Case: 06-20885 Document: 00511204549 Page: 1 Date Filed: 08/16/2010

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 REPLY IN SUPPORT OF HIS MOTION FOR

RELEASE ON BAIL PENDING FURTHER PROCEEDINGS 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

 Case: 06-20885 Document: 00511204549 Page: 2 Date Filed: 08/16/2010

The government’s repeated refrain is there was sufficient evidence for jurors

to have convicted Jeffrey Skilling of securities fraud and other offenses, without

relying on the invalid honest-services-fraud theory and instruction, and so the

honest-services-fraud error should be deemed harmless. On its face that argument

fails to establish harmless error. Kotteakos v. U.S., 328 U.S. 750, 767 (1946)

(harmlessness not established by showing evidence sufficient to convict defendant

absent error). The government instead must show that the record on securities

fraud was both uncontested and supported by overwhelming evidence, such that no

rational juror could have acquitted Skilling on it, even if honest-services fraud had

never been asserted. Neder v. U.S., 527 U.S. 1, 19 (1999).

The government does not even attempt to make that showing. That is, it

nowhere denies that for every count of conviction Skilling vigorously contested the

government’s case, and that a rational juror could have acquitted him on every

count. Further, the record is replete with evidence and argument the government

presented at trial to prove that Skilling conspired to commit honest-services fraud

by conduct that does not necessarily, or even logically, constitute securities fraud.

Under the “substantial question” standard governing bail applications,

Skilling must show only that there is “substantial doubt (not merely a fair doubt) as

to the outcome” of the government’s harmless-error showing on remand. U.S. v.

Valera-Elizonda, 761 F.2d 1020, 1024 (5th Cir. 1985). By focusing on the
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sufficiency of the securities-fraud evidence it presented, and not excluding the

possibility that rational jurors rejected that theory and convicted him on an honest-

services theory instead, the government’s brief only confirms that Skilling has at

least raised a “substantial question” as to whether the government can prove

harmlessness beyond a reasonable doubt as to every count of conviction.

The government’s brief also concedes that by September 22, Skilling will

have served his sentence on all but two counts—Counts 2 and 14 for securities

fraud, both of which were connected directly to the flawed conspiracy count by a

Pinkerton instruction, and both of which Judge Higginbotham ruled suffered from

“serious frailties.” Although Judge Higginbotham also concluded that the five

FSA counts were not affected by the conspiracy count, those counts are immaterial

to the current bail motion because Skilling will already have served his sentence on

those counts by September 22. Because Skilling has more than shown a

substantial question as to whether Counts 2 and 14 were tainted, and because the

government concedes he is not a flight risk, his motion for bail must be granted.

I. SKILLING’S MOTION RESTS ON TRADITIONAL HARMLESS-

ERROR STANDARDS

The government begins its analysis by mischaracterizing Skilling’s

statement of the applicable legal standard. Skilling agrees this case is governed by

the harmless-error standards set forth in cases like Neder v. U.S., 527 U.S. 1, 18

(1999), Hedgpeth v. Pulido, 129 S. Ct. 530, 530 (2008), and U.S. v. Edwards, 303

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F.3d 606, 623 (5th Cir. 2002). Skilling’s remand brief cites every one of those

cases. Skilling Remand Br. 2, 4, 14. Those cases make clear that a conviction

subject to a Yates-type error must be reversed when, as Edwards states, “it is

impossible to tell which ground the jury selected.” 303 F.3d at 641.

Contrary to the government’s assertion (Opp. 12), the “impossible to tell”

standard is not “more demanding” than the traditional harmlessness standard—it is

the traditional harmlessness standard. Under that test, a defendant is not entitled to

automatic reversal in the Yates situation, Hedgpeth, 129 S. Ct. at 532, but Skilling

is not seeking automatic reversal, and this Court’s pre-Hedgpeth precedents like

Edwards did not authorize it, Skilling Remand Br. 39 n.9. Rather, the rule in this

Circuit has always been that the government can sustain a conviction subject to

Yates error if it can prove, beyond a reasonable doubt from the factual record, that

the jury necessarily must have chosen the valid theory. If the government cannot

make that showing, then it remains “impossible to tell” which theory the jury

selected, and the conviction must be reversed.

