary],” when he should have called it a “trading”
business, akin to a Wall Street firm like Goldman Sachs. R:869, 10753. But
of course Enron, unlike Goldman Sachs’ energy traders, owned one of the
largest pipeline and energy distribution systems in the world, and those
“logistics” and “intermediary” parts of Enron’s business not only made it far
more than a pure trading company, but allowed Enron to meet supply and
demand and cover trading positions and made it perhaps the most
knowledgeable player in the energy business in the world. R:28866-916.
It was thus not only possible, but indeed likely, that if the jury found
that Skilling conspired to commit any fraud in connection with the
Wholesale business, it was honest-services fraud for taking on too much risk
(an appealing jury theory, given that Enron eventually went bankrupt), not
securities fraud for mislabeling the Wholesale business (a largely theoretical,
semantic debate about which Skilling showed opinions could differ).
d. EBS. The government also attacked the EBS business unit,
arguing both that Skilling and others lied about the health of the business
R:36494-508, and that Enron had made significant business misjudgments in
betting on the emergence of the broadband and technology markets,
R:29034-35, 29178-81, 28207-08, 29239-40, 29414. But as Skilling has
shown, the government’s evidence that Skilling or others lied or misled
31
anyone about the health of the EBS business was based on selective editing
of the relevant statements at issue, which in full context were true and
clearly disclosed the market difficulties that the EBS business was facing—
as amply reflected in stock analysts’ valuations of the business. See Skilling
Br. at 50-55; Skilling Reply at 4-6. Skilling likewise showed that EBS’s
revenues were fully and accurately disclosed, so that investors knew exactly
how EBS was positioned, regardless of any cheerleading and puffery about
the business by Enron executives. The government’s failure of proof on its
EBS case is hardly surprising—it outright lost a separate trial focused
specifically on EBS. U.S. v. Hirko, No. 03-93 (S.D. Tex. 2005). But for
present purposes, the point is not that there was insufficient evidence on
which to find Skilling guilty of the securities-fraud object for EBS-related
actions—it is that reasonable jurors could just as well have rejected the
government’s EBS case, and found Skilling guilty of the honest-services
object for some other conduct, or even for EBS-related conduct on the
theory that Skilling made a bad business judgment investing so heavily in
the broadband business when the market was turning against it and the so-
called “tech-stock bubble” was bursting. R:14759-60, 36497-98.
e. Reserve Accounting. GAAP requires that each quarter companies
take reserves against certain contingent business risks. The government
32
asserted that Enron’s use of reserves was fraudulent in two different ways.
The securities-fraud version was that Enron over- or under-reserved in
certain accounts and in certain quarters to meet Wall Street earnings targets,
resulting in inaccurate earnings. U.S. Br. at 33-39. But with respect to
every one of these quarters, there was extensive—most-often
uncontradicted—evidence that the final reserve amounts were wholly
accurate, carefully reflected and predicted contingent litigation and market
risks, and that even if the reserves were marginally inaccurate, any deviation
was immaterial from an accounting perspective. Skilling Br. at 36-42;
Skilling Reply at 7-9. Again, the record establishing the sound business
reasons for the reserves, the accuracy of their amounts, the ways these
amounts had been tested at Enron and by Arthur Andersen, and the
immateriality of any deviations in the reserves came not only from Skilling
and an accounting expert, but from the government’s own witnesses.
R:33927-30, 23555-56, 23559-60, 33920-23, 34029-31, 19599-60.8
8
Indeed, in one quarter (Q2 2000) in which the government alleged that
Enron set a litigation reserve number too low in order to show an extra
“penny” of earnings to Wall Street, its own witness who adjusted the
litigation reserve (Wes Colwell) admitted that the new litigation reserve
number accurately predicted the settlement value of the underlying litigation
at issue, and that, if anything, Enron’s reserves for that quarter, understated
the company’s earnings because “credit reserves” were more substantially
over-reserved. See R:21742-45, 19594-98; see also R:23555-56, 23559-60,
33
Critically, however, the erroneous honest-services theory gave the
jurors an easy fall-back way to convict even if they found the final earnings
to be materially accurate. As the government and its witnesses argued, it
was simply inappropriate and “wrong” for a company to have earnings
expectations in mind when establishing reserve amounts, even if the final
reserve amounts were wholly accurate. E.g., R:36525 (“The earnings are
what the earnings are. It’s not supposed to be reverse engineered. It’s not
supposed to be backwards like that.”).
A dramatic example of this honest-services theory of reserves
“manipulation” concerned an alleged Fourth Quarter 1999 reserve
adjustment. Two investor-relations executives who had nothing to do with
setting reserves—Mark Koenig and Paul Rieker—testified for the
government that Enron’s final earnings for that quarter changed by a penny
the day before earnings numbers were released and the day after Wall
Street’s earnings forecast changed. Without any knowledge about where
this extra penny came from, R:16119-22, 16130, 16140-41, 19177-80, both
argued that the mere fact this change had been made was “wrong” and
implicated Skilling in criminal activity, R:16140 (“I think that’s wrong”);
18377 (“I felt it was wrong”). And, of course, while the undisputed
33920-23, 34029-31, 23577, 33923; SR3:4025; R:33923-24, 33926-27;

