Honest Services Conviction Overturned-Houston

A federal judge in Houston dismissed charges against former Enron Corp. energy trader Christopher Calger.^[1] Calger, a former executive in Enron's energy trading division, pleaded guilty in 2005 to inflating earnings through a deal with a partnership run by ex-finance chief Andrew Fastow.^[2]

In August, an appeals court overturned four Merrill Lynch & Co. bankers' Enron-related convictions for depriving Enron of their “honest services.” ^[3]

The appeals court said that the bankers acted in Enron's best interest and didn't personally profit. ^[4] “The appellate court looked at the circumstances and ruled this wasn't a crime,” Calger's lawyer, Philip Hilder, said of the convictions won on the “honest services” theory. ^[5]

Shortly after the U.S. 5th Circuit Court of Appeals threw out the convictions of the four Merrill bankers, Calger asked to withdraw his guilty plea. ^[6] Prosecutors agreed to Calger's request on March 30, and U.S. District Judge Lee Rosenthal dismissed the charges the same day, in an order made public today. ^[7]

U.S. District Judge Lynn Hughes, who accepted Calger's plea, “gave the government a very hard time'' at the hearing, said Hilder, who represented the former trader for the sentencing phase of his case. ^[8] “He said he didn't see how a crime was being committed, and he was barely persuaded by the government to accept the plea, after much debate.” ^[9]

The government pointed to the appellate decision in the Merrill bankers' case as its reason for agreeing to let Calger withdraw his plea. ^[10] In his motion to withdraw Calger's plea in September, Hilder argued that his client “was doing precisely what the executives at Enron wanted him to do.” ^[11]

Calger's conduct shouldn't be seen as a theft of honest services due Enron “because he was conducting himself in a manner that was fully disclosed to and encouraged by management and was for Enron's benefit,” Hilder wrote at the time. ^[12] The difficulty for the government in honest-services cases as here, is proving intent.

18 U.S.C. § 1346 states: "For the purposes of this chapter, the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." ^[13]

Honest services fraud is usually prosecuted in conjunction with mail fraud or wire fraud charges and is often used in public corruption cases. The maximum statutory penalty for Theft of Honest Services Mail Fraud in violation of 18 U.S.C. §§ 1341, 1346, is 20 years and a fine of $250,000. ^[14]

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[1] Laura Brubaker Calkins, Former Enron Trader's Guilty Plea Tossed Out by Judge, April 2, 2007.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] 18 U.S.C. § 1341 (2005).
[14] Id.