As the standard is articulated in Neder—the case on which the government

relies—a court cannot find the presence of a factually supported invalid theory to

be harmless beyond a reasonable doubt where the defendant “contested the [valid

theory] and raised sufficient evidence to support a contrary finding.” 527 U.S. at

19. In that situation, it cannot be presumed that rational jurors necessarily would

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have accepted the valid theory, and so it remains impossible to tell which theory

the jury selected. As shown below, the government cannot prove that the honest-

services error was harmless because, for every count of conviction, the record—the

instructions, evidence, and argument—allowed a rational juror to reject the valid

theory asserted, while relying on the invalid honest-services theory to return a

conviction. Because it is thus impossible to tell whether the jurors selected the

valid or invalid path to conviction for any count, every count must be reversed.

II. THERE IS A “SUBSTANTIAL QUESTION” WHETHER THE

GOVERNMENT WILL PROVE THAT THE HONEST-SERVICES
FRAUD ERROR WAS HARMLESS BEYOND A REASONABLE
DOUBT FOR ANY COUNT OF CONVICTION

A. Conspiracy

As Skilling’s remand brief demonstrated, the jurors’ instructions expressly

advised them that the government was asserting “two different” theories of fraud,

R:36412-14, and specifically informed jurors that they could rely on either theory

to find Skilling guilty of the conspiracy. In an exhaustive review of the record,

Skilling further demonstrated that, for every transaction put at issue by the

government, there was more than sufficient evidence for a rational juror to

conclude that Skilling did not commit the securities fraud act alleged, but did

commit honest-services fraud as that crime was erroneously defined.

The government does not contest either showing—it does not argue that the

instructions precluded a rational juror from relying on the honest-services object,

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and it does not argue that the securities-fraud case was uncontested by Skilling and

so overwhelming that a rational juror could only have voted to convict. The

government instead makes a series of incorrect and irrelevant assertions about the

instructions and evidence, none of which establishes harmlessness.

1. As a general matter, the government repeatedly insists that this Court

must defer to the district court’s analysis of whether the honest-services instruction

taints any counts of conviction. Opp. 1, 2, 3, 9, 10 n.10, 19, 24. If so, the

conspiracy count must be reversed. The district court “flatly rejected,” Opp. 2, the

government’s contention that honest-services fraud error did not infect that count,

R:41897. The government inexplicably ignores that district-court finding.

The government also misses the point when it seeks to dismiss as “dicta”

Judge Higginbotham’s statement that error in the honest-services fraud charge

creates “serious frailties” in 14 of the 19 counts, including Count 1. Opp. 10 n.10.

When an experienced jurist concludes—even if in dicta—that an error is likely not

harmless, there must at least be a “substantial question” on the point.

2. Addressing conspiracy, the government focuses heavily on the form of

the instruction, arguing it is “unlikely” that jurors relied on the erroneous honest-

services-fraud charge because the district court did not emphasize it repeatedly.

Opp. 14. That is not the correct standard. Even were it “unlikely” that jurors

relied on a legal error, all that matters is whether, under the instructions and

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evidence, a rational juror could have relied on it. Neder, 527 U.S. at 19.

The government’s focus on the form of the instructions’ is legally misplaced

and factually false. It contends the honest-services instruction was harmless

because the court instructed jurors “only once” that they could convict Skilling

based on the honest-services object. Opp. 6, 14. That argument is unworthy of

serious response. Jurors are presumed to follow their instructions, Richardson v.

Marsh, 481 U.S. 200, 211 (1987), even when they are instructed “only once” on a

point of law. And the instructions here actually told the jurors twice that they

could rely on the honest-services object. R:36337, 36354-55.

The government is also flatly wrong when it asserts that the instructions

defined honest-services fraud “only in the portion of the charges discussing the two

wire fraud counts against Lay.” Opp. 14-15. In instructing on the conspiracy

count, the court told jurors the wire-fraud object would be defined later. R:36335.