R:19607-09; DX8548.
34
evidence showed that a reserves adjustment had actually been made several
days earlier than Koenig and Rieker speculated and had been vetted by
Arthur Andersen, R:16123-24, 19179-80, 33919—thereby eviscerating any
securities-fraud version of the 4Q 1999 reserves adjustment—the
government nevertheless emphasized the issue in closing. R:36515-18.
Given the record showing accurate reserves, coupled with the
erroneous “fiduciary breach” honest-services theory the government
pursued, the jury easily could have determined that Enron’s earnings reports
were accurate, but agreed with the government’s alternative theory that
Skilling’s fiduciary duties of “honesty” and “candor” required him to avoid
the process Enron used to set reserves. R:29610, 37013-14.
f. Enron’s “Culture.” The government’s approach to reserves
reflected a more general theory of criminality advocated by the government.
Not willing to rely solely on its contentions that Skilling made affirmative,
material misrepresentations to shareholders about Enron’s finances,
constituting securities fraud, R:36492; U.S. Br. at 24-33, the government
also relied on the distinct proposition that Skilling inappropriately directed
Enron’s focus toward short-term earnings reports at the expense of the
company’s long-term business fundamentals, an argument for the invalid
35
legal theory of “honest services.” U.S. Br. at 79 (“Skilling completely
corrupted his position and subverted the entire corporate culture at Enron”).
In keeping with the theme, the government insisted in closing
argument there was “tremendous pressure at Enron to generate earnings and
hit earnings targets,” R:36466, and the “culture” at Enron was to “do
transactions that maximized financial reporting earnings as opposed to
maximizing the economic value of the transactions.” R:36467; see also
R:36512 (“We’ve been talking about this culture at Enron. The witnesses
told you about this culture at Enron, have to hit the number, have to hit the
number.”). “In 2000 and 2001,” the government asked jurors rhetorically,
“[W]hat was the most important thing? The actual operations of the
company? ‘No. Meeting the [Wall Street] consensus estimate.’” R:36513
(quoting Koenig). And as part of its attack on Enron’s “culture,” the
government argued that Enron employees “routinely engaged in aggressive
accounting to make the numbers look the way that they wanted them to
look.” R:36455-56; see also R:36456 (“You heard about a culture, ladies
and gentlemen, where somebody like Wanda Curry -- you remember her.
She was an earlier witness in the case. She worked at the company for 22
years. You heard about a culture where she was fired from her job because
she couldn’t make aggressive accounting decisions.”).
36
These remaining arguments by the government perfectly illustrate the
alternative, legally erroneous view of honest-services fraud that so
pervasively distorted this case: on its view, a corporate executive commits a
criminal act by fostering a culture where employees engage in “aggressive
accounting”—not inaccurate accounting—to meet short-term earnings
targets, rather than focusing on “company operations” and “maximizing”
“economic value.” These are arguments about sound management and how
to run a company. They are not arguments about the ultimate disclosures
Enron made to shareholders—which the government’s witnesses were
repeatedly forced to concede were accurate.
The Supreme Court has now made clear, however, that alleged “bad
business management” and risk taking that constitutes a breach of fiduciary
duties is not the crime of mail or wire fraud. But, in Skilling’s case, the
prosecutors expressly urged the jury to convict him on exactly that invalid
basis—and they did so because, from the outset, they knew their case was
plagued by “fundamental weaknesses” and their evidence of material
misstatements to investors was less impressive than hoped. Supra at 7-8.
* * *
As the foregoing discussion shows, for every transaction the
government attacked at trial, reasonable jurors easily could have rejected the
37
government’s factually and legally demanding theory that his conduct in
each instance satisfied all the elements of securities fraud, while finding
instead that Skilling committed honest-services fraud—as the crime was
erroneously defined for them—simply by breaching his fiduciary duties.
And because every transaction involved multiple alleged co-conspirators,
jurors needed only to find that Skilling conspired to commit honest-services
fraud as to any one transaction (e.g., approving the Fastow-LJM conflict) to
convict him for conspiracy to commit honest-services wire fraud. In other
words, to return a verdict of guilty on conspiracy, jurors never needed even
to consider whether Skilling himself conspired to commit any act of
securities fraud. For every transaction, there was substantial evidence that
he did not commit securities fraud, but what matters here is that because of
the distinct alternative honest-services fraud theory, the jury was never
required to find beyond a reasonable doubt that Skilling conspired to
commit securities fraud. Because jurors could have relied instead on the
legally erroneous alternative, his conspiracy conviction must be reversed.
See, e.g., U.S. v. Urcioli, 513 F.3d 290, 297 (1st Cir. 2007) (reversing
conviction where prosecutors urged honest-services conviction on legally
valid and invalid factual predicates—reversing conviction even though “an
38
argument could be made … the convictions would arguably have occurred
without” reliance on the invalid honest-services theory).9
II. THE ERRONEOUS HONEST-SERVICES THEORY

