Conrad Black’s appeal may change U.S. law

Conrad Black arrives for his sentencing hearing in Chicago December 10, 2007

Theresa Tedesco Chief Business Correspondent,  National Post

May 21, 2010

When Conrad Black entered the U.S. justice system, he was a little-known Canadian-born press baron snared by America’s renowned white-collar crime dragnet. Three years later, however, the noted historian could be on the verge of leaving an indelible mark on the way that country prosecutes white-collar criminals in the future.

The U.S. Supreme Court is scheduled to release its highly anticipated decision on the honest services statute by the end of June and many legal observers, including those who prosecuted Lord Black under the controversial law, predict the top court will strike down the 28-word act as unconstitutionally vague. “I really do believe that the

convictions on honest services violations for Conrad Black are going to be vacated,” says Bennett L. Gershman, a law professor at Pace University in New York. “I think the

entire [Supreme] Court does not like this law.”

Added Eric Sussman, the former U.S. assistant attorney who led the trial against Lord Black in Chicago: “It seems unlikely they’ll reject the appeal [by Black] out of hand.”

Indeed, an appeal that was once widely dismissed is increasingly the subject of legal speculation it may succeed.

The stakes are high not only for Lord Black, who could see his fraud convictions overturned and his 6.5-year prison sentenced reduced, if not eliminated entirely. If he prevails, the repercussions could be far reaching, as countless honest-services convictions may be overturned and hundreds more thrown into question.

“There is certainly the possibility that plenty of cell doors can and will open as a result of the Supreme Court’s ruling because it has become obvious to all following these cases, that the Supreme Court believes that the government has grossly misapplied the statute,” says Jacob S. Frenkel, a former federal criminal prosecutor and former SEC enforcement lawyer.

“It is certainly a much less lonely battle than it was for the first few years, and I am cautiously optimistic that justice will prevail, but take nothing for granted and am ready for anything that comes,” Lord Black said in an email to the Post. Although he founded the National Post, and continues to be a columnist, he has no official connection to the paper.

He declined to comment further until the release of the Supreme Court’s ruling.

Lord Black is appealing his three convictions on mail and wire fraud, which also include separate counts of honest services.

The former chief executive of Hollinger International Inc. was also convicted on one count of obstruction of justice in relation to his removal of 13 boxes from Hollinger’s downtown Toronto office during the criminal investigation.

The former chief executive of Hollinger International Inc., a Chicago-based publishing company that owned the Chicago Sun-Times, the Jerusalem Post, the Daily Telegraph of London and hundreds of community papers in North America, was convicted by a jury in 2007, along with three former senior Hollinger executives Jack Boultbee, Peter Atkinson and Mark Kipnis, of depriving the company’s shareholders of their faithful services as corporate officers.

The 65-year-old, currently serving a 78-month sentence in a Florida penitentiary, began mobilizing a legal fight to overturn his guilty verdicts soon after entering the Coleman Federal Correctional Complex in March 2008.

After a lower appeals court upheld his convictions, he was granted the rare privilege to be heard by the nine judges on the Supreme Court in 2009 – one of only about 100 of the 75,000 petitions received annually by the high court.

Soon after, similar appeals by Jeffrey Skilling, former CEO of Enron Corp., and Alaska state legislator Bruce Weyhauser followed.

Generally, the honest services law requires that public and corporate officials act in the best interests of their stakeholders. Originally designed to prevent government officials from using their positions for personal gain, it has also become an essential tool for U.S. prosecutors to combat corporate fraud.

The law makes it illegal for public officials and corporate executives to engage in activities that deprive those they serve of the “intangible right to honest services.”

U.S. law enforcement officials have increasingly relied on the statute’s lower burden of proof to convince juries that a defendant has deprived others of their honest services, rather than using other more specific anti-corruption laws with higher evidentiary thresholds.

Among them, Mr. Skilling, who was convicted in 2006 of a bevy of frauds, including honest services, after the spectacular collapse of the energy company in 2001. Mr. Weyrauch, a former member of the Alaska House of Representatives, was charged with honest services and mail fraud after the U.S. government accused him of failing to disclose his attempts to procure future employment from an oil company before voting for legislation that would benefit the company. Former Illinois governor Rod Blagojevich has been indicted under the controversial statute, while former New York state senator Joseph Bruno was convicted on two felony counts of theft of honest services last December. He is awaiting the Supreme Court’s ruling before starting his two-year jail sentence.

“It’s safe to assume that the Court considers extending honest services fraud into the corporate boardroom was an overbroad and misapplication of the statute,” said Mr. Frenkel, now a securities lawyer based in Potomac, Md. “The lesson here is prosecutors should not be getting cute and look to over extend the laws on the books.”