When it turned to wire fraud, the court first reminded jurors that it was “the second

object of the conspiracy offense alleged in Count 1 against both defendants.”

R:36354. The honest-services instruction that then followed, moreover, referred to

“Defendants,” not just Lay. Id. Jurors thus plainly understood that they could rely

on the honest-services-fraud object to convict Skilling on Count 1.

Nor is there any merit to the government’s claim that because the wire-fraud

instruction referred to “false material misrepresentations,” the jurors necessarily

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found misrepresentations sufficient to support liability on the securities fraud.

Opp. 15. The point of any honest-services fraud allegation is that defendant is

misrepresenting his status as an honest and faithful employee. R:36356. Indeed,

as the government itself argued to the Supreme Court, the essence of honest-

services fraud is “feigning loyalty” to the employer when he actually is not. Black

v. U.S., 2009 WL 3155001, at *35 (Sept. 30, 2009). There is thus no reason to

assume from the instruction that in finding Skilling guilty of honest-services fraud,

the jurors necessarily found him guilty of making other misrepresentations relevant

to securities fraud. The government understood this distinction when it argued in

closing that jurors need not find Skilling guilty of securities fraud to convict him

for conspiracy, but could rely on the honest-services object instead. R:37065-66.

3. The government’s discussion of the evidentiary record is also severely

flawed. Rather than examine the actual record at trial, the government’s focuses

on the indictment and contends it “primarily” charged the securities-fraud object,

rather than the honest-services fraud object. Opp. 13-14. But an indictment “is not

evidence,” U.S. v. Ross, 58 F.3d 154, 160 n.10 (5th Cir. 1995), and what matters is

the case presented at trial, U.S. v. Quesada, 512 F.2d 1043, 1045 (5th Cir. 1975).

In any event, the indictment, by the government’s own admission, invited jurors to

convict on the honest-services object. The government twice says the indictment

“primarily”—but not exclusively—focused on the alleged securities-fraud object.

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This confirms that the indictment asserted a separate honest-services fraud theory.

The government never addresses the actual trial record except to say that

“virtually all of the evidence” supporting the honest-services fraud object also

supported the securities fraud object. Opp. 16. There are two glaring flaws in that

contention. First, the word “virtually,” like “primarily,” openly concedes there was

other evidence supporting a different theory of honest-services liability. Second,

the government does not offer a single record cite—not one—in support of its

pivotal contention that the evidence of honest-services fraud was “virtually” the

same as the evidence of securities fraud. That omission by itself is fatal to the

government’s position: it is the government’s burden to prove harmlessness, and

its “failure to cite or refute the record not only waives [its harmless-error

arguments] but demonstrates the lack of evidence in [its] favor.” Messer v. Meno,

130 F.3d 130, 135 (5th Cir. 1997). The omission is all the more dispositive given

Skilling’s thorough, transaction-by-transaction analysis of the record, which

demonstrated that for every securities-fraud related allegation, there was both (a)

evidence upon which a rational juror could reject the allegation as to Skilling, and

(b) evidence upon which a rational juror could instead find Skilling guilty of a

separate, distinct honest-services fraud theory. Skilling Remand Br. 23-37, 40-51.

The government also never explains why, if securities fraud was the lone

legal theory of criminality, the government sought an honest-services fraud

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instruction in the first place, or why jurors were expressly told the government was

asserting “two different” theories, and that they could find Skilling guilty of either

one to return a conviction for conspiracy. Of course, securities fraud was not the

lone theory of the government’s case, and by its own admissions its securities-

fraud case was not at all overwhelming. This is precisely why the government

fought vigorously to obtain an honest-service-fraud instruction, and why it told

jurors they could rely on either theory to convict. It is also why, after seeing its

securities-fraud case undermined at every turn, often by its own witnesses, the

government ended its case by reminding jurors: “[W]e 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. And the “illegal” act the prosecutor emphasized was

Skilling’s breach of the “duty of good faith and honest services.” Id.