INFECTED EVERY OTHER COUNT OF CONVICTION
Judge Higginbotham correctly recognized that submission of a legally
erroneous honest-services theory to the jury casts substantial doubt on 14 of
the 19 counts of conviction—the 12 securities-fraud counts and the insider-
trading count, in addition to the conspiracy conviction. He incorrectly
9
In ruling on Skilling’s initial appeal, this Court notably observed that if
the government’s honest-services theory was erroneous, reversal of
Skilling’s Count 1 conspiracy conviction was required. See 554 F.3d at 543.
In concluding that the government’s honest-services theory was in error, and
remanding to this Court the question of what the impact that error had on
Skilling’s convictions was, the Supreme Court directed this Court to take a
“fresh look” at the harmless-error arguments. In the Court’s view, this Court
“appeared to prejudge” the harmless-error issue by applying a rule of
automatic reversal for this Yates error, rather than considering whether the
error may be harmless. Skilling, Slip Op. 50 n.47.
The Supreme Court may have misunderstood this Court’s opinion, as
well at its jurisprudence. As this Court’s opinions in cases like Saks, Holley,
and Howard show, this Court has always held that Yates errors are subject to
harmless-error review. See supra at 13-16. Indeed, in arguing the original
appeal, Skilling and the government vigorously disputed whether the
harmlessness standard was satisfied on the record of this case—and they
discussed cases like Saks and Holley at length. See, e.g., Skilling Reply at
29-46. This Court’s statement that reversal would be required if the honest-
services theory was erroneous likely reflected the (quite accurate) judgment
that such an error could not be proved harmless on the record of this case,
which Skilling and the government had so thoroughly dissected. See id.
Because of the Supreme Court’s remand order, that prior ruling is not
binding, but it remains instructive.
39
concluded that an honest-services error would not affect the five FSA
counts. In fact, the jury easily could have rested its convictions on those five
counts directly on the flawed honest-services fraud allegation: each FSA
alleged that Skilling was responsible for the statement that there was “no
material fraud” at Enron—a statement that is necessarily false if one accepts
the legally erroneous theory that Skilling was participating in a broad
conspiracy to commit honest-services fraud. See infra at 54-58.
As shown below, all of the convictions were directly affected by the
erroneous submission of the honest-services fraud theory to the jury.
A. Securities Fraud (Counts 2, 14, 16-20, 22-26)
The substantive securities-fraud counts were explicitly tied to the
conspiracy count by a “Pinkerton instruction”—again urged by the
government, over Skilling’s objection, R:25880-82—which permitted the
jurors to use the conspiracy conviction to hold Skilling vicariously liable for
any charged act of securities fraud so long as it was committed by a co-
conspirator, even if the jurors did not believe that he personally committed
the charged act of securities fraud:
A conspirator is responsible for offenses committed by

other conspirators if the conspirator was a member of that
conspiracy when the offense was committed and if the offense
was committed in furtherance of, or as a foreseeable
consequence of, the conspiracy.
40
Therefore, if you have first found Jeffrey K. Skilling …

guilty of the conspiracy charged in Count 1 and if you find
beyond a reasonable doubt that during the time [Skilling] was a
member of the conspiracy other conspirators committed the
offenses in Counts 2 and 14, 16 through 20, and 22 through 29
in furtherance of or as a foreseeable consequence of that
conspiracy, then you may find [Skilling] guilty of Counts 2 and
14, 16 through 20, and 22 through 29, even though [Skilling]
may not have participated in any of the acts which constitute
the offenses described in those counts of the indictment.
R:36409-10. The Pinkerton instruction creates the same problem for each
securities-fraud count that is inherent within the conspiracy count itself: for
each count of conviction, it is impossible to tell whether the jurors relied on
the legally invalid theory (conspiracy) to convict Skilling vicariously for the
acts of others, or on the legally permissible theory (securities fraud) to
convict Skilling for his own acts.
In Howard, 517 F.3d at 737-38, this Court held that the use of an
erroneous honest-services theory in a conspiracy charge required reversal
not only of the conspiracy conviction, but also of a separate books-and-
records count linked to the conspiracy charge by a Pinkerton instruction.
The record included evidence that Howard’s co-conspirators committed
books-and-records crimes themselves, and because the jury could have
convicted the defendant not for his own acts but for the acts of co-
conspirators, the error in the conspiracy charge was not harmless beyond a
reasonable doubt as to the collateral books-and-records charge. See id. at
41
738. Other courts have consistently reached the same conclusion under
similar circumstances, i.e., where a Pinkerton instruction ties a legally
erroneous conspiracy conviction to other substantive counts.10
The same result must obtain here. The government cannot come close
to showing beyond a reasonable doubt that the jurors did not rely on the
legally invalid conspiracy conviction to find Skilling vicariously liable for
each count of securities fraud. In closing, the government quoted the
Pinkerton instruction as providing a sufficient basis for convicting Skilling
for each count of securities fraud based on the acts of his alleged
conspirators. See R:37018 (“[Y]ou may find the Defendant guilty even
though he may not have participated in any of the acts which constitute the
offenses described. If it was reasonably foreseeable to him that this was
going to happen, ladies and gentlemen, he’s responsible.”). Lest there be

10
See U.S. v. Washington, 106 F.3d 983, 1014 (D.C. Cir. 1997) (for
firearms charge, jury could have returned guilty verdict predicated on
impermissible conspiracy, requiring reversal of the firearms conviction);
U.S. v. Kaiser, 660 F.2d 724, 732 (9th Cir. 1981) (reversal of conspiracy
conviction precludes vicarious liability for acts of co-conspirators; reversal
of other counts required when impossible to tell whether jury relied on
vicarious liability theory); U.S. v. Johnson, 44 F. App’x 752, 755 (9th Cir.
2002) (reversing charges linked to flawed conspiracy conviction with a
Pinkerton instruction where it was not clear, “beyond a reasonable doubt,
that the jury would have found Defendants guilty without the Pinkerton
instruction”); U.S. v. Sardesai, 125 F.3d 850 (tbl.) (4th Cir. 1997) (reversal
of collateral charges required where a “Pinkerton charge spread[] the taint
from the … error in the false statement charges to the other substantive
charges of the indictment”).
42
any doubt who those alleged co-conspirators were, the government
emphasized their names, testimony, and confessions to fraud:
Witness after witness after witness came into this courtroom,