As a result, U.S. law enforcement authorities are concerned that a potent weapon in their anti-corruption arsenal is in jeopardy, as are possibly scores of convictions secured with it.

Critics argue the honest services statute is too vague and open to interpretation, and that it has been used to criminalize minor transgressions and ethical violations.

Lord Black argued this point when he appealed his case to the Seventh Circuit Court of Appeals in Chicago in 2008. But the 11 appellate judges upheld his convictions.

To the surprise of most legal experts, his last-ditch appeal to the Supreme Court had greater currency with some of the jurists who are highly skeptical of the honest services law.

Earlier this year, Justice Antonin Scalia described it as “mush” and 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.”

Justice Stephen Breyer criticized the statute as one “that picks up 80 to 100 million people” and observed that a “citizen is supposed to be able to understand the criminal law.”

Chief Justice John Roberts noted that if a person is not able to understand what is legal and what is not, the law is invalid. The broad wording of the statute makes it difficult to know with certainty what conduct runs afoul of the law.

That failing, according to Mr. Gershman, violates due process and makes the act unconstitutional. As a result, the convictions “would be vacated because you can’t be convicted under a law that is unconstitutional,” he argued.

While it was widely recognized that Justice Scalia had issues with the anti-corruption law, many are surprised the criticism “went deeper,” according to Mr. Sussman.

“I don’t think that any of the people who were dealing with it and arguing it [the Black case] felt that the legal issues we were dealing with were the issues that would one day be addressed by the Supreme Court,” he said.

Mr. Frenkel concurs.

“Everyone’s collective analysis previously was that it would fail on appeal,” he said. “No one could have suspected the Supreme Court collectively would have viewed the application of the statute as misapplied and overbroad.”

Even so, John Coffee, a law professor at Columbia University in New York City, predicts “it won’t be unanimous, I think it’ll be a split decision.”

Mr. Black and two of his co-defendents want the honest services convictions overturned arguing they intended no economic harm to the company when they received US$5.5-million in management fees. The money was collected as non-compete payments and crafted to receive favorable tax treatment in Canada. (Mr. Atkinson did not participate in the appeal to avoid delaying his transfer to a Canadian prison.)

However, Mr. Sussman and his fellow U.S. prosecutors successfully argued at the Chicago trial that the millions were stolen because they belonged to the company and its shareholders.

During the oral appeal at the Supreme Court last December, Lord Black’s lawyer argued the Chicago jury was given flawed instructions when it was told the former Hollinger executives could be found guilty if they merely failed to provide honest services to the company’s shareholders.

Miguel Estrada, Lord Black’s Washington-based lawyer, argued there was no evidence that Hollinger had suffered economic loss because of the non-compete and management fees received by Lord Black and his co-defendants.

Mr. Estrada urged the top court to strike down the honest services law because it was “vague, amorphous and open ended.”

While Lord Black’s appeal challenged only the fraud convictions, his legal team served notice in court filings that a victory on that issue would also require a reversal of the obstruction of justice judgment.

Some legal observers predict that may be a long shot.

“The majority of white collar prosecutions are ones in which people go to prison not for the original crime, but for what they did after the criminal investigation began,” observes Mr. Coffee.

Mr. Frenkel suggests that “Conrad Black’s case could be Martha Stewart revisited in that obstruction becomes the real reason he goes to jail, not the underlying conduct.”

For his part, Mr. Sussman isn’t betting that Lord Black’s criminal slate will be wiped clean.

The former prosecutor turned criminal defence lawyer anticipates the Supreme Court will remand Lord Black’s case to the lower appellate court for a “harmless error” review to determine how the top court’s ruling affects the rest of Lord Black’s convictions.

“I would be very surprised if the Supreme Court makes the final decision in terms of vacating the convictions in Mr. Black’s case. Even if they vacate the honest services convictions, the question still remains what happens to the mail and wire fraud? They are separate even though the same count,” he says.

Even if Lord Black prevails at the Seventh Circuit, he could still find himself before federal Judge Amy St. Eve, who presided over his trial, for re-sentencing on the obstruction charge. At that time, the U.S. government can decide to retry him strictly on the mail and wire fraud.

Mr. Frenkel says that’s unlikely to happen as long as the obstruction conviction remains. “As long as one conviction survives the ultimate appeal [Supreme Court], it’s not good use of government resources to retry an entire case,” he explains.

Mr. Gershman agreed, citing a legal doctrine that discourages vindictive prosecution as retaliation against defendants after they’ve raised legitimate claims on appeal and won.

