Supreme Court takes up challenge to federal anti-fraud law used in high-profile prosecutions

Court takes on federal anti-fraud law

WASHINGTON — The Supreme Court appeared inclined Tuesday to rein in federal prosecutors’ use of a fraud law against high-profile corporate executives.

The justices, hearing two challenges to the honest services fraud law, seemed to be in broad agreement that the law is vague and has been used to make a crime out of mistakes, minor transgressions and mere ethical violations.

Justice Stephen Breyer said he worries that the Obama administration’s reading of the law makes criminals out of vast numbers of U.S. workers, including possibly employees who read The Daily Racing Form on the job.

“There are 150 million workers in the United States. I think 140 of them would flunk the test,” Breyer said.

The court is hearing three cases this term in which defendants are challenging the use of the law against them. The 28-word law makes it illegal for officials, executives and others to scheme to deprive those they serve and possibly others of “the intangible right to honest services.”

Former newspaper mogul Conrad Black, who has served nearly 22 months of a 6½-year prison term, and former Alaska legislator Bruce Weyhrauch, who has been indicted but not tried, are asking the court to throw out the prosecutions against them.

Former Enron CEO Jeffrey Skilling, convicted in 2006 on conspiracy, securities fraud, insider trading and lying to auditors involving the company’s collapse in 2001, will have his case heard in spring. He attacks the law as unconstitutionally vague.

Prosecutors also have used the charge against former lobbyist Jack Abramoff and others caught up in that scandal. One former Illinois governor, George Ryan, was convicted of honest services fraud, and another, Rod Blagojevich, faces the same charge, among others.

Former Alabama Gov. Don Siegelman and ex-HealthSouth CEO Richard Scrushy also are appealing their honest services fraud convictions to the Supreme Court.

Critics of the law include the U.S. Chamber of Commerce and the National Association of Criminal Defense Lawyers.

The defendants appear to have a powerful ally on the court, Justice Antonin Scalia. Urging the court in February to take a case to resolve questions about the law, Scalia said it “invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct.”

Black and two other former executives were convicted of depriving the Hollinger International media empire of their faithful services as corporate officers. They say the honest services conviction must be overturned because they intended no economic harm to the company, which once owned the Chicago Sun-Times, the Daily Telegraph of London, the Jerusalem Post and hundreds of community papers across the United States and Canada.

Central to the case is $5.5 million that the defendants say were management fees they were owed and were trying to collect in such a way that they would not have to pay Canadian income tax. The government says the money belonged to the company’s shareholders.

Weyhrauch wants charges against him dropped. Prosecutors allege that he failed to disclose he was in job negotiations with an oil-field operations company at the same time the state legislature was also considering an oil bill. But Weyhrauch says disclosure was not required by Alaska law. He wants the court to bar a federal honest services fraud prosecution without an allegation of a violation of state law as well.

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