ladies and gentlemen, and they said, “I lied. We lied. I stole.
We stole. I committed fraud. We committed fraud.” These
people, Ben Glisan, Dave Delainey, Wes Colwell, Ken Rice,
Kevin Hannon, Mark Koenig, Paula Rieker, some of the most
senior executives at Enron, came in and told you that. “I lied.
We lied. I stole. We stole.”
R:36452; see R:36993-94 (“Investor relations, finance, wholesale, EBS, and
EES, the upper echelon, ladies and gentlemen. They’ve all admitted lying to
investors…. They got up and said ‘I committed crimes. We committed
crimes. We lied.’”); U.S. Br. at 98 (“other conspirators made false
statements during some of the calls and at the conference”). The
government even displayed for the jury demonstrative exhibits during
closing argument that tied each and every securities fraud count directly to
the conspiracy count. JKS-7:12-13, 15, 21; JKS-4:6, 24, 25.
The government’s heavy reliance on the so-called “Global Galactic”
document exemplified this approach. In closing argument, the government
called the document “three pages of lies” and said it makes LJM and its
transactions with Enron a complete “sham.” R:35637, 36541. Every Enron
financial statement from late 1999 through 2001—the bases for the
securities fraud counts against Skilling—was false, the government told the
43
jury, because the supposed “secret side deals” listed on the Global Galactic
document negated proper accounting treatment. But, as the government
conceded, “[t]he document is signed … at the bottom by Mr. Causey and
Mr. Fastow”—not by Skilling. R:35637. Thus, the jury could have
convicted Skilling of all the securities fraud counts based on his participation
in an “honest-services conspiracy” combined with the acts of alleged co-
conspirators Fastow and Causey for their alleged role in Global Galactic.
The problem extends beyond Global Galactic. As shown in the
individual-count analysis that follows, for every charged act of securities
fraud, the government always presented another Enron employee (and
sometimes many Enron employees) who admitted to the acts of securities
fraud in question. Accordingly, for every specific securities-fraud count, the
jurors easily could have accepted the government’s invitation to convict
Skilling vicariously for others’ acts, while rejecting the government’s
alternative theory that Skilling’s own conduct satisfied all the elements of
securities fraud. Indeed, it is not only possible, but likely, that the jurors
relied on the invalid conspiracy charge to convict Skilling for the securities
fraud to which others openly admitted. As shown below, Skilling was never
accused of acting alone, and most often he was far less involved than other
Enron executives in the charged acts and statements. Moreover, unlike
44
many of his accused co-conspirators, he did not concede guilt. He pressed
substantial defenses—including especially scienter and truth—to each and
every charge that he personally committed securities fraud.
1. Count 2 (Raptors)
The Raptors transactions challenged in Count 2 were designed,
implemented, and discussed by alleged co-conspirators Causey, Fastow, and
Glisan—among many others. At trial, the government emphasized that
Glisan, Fastow, and Causey in particular were responsible for Raptors, and
the jury heard Fastow and Glisan each testify that they had pleaded guilty to
securities fraud committed in connection with Raptors. See GX3216;
R:21327-28, 21653-57; GX10000; R:24294-96, 24495-504.
Skilling was indisputably much less involved, and in fact denied any
knowledge at all of any Raptors side-deals or of any improprieties with the
structures. R:28826, 28833-36. Glisan, who was the architect of Raptors,
provided extensive testimony that he knew of no “side deals” and that LJM
was truly at risk in the deal. See R:24591-95, 24660-61, 25008-09. Glisan
said he met twice with Skilling and conceded he never told Skilling there
was anything fraudulent or improper with the Raptors. R:24571-72, 24579.
Based on Glisan’s testimony—and there was much more supporting
Skilling’s defenses on the Raptors, Skilling Br. at 29-32; Skilling Reply at 9-
45
14—the jury easily could have credited Skilling’s position that he himself
had engaged in no wrongdoing with respect to the Raptors, but still
convicted him vicariously for the alleged criminal acts of Fastow, Causey,
Glisan, or others. R:24248, 36532. Indeed, the government in closing urged
the jury to rely on the conspiracy charge, the vicarious liability instruction,
and the acts of others to convict on Count 2. See JKS-7:25; R:37018.
2. Counts 14, 16-20 (Forms 10-Q and 10-K)
Skilling’s alleged co-conspirators prepared and made the SEC filings
at issue in these counts. R:21822-23, 36537; GX1026-29, 1032-34. And the
alleged fraud in each of them involved negotiations between Fastow and
Causey in which Skilling was not directly involved (Raptors, Cuiaba, and
Nigerian Barges), or conduct by others (Colwell’s alleged “reserve
manipulation”) in which Skilling was concededly not directly involved:
Count 14: Causey, Lay, Fastow, and others signed the 1999 10-K,
which was allegedly rendered false by a purported promise made by
Fastow to Merrill Lynch regarding the Nigerian Barges deal.
GX1026; U.S. Br. at 57-58, 46-47; JKS-7:13, 15; JKS-4:6.
Count 16: Causey signed the Q2 2000 10-Q, which was allegedly
rendered false by reserve adjustments made by Wes Colwell—a
reserve adjustment he conceded he made on his own and never
discussed with Skilling. GX1028; Skilling Br. at 38-40; JKS-7:13,
15; JKS-4:6.
rendered false by Causey and Fastow’s agreement concerning the
46
Avici-Raptors hedge. GX1029; U.S. Br. at 58-59, 55-56; Skilling