The government did not tell jurors to ignore the honest-services fraud object

or that it was redundant of securities fraud. Just the opposite: it reminded them the

two were different theories, and urged them specifically to convict on the

erroneous honest-services fraud ground. Id. Because a rational juror could have

done exactly that, Skilling’s conspiracy conviction must be reversed.

B. Securities Fraud

The government has no viable response to Skilling’s demonstration that each

of the securities-fraud counts (Counts 2, 14, 16-20, 22-26) must fall with the

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flawed conspiracy count, because each was linked to the conspiracy count by the

government’s Pinkerton charge. Importantly, the government draws the focus on

Counts 2 and 14 (Opp. 3), because those are the only counts on which Skilling

received a sentence exceeding the concurrent 52-month sentence that he has

already effectively served. Skilling Bail Br. 9. If Skilling can show there is a

“substantial question” as to Counts 2 and 14, he must be granted bail.

1. The government’s first argument as to all securities-fraud counts is that

Skilling relies on an incorrect legal standard. Opp. 18. That is not correct.

Skilling relies on this Court’s decision in Howard, which is binding authority and

materially indistinguishable from this case. Skilling Remand Br. 41-42. In

Howard, this Court held that the use of an erroneous honest-services object in a

conspiracy count required reversal not only of the conspiracy conviction, but also

substantive book-and-records convictions connected to the conspiracy count by a

Pinkerton charge. U.S. v. Howard, 517 F.3d 731, 737-38 (5th Cir. 2008). Because

it cannot distinguish Howard, it accuses the Court of misstating the law. Opp. 18

n.6. Again, this is incorrect: The Howard Court did not apply the “automatic

reversal” rule rejected in Hedgpeth, but instead carefully evaluated the record and

determined that there was sufficient evidence upon which a rational juror could

have found the defendant vicariously liable by relying on the erroneous instruction.

517 F.3d at 737-38; Skilling Remand Br. 39 n.9. That is exactly how traditional

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harmless-error analysis works. Supra at 3. Howard controls and compels reversal

of the Pinkerton-linked securities fraud-convictions (Counts 2, 14, 16-20, 22-26).

2. The government next argues that the Court should defer to the district

court, which held in 2006 that the flawed conspiracy count likely did not taint the

securities-fraud counts. Opp. Exh. A at 13-14. That ruling is entitled to no

deference, for two reasons. First, the decision on its face applied an incorrect legal

standard erroneously borrowed from a misreading of Ninth Circuit authorities. As

Skilling showed Judge Higginbotham—and as the district court’s analysis, on its

face reveals—the district court erred in requiring Skilling to prove that the error at

issue was not harmless, rather than requiring the government to prove that it was

harmless beyond a reasonable doubt. Id. at 13. Howard, which was decided after

the district court’s ruling, makes clear that the burden rests with the government.

Second, the district court’s ruling rested on Skilling’s “fail[ure]” to point to

evidence showing that jurors could have relied on the conduct of co-conspirators.

Id. The ruling was not based on, as the government asserts, the court’s “analysis of

a factual record with which it was thoroughly familiar.” Opp. 19. The court, in

fact, did no analysis of the record and based its ruling entirely on what Skilling

supposedly did not demonstrate at that time. See id. Exh. A at 13-14.

The circumstances before this Court are quite different. Although it is

clearly the government’s burden under Neder and Howard to show that conspiracy

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error is not harmless as to the securities-fraud counts beyond a reasonable doubt,

Skilling nevertheless has presented a thorough, detailed examination of the trial

record showing of how, for every securities-fraud count, a rational juror could have

relied “on the conduct of an alleged co-conspirator as allowed by the court’s

Pinkerton instruction instead of on [Skilling’s] own conduct.” Opp. Exh. A at 13.

Skilling demonstrated that, for each count, there was (a) one or more other co-

conspirators involved, most of whom admitted to committing securities fraud in

connection with the count at issue, and (b) substantial evidence, which a rational

juror could have credited, that Skilling himself did not commit the securities fraud

at issue. In other words, Skilling has now amply filled the evidentiary gap the

district court identified. And Judge Higginbotham, of course, never thought such a

gap existed at all, presumably because he agreed with Skilling’s argument that the

district court had incorrectly reversed the burden of proof.