“It strikes me if their convictions are vacated because this law is invalid, I don’t know that there’s any basis for further prosecution legitimately,” he said.

Those future machinations will begin to take shape once the Supreme Court has rendered its verdict.

“There’s a great deal of uncertainty right now,” said Daniel Petrocelli, the high-profile lawyer who argued the Supreme Court appeal for Mr. Skilling. “And all we can do is wait patiently, or even impatiently.”

Explaining the honest services law Conrad Black is appealing against

Conrad Black leaves the Derksen Federal Courthouse after being sentenced to 6-1/2 years in prison.

By Jim Middlemiss

Not just Conrad Black is waiting for the United States Supreme Court to rule on the validity of his honest-services conviction.

U.S. defence lawyers, prosecutors, judges and perhaps hundreds of white-collar criminals will all be watching their country’s top court rule on a trilogy of cases that attack Chapter 18, section 1346 of the U.S. Code, which makes it a crime to use the mail or wire services in a scheme that deprives another of the “intangible right of honest services.”

Some judges have put off sentencing those convicted of charges under section 1346 until the top court rules. “There are a whole bunch of cases that are in limbo waiting for this decision,” said Eric Breslin, a partner at Duane Morris in Philadelphia, who defends white-collar criminals.

“This is a very, very hot area in federal criminal practice in the United States. This is the opinion from the [U.S.] Supreme Court that, on a substantive criminal law basis, everyone is waiting for.”

Lord Black, along with former Hollinger executives Jack Boultbee and Mark Kipnis, have appealed their convictions under section 1346 to the U.S. Supreme Court.

The court is considering similar challenges from Jeffrey Skilling, the former president of Enron Corporation, and former Alaska state politician, Bruce Weyhrauch, who faces charges of soliciting legal work from a company that sought lower oil taxes from the state legislature. In the Weyhrauch case, a district court judge ordered evidence excluded from his trial related to an honest-services charge, and an appeals court ruled it was admissible, setting up the Supreme Court showdown.

Honest services is a quirky law originally conceived to keep public officials honest. But it has been used as a catchall to put white-collar criminals behind bars for various deceits. Lawyers and judges have grown increasingly critical of the law, calling it broad and vague. Just this week, federal prosecutors were reportedly looking at the law as a way of going after top Catholic church officials in Los Angeles, for covering up abuse of minors by priests.

In a 2003 case, federal appellate Judge Barrington Parker Jr. wrote: “It is quite clear that the statute imposes insufficient constraint on prosecutors, gives insufficient guidance to judges, and affords insufficient notice to defendants.”

The Supreme Court could choose to strike down the law, which could lead to those currently in jail for honest-services charges being able to seek release. The court could also uphold the law or it could seek to limit its reach by putting in restrictions on how it is applied or interpreted.

In the Black case, the charge centres on non-compete payments executives received in the sale of publications. Under Canadian law, such payments were tax-free at the time of the sale.

The jury dismissed the bulk of charges against the men which were grounded in fraud involving theft of money, but found them guilty on three counts of wire fraud for failing to provide the intangible right of honest services.

The problem with the law, said Jonathan Marcus, one of the lawyers who intervened in the Black appeal on behalf of the U.S. Criminal Defence Lawyers Association, is that it “gives prosecutors too much leeway and too much latitude. It’s vague and doesn’t provide clear guidance to the average citizen about what’s prohibited and what’s not. It’s very vulnerable to being invalidated.”

Lord Black’s lawyers have argued that “the government has stretched this malleable phrase, unknown in the common law, far beyond the public corruption context that gave rise to its enactment, treating the statute as ‘nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct.’”

The main thrust of the appeal is that the prosecutors had to show some sort of harm flowed to Hollinger, which the defence said the prosecutors failed to do and the jury instructions omitted. The government takes the position that it does not have to show economic harm to get a conviction.

The law was enacted in 1988 essentially to undo a Supreme Court ruling that the government could not use the fraud laws as they were worded at the time to prosecute schemes that deprived citizens of the intangible right to honest services.

The U.S. Chamber of Commerce has attacked the law, noting in its legal brief that it “imposes an unwarranted burden on American companies and executives who are entitled to fair notice of what conduct is and is not prohibited.”

The Citizens for Responsibility and Ethics in Washington has joined the government’s side, arguing that imposing a harm test on the law would “deprive prosecutors of this critical tool,” which the group says is used to “indict public officials on the basis of their intentional non-disclosure of a material conflict of interest.”

The court must rule on the matter before its term recesses in June.

National Post

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