Reply 13-14; see also R:36496-97.
Count 18: Causey, Lay, Fastow, and others signed the 2000 10-K,
which was allegedly rendered false by Colwell’s later reserve
manipulation to decrease stated earnings and the Raptors structure
created by Fastow, Glisan, and Causey. GX1032; U.S. Br. at 59, 35-
39; Skilling Br. at 38-42; JKS-7:13, 15; JKS-4:6.
rendered false by the EES resegmentation conceived of and approved
by Causey and Colwell. GX1033; U.S. Br. at 59-60; Skilling Br. at
45-49; JKS-7:21.
Count 20. Causey signed the Q2 2001 10-Q, which was allegedly
rendered false by the Cuiaba side-deal purportedly brokered by
Causey and Fastow. GX1034; U.S. Br. at 60, 48-49; JKS-7:21.
Even though other co-conspirators signed the filings and were the
primary actors for the conduct involved in each of these counts, the
government has argued that the jury could have found that when Enron
submitted the filing charged in each count, Skilling “knew that Enron had
fraudulently manipulated earnings or engaged in other behavior that
rendered the forms false.” U.S. Br. at 97. But as discussed above, the
government’s burden is not merely to show there was sufficient evidence on
which the jury could have convicted Skilling directly on each count. See
Kotteakos, 328 U.S. at 767; Sullivan, 508 U.S. at 279; Howard, 517 F.3d at
737-38; supra at 9, 16. The government instead must show beyond a
reasonable doubt that the jurors did not rely on the flawed conspiracy count
47
to convict Skilling vicariously. See id. The government cannot possibly
make that showing. If anything, given the paucity of evidence connecting
Skilling directly to the 10-Qs and 10-Ks and most of the conduct underlying
their statements, it is highly probable that the jurors bypassed or rejected the
government’s theory of direct liability, and instead used the conspiracy
count to convict Skilling vicariously for the admitted acts of fraud
committed by others.
3. Counts 22-26 (Analyst Calls/Conference)
Skilling’s alleged co-conspirators (Koenig, Rieker, Rice, Hannon,
and/or Kean) prepared the scripts for and participated in the analyst calls and
conference charged in these counts. Indeed, Rieker admitted she described
herself in a review as the “key architect” of Enron’s message during this
time period. R:19063-67. The government conceded on appeal that these
“other conspirators” made statements about earnings and performance
during the calls and at the conference—and even pled guilty for doing so.
U.S. Br. at 26, 30-32. Those co-conspirators admitted on the record that
they made material, significant misrepresentations amounting to securities
fraud, and at least one (Koenig) repeatedly conceded that while he disagreed
with the veracity of certain of Skilling’s statements, he had no basis to
believe that Skilling knew he was speaking falsely. R:15599-900, 16217,
48
16741-42. Rieker also admitted she never had an agreement with Skilling to
lie or conspire or present Enron in a false way. R:19086-93, 19151-52.
Looking at each of these counts, the jury easily could have relied on
the infirm conspiracy theory and the Pinkerton instruction to convict
Skilling:
Count 22 (Jan. 22, 2001 conference call): Koenig testified and

pleaded guilty to lying on this call. The government stressed
Koenig’s admission in closing and showed the jury a slide referring to
the “MEK [Koenig] Lie” made on the call, as well as the
“Rieker/Koenig Email about Dark Fiber Lie.” Koenig testified that
his investor relations department prepared the script for the call. Cf.
Hollin v. Scholastic Corp., 252 F.3d 63, 75-76 (2d Cir. 2001)
(investor relations executive could be directly liable for statements
released by company when he was “involved in the drafting,
producing, reviewing, and/or disseminating of the false and
misleading statements”). Koenig admitted that he did not know if
Skilling knew if Koenig’s statements were false. Koenig also testified
that “no one told [him] to give a false answer” and that he did not
“blam[e]” Skilling for giving his false answer. U.S. Br. at 25-26, 98;
R:36507, 36997, 15201-02, 16288-89, 16290-91; JKS-7:12, 14.
Count 23 (Jan. 25, 2001 analyst conference): Rice and Hannon

pleaded guilty to and testified to portraying EBS falsely at this
conference. Koenig testified that Ken Lay made false statements at
the conference, but he could not identify any made by Skilling. U.S.
Br. at 26; R:17289-90, 17288-89, 18042, 17559-60, 20706, 20868,
21217-18, 16316-27, 37038; GX3213; JKS-7:14.
Count 24 (Mar. 23, 2001 analyst call): Koenig and/or Rice prepared
the script for this call. Koenig admitted not correcting what he knew
to be misstatements made on the call. On the call, Koenig discussed
the EBS business and Steve Kean discussed the EES business—both
of which the government said Enron falsely touted. Koenig
testified—and his plea agreement (which the jury saw) stated—that he
lied on various calls. Koenig admitted, however, that Skilling was
49
“not trying to fool the analysts about the state of the [EBS] business.”
And while Skilling defended all of his own statements about EBS and
EES, in closing, the government argued that Kean, his alleged co-
conspirator, knew that EES was being “overhyp[ed].” R:15583,
16498-99, 16519-21, 36555; GX4437, GX3210; JKS-7:12, 14, 16.
Count 25 (Apr. 17, 2001 analyst call): Koenig testified and pleaded
guilty to lying on this call. In closing, the government pointed to
Koenig’s plea and argued that Rice and Koenig lied on the call. The
government emphasized the same evidence in its appellate brief to this
Court. The government showed the jury a closing argument slide
referring to the “MEK Lie” made on the call. Koenig’s department
prepared the script for the call. Koenig admitted that he did not know
if Skilling knew Koenig’s statements were false. U.S. Br. at 32 & n.4;
R:15592-96, 16290-302, 16734-45, 15534-36, 17364-68, 36508,
15201-02, 16311-12; JKS-7:12, 14, 16, 21; JKS-4:24.
Count 26 (July 12, 2001 analyst call): Koenig answered questions on