3. The government does not directly answer Skilling’s analysis of the

evidentiary record, and its own discussion of that record comes nowhere close to

showing that, for each securities-fraud count, rational jurors could not have relied

on the Pinkerton instruction to find Skilling vicariously liable:

• Count 2 (Raptors): On Count 2, the government argues only that the

evidence was sufficient to permit a jury to conclude that Skilling knew that

Fastow’s side deals had vitiated proper accounting treatment, and that the Raptors

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were being used to hide losses. Opp. 19. The government completely ignores the

wealth of record evidence cataloged by Skilling demonstrating that he was not

aware of any side deals or improprieties with Raptors transactions. Skilling

Remand Br. 45-46. A rational juror easily could have credited that evidence—the

government does not even argue otherwise. The government thus cannot satisfy its

burden of proving that the evidence on Count 2 was so overwhelmingly one-sided

that a rational juror necessarily would have voted to convict Skilling for his own

conduct, even absent the easier path provided by the Pinkerton instruction and

flawed conspiracy count. Count 2 must fall with the conspiracy count.

• Count 14 (1999 10-K—Nigerian Barges): This count alleged that the

1999 10-K was false because of a purported promise made by Fastow to Merrill

Lynch regarding the Nigerian Barges deal. Skilling Remand Br. 46. Again, the

government argues only that there was evidence sufficient for a jury to conclude

that Skilling knew the 1999 10-K was false when he signed it. Opp. 19-20. Again,

the government completely ignores the uncontradicted evidence that Causey, Lay,

Fastow, and others also signed the 10-K; the uncontradicted evidence that Skilling

was not directly involved in the transaction; and the substantial evidence showing

that Skilling was unaware of Fastow’s alleged promise. Skilling Merits Br. 27-29,

113-116; Skilling Remand Br. 46. A rational juror easily could have credited that

evidence and found that others—e.g., Fastow, who pleaded guilty to securities

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fraud—committed the securities fraud charged in Count 14, thus convicting

Skilling only vicariously for those co-conspirators’ acts. Count 14, too, must fall.

• Counts 16-20: These counts involved 10-Qs and 10-Ks. The

government again says only that the evidence was sufficient to show that Skilling

knew they were false when he signed them. Opp. 19-20. But what matters—and

what the government does not even attempt to dispute—is that the evidence was

also sufficient for a rational juror to conclude that Skilling was unaware of the

underlying conduct that made these filings allegedly false, i.e., agreements and

structures created by Fastow and others (Counts 17, 18, and 20), reserve

adjustments Skilling did not make (Count 16 and 18), and the EES resegmentation

conceived and implemented by others who pleaded guilty (Count 19). Skilling

Remand Br. 46-47. A rational juror thus would not necessarily have convicted

Skilling on these counts absent the legally flawed vicarious liability fallback.

• Counts 22-26: These counts involved statements during analyst calls

and conferences. For Counts 24 and 25, the government again merely notes that

the evidence sufficed to show that Skilling personally made false statements. The

government ignores the evidence that also showed that Koenig made statements

that were admittedly false, including statements on Count 25 for which he pleaded

guilty, as well as the substantial evidence (including from Koenig) that Skilling

was not lying on these calls. Skilling Remand Br. 49-50. A rational juror easily

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could have accepted Skilling’s defense to personal liability on these counts, but

held him vicariously liable for Koenig’s admitted falsehoods.

For Counts 22, 23, and 26, the government for once argues more than just

the inadequate “sufficiency of the evidence” standard. Here, it contends there was

“little or no evidence that anyone beside Skilling made the false statements that

supported counts 22, 23, and 26.” Opp. 15-16. While coming close to addressing

the correct legal standard, the government seriously misstates the factual record:

• On Count 22, Koenig pleaded guilty to lying on the call—a fact the
government emphasized in closing. Skilling Remand Br. 49.

• On Count 23, Rice and Hannon testified and told jurors they pleaded
guilty to portraying EBS falsely at this conference. Id.