the call related to the resegmentation of EES and Enron’s use of
monetizations. Kean spoke on the call regarding the California
energy crisis and its impact on Enron’s wholesale business. Koenig’s
group prepared the script for the call. Koenig admitted that the
resegmentation of EES may have resulted in “efficiencies,” refuting
the government’s claim that Skilling lied when he said the
resegmentation was done to “achieve efficiencies.” R:16745, 15583,
15576-79, 15905-08, 16744-58; DX20605; JKS-7:21; JKS-4:25.
Although the record was undisputed that other conspirators admitted
to frauds sufficient to convict on each of Counts 22-26, the government has
contended that the evidence was also sufficient for the jury to find that
Skilling himself knowingly “made false and misleading statements to the
investing public about Enron’s financial condition.” U.S. Br. at 98. Not
only is this contention wrong as a matter of fact, it is legally irrelevant.
50
Sufficiency of the evidence is not the harmlessness standard. The
question is whether the government can exclude the possibility that the
jurors followed their Pinkerton instruction and convicted Skilling
vicariously for the admitted securities fraud committed by Koenig and
others. See Howard, 517 F.3d at 734. The government cannot conceivably
make that showing on this trial record, and, as in Howard, and the many
cases like it involving Pinkerton instructions that spread the taint of error,
see supra at 41-42, these 12 counts of conviction must be reversed.
B. Insider Trading (Count 51)
The government asserted 10 counts of insider trading against Skilling.
The jury rejected all but one of them.
That one count on which it convicted—Count 51—addressed sales of
shares Skilling made in mid-September 2001, well after he resigned from
Enron. The government argued at trial that Skilling sold the shares after Lay
advised him in a September 6, 2001, meeting that, among other things, the
alleged conspiracy was about to be exposed. R:36446 (“In the three weeks
after Mr. Skilling’s abrupt resignation, Mr. Lay is repeatedly informed about
more and more bad news. Sherron Watkins warns the company could
implode in a wave of accounting scandals.”). The jury was urged to find, in
other words, that knowledge of the conspiracy was the inside information on
51
which Skilling allegedly traded. As it argued in closing: “[Y]ou can
conclude, based on the evidence of the conspiracy that’s been presented to
you … whether Mr. Skilling had information that he used to sell his stock.”
R:37010; see R:844, 899-900, 7692-93, 11908. For this reason, as Judge
Higginbotham rightly recognized, the jury readily could have relied on the
erroneous honest-services instruction to find that Skilling participated in a
conspiracy to commit fraud, and then found that he sold his shares knowing
the conspiracy was about to be disclosed.
The government has argued that the record includes other inside
information known to Skilling on September 2001, on which the jury could
have convicted on Count 51. U.S. Br. at 62-65. But as already explained, it
is irrelevant whether the evidence would have been sufficient (or even
convincing, and it was not) to support a conviction before a jury unexposed
to the error. Again, the question is whether the government can prove
beyond a reasonable doubt that the error did not affect this jury. Because
this jury was expressly invited by the government to convict Skilling on a
legally impermissible basis, the government cannot make that showing.
Further, though not necessary to defeat the government’s harmless-
error argument, it is relevant that the jury rejected almost the entirety of the
government’s insider-trading theory—acquitting Skilling on nine of 10
52
insider-trading counts. See U.S v. Santos, 201 F.3d 953, 965 (7th Cir. 2000)
(“The jury acquitted Santos of about half the counts in the indictment and
might have acquitted her of some or even all the rest had the trial judge not
committed the litany of errors we have enumerated.”).11 The nine acquitted
counts were all based on Skilling’s supposed knowledge of undisclosed
financial weaknesses throughout 2000 and 2001—the same information the
government says the jury could have relied on to convict on Count 51. U.S.
Br. at 62-63. The principal difference for Count 51 was Lay’s alleged
September 6 warning that the conspiracy was about to be disclosed. It is
thus especially difficult to say that this jury—which rejected the
government’s theory underlying the nine acquitted counts that Skilling was
trading on knowledge that Enron was weaker than he was representing to
investors—could not have been influenced by the distinct theory, applicable
uniquely to Count 51, that Skilling traded on the “knowledge” that an
honest-services fraud conspiracy was about to be exposed.
11
See also U.S. v. Acker, 52 F.3d 509, 518 (4th Cir. 1995) (“The
defendant was tried on four counts of bank robbery and was acquitted on
two of these counts, and we are in no position to say that, absent the hearsay
testimony, she would not have been acquitted on the other counts.”); U.S. v.
Slade, 627 F.2d 293, 308 (D.C. Cir. 1980) (finding error not harmless
because “[t]he jury did not believe most of the evidence against Watson,”
who was “acquitted on four substantive counts”).
53
C. False Statements to Auditors (Counts 31, 32, and 34-36)
The FSA counts charged Skilling with aiding and abetting false
statements in five management representation letters that Enron sent to
Arthur Andersen. The indictment explicitly alleged the following statement
to be knowingly and materially false:
there was no material fraud or any other irregularities that,

although not material, involved management or other
employees who had a significant role in Enron’s system of
internal control, or fraud involving other employees that could
have a material effect on the financial statements.
R:166 (emphasis added). The jury was instructed it could convict if it found
any one “particular statement” in a letter to be false or misleading. R:36429.
The jury instructions did not define “fraud” specifically for purposes of these
counts, but the instructions certainly did advise jurors that fraud in the use of
interstate wires included the deprivation of “honest services,” R:36412-25,
and jurors could have looked at that admittedly “circular” definition of
honest-services fraud for guidance. Ex. E at 48-49. Jurors were given no
reason to understand the term “fraud” differently in the two counts. See U.S.
v. Goodner Bros. Aircraft, Inc., 966 F.2d 380, 385 (8th Cir. 1992) (invalid
jury-instruction definition in one count can infect other counts).
Against this backdrop, the government in closing argument urged the
jury to rely on the “no material fraud” statement in Enron’s letters to
54
Andersen to convict Skilling on the five FSA counts. To make its point
plain, it displayed a large demonstrative exhibit that specifically identified
the “No material fraud” statement in the five letters as a ground for
convictions on all five of the FSA counts. JKS-4:3.
Skilling urged a special verdict form that would permit the jury to
specify which alleged misrepresentation it relied on, and again the
government successfully objected. R:35886-87, 37189-94. The government
thus again invited the problem it now faces, viz., it is impossible to tell
whether the jury impermissibly relied on the invalid honest-services theory
to find the “no material fraud” statement false, or permissibly relied on some
other statement untainted by the conceded honest-services error.
In fact, the jury easily could have relied on the invalid honest-services
fraud theory to find that Skilling was aware of a fraud conspiracy at Enron,
then found the “no material fraud” statements to be knowingly false.
Indeed, any juror who followed the Count 1 instruction and found that
Skilling conspired to commit honest-services fraud would necessarily find
that the “no fraud” statements the government challenged in Counts 31, 32,
and 34 through 36 were false. There would have been no reason for the jury
even to consider any other statement.
55
The legal error in submitting the honest-services theory thus cannot be
deemed harmless as to the five FSA convictions, as the caselaw shows. In
U.S. v. Alexius, 76 F.3d 642, 646-47 (5th Cir. 1996), for example, the
defendant was accused of making a number of perjurious statements. One
witness, who the district court erroneously prevented defendant from cross-
examining about a pending federal felony charge, testified that defendant
made one false statement in particular. The government argued that any
error in limiting cross-examination as to this witness was harmless because
other witnesses, who were fully cross-examined, testified to other false
statements that defendant had made. This Court rejected that speculative
line of argument. Because the jury returned a general verdict, the jury “may
have” relied on legally tainted testimony. “Consequently, the error cannot
be harmless beyond a reasonable doubt.” Id. at 647.
Alexius confirms that an error directly affecting one count of
conviction can infect other counts even absent a specific instruction
“spreading” the error, as in the Pinkerton situation. It is enough that the
Government’s factual presentation invites reliance on the error. Other cases
confirm the same point. See, e.g., U.S. v. Barona, 56 F.3d 1087, 1096-98
(9th Cir. 1995) (where government presented jury with a list of possible
“supervisees” to prove defendants were “supervisors” of criminal enterprise,
56
and some alleged supervisees were individuals whom “the jury was not
allowed to choose as a matter of law,” the conviction could have been
premised on a legal error and had to be reversed); Goodner Bros., 966 F.2d
at 385 (reversal of conviction required where jury instructed, in separate
counts, on legally valid and invalid definitions of hazardous waste; even
though the jury was not given these definitions with respect to the count at
issue, they could have relied on the invalid definition in the other parts of
their instructions and returned a guilty verdict on that basis); Feela v. Israel,
727 F.2d 151, 154-55 (7th Cir. 1984) (reversing conviction where it was
“impossible to tell” whether jury relied on erroneously or properly admitted
evidence to convict defendant on conspiracy charge; prosecutors featured
both sets of evidence at trial and in closing argument).
Finally, reliance on the easy-to-prove, but legally wrong, honest-
services-fraud theory was the jury’s simplest route to conviction on the five
FSA counts for yet another reason: the record on these counts as to Skilling
is virtually non-existent. The charges were directed at Rick Causey (who
dealt with Enron’s auditors on a regular basis), who pled guilty before trial
started. The proof at trial on the FSA counts was thus reduced to a few
minutes of the government’s nine-week case-in-chief. R:23536-46, 23839-
40. The government put on just one witness—Anderson accountant Thomas
57
Bauer—to testify about the letters, but all Bauer did was authenticate them,
read portions of them, and testify that management representations are
“important.” R:23839-40. That was the entirety of the proof on these
counts.
Skilling, by contrast, put on substantial defenses to these counts,
including a robust reliance defense, which showed that Skilling only signed
these letters after the key executives, lawyers, and accountants at Enron had
reviewed them and verified their veracity. Skilling Br. at 56-57. The
prosecutors, in moments of candor, acknowledged the force of Skilling’s
reliance defenses, R:13286-87, and Bauer himself conceded that he expected
that Skilling had relied on others in signing these letters, R:23746-47.
In short, given the thin reed of proof the government offered on these
five counts, it is all the more probable the jurors simply relied on an honest-
services fraud finding to return a conviction on the FSA counts because the
letters said “no fraud” existed.
CONCLUSION
For the foregoing reasons, Skilling’s convictions must be reversed,
and the case must be remanded for retrial before a jury that is not exposed
58
to, and not allowed to convict on, the legally erroneous honest-services
theory.
Dated: July 28, 2010
Respectfully submitted,
By: /s/ Daniel M. Petrocelli