• On Count 26, Koenig’s group prepared the script for the call, and
Koenig and Kean spoke about disputed business issues. Id. at 50.

For each of Counts 22, 23, and 26, there was thus a wealth of evidence upon which

rational jurors could have found that persons “besides Skilling” made false

statements. And for each count, there was substantial evidence that Skilling did

not know that the statements were false. Id. at 49-50. It is thus impossible for the

government to show that a rational juror could have convicted Skilling only for his

own conduct, rather than vicariously based on others’ admissions of fraud.

4. The government’s final argument is that rational jurors would not have

convicted on a vicarious liability theory because it requires a “bizarre chain of

inferences.” Opp. 21. There is nothing bizarre about it, as the government

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understood when it expressly cited the Pinkerton instruction in closing, R:37018,

urging jurors to rely on the conspiracy count to find Skilling vicariously liable for

securities fraud by alleged conspirators, whom the government named, one by one,

R:36452, 36993.1 The government’s main objection to the “chain of inferences” is

that jurors would not likely have accepted Skilling’s defenses. But the government

does not deny—here or anywhere—that Skilling had viable defenses to every

charged act of securities fraud. Nor does it deny that in this procedural posture, the

trial record may not be viewed in its favor. Skilling Remand Br. 11. These

concessions are enough to defeat the government’s harmlessness showing.2

1
The government suggests that a rational juror could not have found that
securities fraud acts would be a “reasonably foreseeable” consequence of the
honest-services fraud conspiracy, Opp. 21; see id. at 16 (discussing Count 2), but
the suggestion makes no sense. The core of the honest-services conspiracy alleged
by the government was that Skilling and others focused too much on short-term
earnings at the expense of long-term business fundamentals. Skilling Remand Br.
35-37. A rational juror who accepted that theory could also find it foreseeable that
a conspirator would commit securities-fraud acts to help accomplish that objective.
2
Also unavailing is the government’s reliance on comments of Skilling’s
counsel at oral argument acknowledging that the trial record included evidence of
securities fraud. Opp. 21-22. Plainly counsel did not say or imply the evidence on
securities fraud was so overwhelming that a rational juror necessarily would have
convicted Skilling for his own conduct. Precisely the opposite: the point was that
Skilling did not need to show, and was not arguing, that securities-fraud evidence
was nonexistent, because the mere fact that there was evidence of securities fraud
did not suffice to prove that a rational juror necessarily would have relied on that
evidence, given that the evidence was vigorously contested, and there was another,
much easier (but legally invalid) route to conviction. Opp. Ex. D at 65; see Neder,
527 U.S. at 19. Even though counsel’s point was clear in context, in “an
abundance of caution” counsel submitted a letter clarifying his statement. See Ex.
A. The government’s failure to acknowledge that letter is inexplicable.

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C. Insider Trading

The government’s harmlessness claim on Count 51 is not even argument—it

is assertion. It simply pronounces the “material inside information on which

Skilling traded consisted of his knowledge of the dire financial state to which

Enron had been reduced due to his fraudulent actions.” Opp. 24. While jurors

could have reached that conclusion, the government makes no effort to show why

they were required to do so. The government has not attempted to exclude—and

cannot exclude—the possibility that rational jurors instead found that the

conspiracy itself was the inside information—i.e., Skilling sold shares in mid-

September 2001, because he allegedly had become aware that the conspiracy was

about to be exposed, which would diminish his share value. Skilling Remand Br.

51-52. Indeed, the prosecutors expressly urged the jurors to rely on the conspiracy

as the inside information on which Skilling traded. Id. at 52. The government now

says the prosecutor “plainly meant” not the conspiracy itself, but individual

securities fraud acts involved in the conspiracy. Opp. 24. But whatever he meant,

the prosecutor said nothing of the kind, and there is no reason a rational juror could

have understood the prosecutor only that way, as Judge Higginbotham recognized

when he noted “serious frailties” in the insider-trading conviction.

Finally, the government fails to reconcile its theory of what the jurors relied

on in Count 51 with the jury’s acquittals on the nine other counts of insider trading.