O’MELVENY & MYERS LLP O’MELVENY & MYERS LLP
WALTER DELLINGER DANIEL M. PETROCELLI
JONATHAN D. HACKER M. RANDALL OPPENHEIMER
SRI SRINIVASAN MATTHEW T. KLINE
1625 Eye Street, N.W. DAVID J. MARROSO
Washington, D.C. 20006 1999 Avenue of the Stars, 7th Floor
Los Angeles, California 90067
RONALD G. WOODS Telephone: (310) 553-6700
5300 Memorial, Suite 1000 Facsimile: (310) 246-6779
Houston, Texas 77007 Attorneys for Defendant-Appellant
Jeffrey Skilling
59
CERTIFICATE OF COMPLIANCE WITH RULE 32(a)
1. This Brief complies with the type-volume limitation of Fed. R.
App. P. 32(a)(7)(b) because it contains 13,750 words, excluding the parts of
the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Fed. R.
App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6)
because this brief has been prepared in a proportionally spaced 14-point
Times New Roman typeface using Microsoft Word 2003.
/s/ Matthew T. Kline

Matthew T. Kline
1
CERTIFICATE OF SERVICE
This is to verify that true and correct copies of the following

document (Jeffrey K. Skilling’s Opening Brief On Remand From The U.S.
Supreme Court) has been filed electronically and served by both Federal
Express and electronic mail on this 28th day of July, 2010 on counsel listed
below.
/s/ Matthew T. Kline

Matthew T. Kline
J. Douglas Wilson
U.S. Attorney’s Office
450 Golden Gate Avenue, 11th Floor
San Francisco, CA 94102
Facsimile: (415) 435-7234
Counsel for Appellee
CC1:833714

Jeff Skilling Opening Merits Brief On Remand

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Jeff Skilling Opening Merits Brief On Remand

Загружено:

Авторское право:

Доступные форматы

Case: 06-20885 Document: 00511188326 Page: 1 Date Filed: 07/28/2010

UNITED STATES COURT OF APPEALS

UNITED STATES OF AMERICA,

JEFFREY K. SKILLING’S OPENING BRIEF ON REMAND

On Appeal From The United States District Court

O’MELVENY & MYERS LLP O’MELVENY & MYERS LLP

ATTORNEYS FOR DEFENDANT-APPELLANT JEFFREY K. SKILLING

I. THE HONEST-SERVICES FRAUD ERROR REQUIRES

B. The Government Cannot Establish That Its Honest-

B. Insider Trading (Count 51) ..................................................... 51

C. False Statements to Auditors (Counts 31, 32, and 34-36) ...... 54

Exxon Shipping Co. v. Baker,

Kennedy v. So. Cal. Edison Co.,

U.S. v. Goodner Bros. Aircraft, Inc.,

15 U.S.C. § 78ff ............................................................................................ 10

Jeffrey Skilling was convicted in May 2006 for fraud-related offenses

incarcerated in federal prison since December 13, 2006—more than three-

and-a-half years—with almost 20 years remaining on the 24-year sentence

imposed initially by the district court.1

theories of fraud the government asserted against Skilling—i.e., that he

conspired to deprive Enron of its “right to honest services” under 18 U.S.C.

schemes.” Skilling v. U.S., 08-1394, Slip Op. at 2. And “[b]ecause

Skilling’s alleged misconduct entailed no bribe or kickback, it does not fall

within § 1346’s proscription.” Id. at 2; see id. at 50 (“It is … clear that, as

we read §1346, Skilling did not commit honest-services fraud.”).

The Supreme Court did not, however, reverse Skilling’s convictions.

court’s “constitutional error” in allowing the government to submit its

legally flawed honest-services theory to the jury was harmless as to any of

Skilling’s 19 convictions. Id. at 50.

As the case returns to this Court, Skilling’s convictions are

presumptively invalid, given the conceded error in trying him on a non-

existent theory of criminal liability. The question now is whether the

government can overcome that presumption by proving, beyond any

reasonable doubt, that the erroneous submission of the honest-services

527 U.S. 1, 18 (1999) (instructional error on elements of crime not harmless

312 (1957) (reversal required where it is unclear whether the convictions

burden through a fact-intensive analysis of each count, the convictions

not invited to convict on, an invalid fraud theory.

on bail at sentencing, recognized that the submission of an invalid honest-

services theory to the jury likely required reversal of Skilling’s conviction

for conspiracy—Count 1 of the government’s case. R:41895-98; see also

honest-services theory to jury in parallel Enron case not harmless as to

services fraud theory created “serious frailties” in 14 of the 19 counts of

conspiracy count, the 12 securities-fraud counts, and the one insider-trading

Judge Higginbotham was correct as to the 14 counts, but wrong as to

the remaining five. As the district court recognized, reversal of the

conspiracy conviction is required because the government charged Skilling

with multiple objects of the conspiracy—including securities fraud and

honest-services wire fraud—and successfully urged a general verdict form,

ensuring that it would be “impossible to know, in view of the general verdict

returned whether the jury imposed liability on a permissible or an

impermissible ground….” Exxon Shipping Co. v. Baker, 128 S. Ct. 2605,

“conviction based on a general verdict is subject to challenge if the jury was

instructed on alternative theories of guilt and may have relied on an invalid

one”). Given the record evidence, argument, and open-ended honest-

services jury instruction the government fought so hard to obtain, reasonable

demanding securities-fraud object.

Reversal on the remaining counts is likewise required, for the same

on the legally incorrect honest-services fraud theory in deciding whether to

convict. On the 12 securities-fraud counts, the government obtained a

“Pinkerton” vicarious liability instruction, which allowed jurors to rely on

the conspiracy conviction to convict Skilling for any charged act of

securities fraud committed by any other co-conspirator, even if Skilling