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Skilling Remand Br. 52-53. Those counts asserted the same theory the

government asserts here to explain Count 51, viz., that Skilling was selling shares

based on the “inside information” that their value was artificially high. The jury

rejected all nine counts. The only difference for Count 51 was an alleged meeting

with Lay, where Skilling supposedly learned that the “conspiracy” inside Enron

was about to be revealed. A rational juror thus easily could have convicted

Skilling for trading on the knowledge of a “conspiracy” that did not legally exist.

D. False Statements to Auditors (“FSA”)

For each of the five FSA counts, the government again relies on the wrong

legal standard in arguing there was sufficient evidence to support the convictions.

Opp. 22-23. The government makes no attempt to show that a rational juror

necessarily relied on any statement in the representation letters other than the

statement that there was “no material fraud” at Enron. Skilling Remand Br. 54.

Far from mere “speculation” by Skilling that a rational juror would rely on that

statement rather than others, in its closing slides the government urged jurors to

rely on that very statement. Id. at 55. Given that Skilling had substantial defenses

to every other statement in the letters, id. at 58—which the government nowhere

disputes—by far the easiest route to conviction would have been to find him guilty

because he “falsely” denied the existence of the “fraud” the jurors already

identified in the flawed Count 1. Id. at 54-55. Contrary to the government’s

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assertion, Opp. 23, the only reasonable assumption is that the jurors relied on the

vastly overbroad definition of “fraud” given in the wire-fraud instruction to make

their decision in this way. “Fraud” was not defined in the FSA instructions, but it

clearly was defined in the honest-services charge. As the government does not

dispute, the caselaw requires reversal where rational jurors can borrow an invalid

definition set forth in another jury instruction. Skilling Remand Br. 57. Finally,

the government does not dispute, nor can it, that Skilling did not have access to its

closing-argument slides when he moved for bail in 2006, and so could not establish

this point in argument to the district court or Judge Higginbotham.

III. SKILLING IS ENTITLED TO BAIL EVEN IF THE COURT HAS

DOUBTS ABOUT HIS ARGUMENTS ON THE INSIDER TRADING
AND FSA COUNTS
At oral argument, the panel probed whether Skilling’s insider-trading and

FSA convictions were tainted by the honest-services-fraud theory in the same

direct way his conspiracy and Pinkerton-linked convictions were. Opp. Ex. D. at

66-71. Judge Higginbotham raised issue with the five FSA counts in his bail

ruling. The government now concedes, however, that Skilling effectively has

served his currently imposed sentence on the one insider-trading and five FSA

counts. Opp. 3 & n.2. The government speculates that Skilling might receive a

longer sentence on those counts if he were to be re-sentenced, id., but Skilling has

solid arguments for an even shorter sentence, Skilling Bail Br. 10-11 n.2, and such

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 Case: 06-20885 Document: 00511204549 Page: 21 Date Filed: 08/16/2010

speculation is irrelevant in any event. The bail test is whether Skilling presents a

“substantial question of law … likely to result in … a term of imprisonment less

than the total of the time already served plus the expected duration of the appeal

process.” 18 U.S.C. § 3143(b)(1)(iv). Skilling amply meets this burden. Under

the only sentence that has been imposed on him—not some hypothetical

sentence—he will have served all of his time by September 22, 2010, on every

count for which he was convicted, with the exception of Counts 2 and 14. And

those two Pinkerton-linked counts—which Judge Higginbotham found to suffer

from serious frailties—clearly must fall under Howard and Neder.

In short, no valid basis exists for denying Skilling bail.

Dated: August 16, 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

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 Case: 06-20885 Document: 00511204549 Page: 22 Date Filed: 08/16/2010

CERTIFICATE OF SERVICE

This is to verify that true and correct copies of the following document
(Jeffrey K. Skilling’s Reply In Support Of His Motion For Release On Bail
Pending Further Proceedings On Remand From The U.S. Supreme Court) has been
filed both electronically and by Federal Express and served by both Federal
Express and electronic mail on this 16th day of August, 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
CC1:834571