Thursday, June 24, 2010

Bruce Weyhrauch Gets Good News as the Honest Services Fraud Statute Gets Cut Back


Mark Regan writes:

The Supreme Court has called into question the federal “honest services fraud” charges against Bruce Weyhrauch. Weyhrauch has been charged under a federal mail fraud statute, 18 U.S.C. secs. 1341 and 1346, with depriving Alaska citizens of the intangible right to his honest services. As with Pete Kott and Vic Kohring, the charges against Bruce Weyhrauch came out of the 2006 legislative session, when Bill Allen and VECO orchestrated legislative resistance to higher oil taxes. The Court has remanded Weyhrauch's case to the Ninth Circuit for further consideration in light of its decision in Skilling v. U.S., which held that the honest services fraud statute covered only bribes and kickbacks, not undisclosed self-dealing.

A reason it was difficult to make charges such as bribery and extortion stick against Bruce Weyhrauch was that the facts of his case differed significantly from the facts of Pete Kott’s and Vic Kohring’s cases. They got money, allegedly in return for voting VECO’s way on oil tax issues, and the exchange of money for votes looks like bribery and extortion. Weyhrauch did not get any money. He allegedly got the promise that VECO would talk with him about giving him some legal work at a date after the legislative session. He might have disclosed that he was negotiating with VECO about employment at the same time he was voting on various bills, but he didn’t disclose this. Just before trial, Judge John Sedwick ruled that Weyhrauch’s failure to disclose his ongoing discussions with VECO could not by itself be grounds for convicting him of honest services fraud. So, given that ruling and the facts of Weyhrauch’s case, the Federal Government decided to appeal Judge Sedwick’s ruling instead of going to trial.

Judge Sedwick didn't rule that the honest services fraud statute was unconstitutional. He ruled that it couldn’t be used to convict a public official of performing official acts while failing to disclose a conflict of interest, unless the public official’s failing to disclose that conflict of interest was illegal under state law -- which Bruce Weyhrauch’s failure-to-disclose wasn’t. The Ninth Circuit reversed this ruling about the honest services fraud statute, and the Supreme Court then granted Weyhrauch’s petition for certiorari.

Weyhrauch’s case was one of three honest services fraud cases pending before the Supreme Court. The other two involved a media financier, Conrad Black, who had allegedly gotten extra compensation from his company, and an Enron executive, Jeffrey Skilling, who had allegedly made false statements while trying to talk up the company’s share price. The issue principally raised in the Black case was whether the Government had to prove that Black’s conduct caused economic harm to the company. The issues principally raised in the Skilling case were whether the statements in question had to have led to economic gain for the person making the statements, and whether the honest services fraud statute is unconstitutionally vague.

The Supreme Court’s main discussion of the honest services fraud statute appears in its Skilling decision. Justice Ginsburg's conclusion for six members of the Court (herself, Chief Justice Roberts, and Justices Stevens, Breyer, Alito, and Sotomayor) is that the statute is not unconstitutionally vague, but only when it's limited to its "core" cases -- bribes and kickbacks. The opinion rejects the idea that the statute ought to be read to cover undisclosed self-dealing. Justice Scalia, for himself and Justices Thomas and Kennedy, would have struck down the honest services fraud statute as unconstitutionally vague in all its possible applications.

The honest services fraud statute is a Congressional response to a 1987 U.S. Supreme Court decision, McNally v. U.S. In the McNally case, a Kentucky public official (and his co-conspirators) had failed to disclose their financial interest in a company that had gotten a share of state insurance commissions. The company they owned had gotten a share of those commissions because the official and his associates had required a second company, which actually provided the insurance to the state, to turn a share of the commissions over to the company they owned. There was no allegation that the Kentucky state government itself had lost any money in the deal. The Supreme Court decided in the McNally case that the federal mail/wire fraud statute did not cover depriving state citizens of their intangible rights to honest and impartial government, so the official’s and cohorts’ convictions were reversed.

Congress responded to the McNally decision by amending the mail/wire fraud statutes to say that “the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.“

The Supreme Court has now said in the Skilling decision that the amended statute properly covers the conduct at issue in the McNally case (a classic kickback) but not undisclosed self-dealing, which is what it says Skilling himself was accused of. It has noted that Black's honest services fraud case did not involve any bribes or kickbacks, and sent that case back to the Seventh Circuit for further consideration. And, finally, it has sent Bruce Weyhrauch's case back to the Ninth Circuit for further consideration. At oral argument, there was some discussion of whether Weyhrauch could properly be tried on a bribery/extortion/quid pro quo theory, and one would expect that question to be the focus of the Ninth Circuit's inquiry. Trying him for undisclosed self-dealing would appear to be contrary to the Skilling decision.

Last December, Cliff pointed out that only six of the 12 people charged in the Alaska public corruption cases were charged with honest services fraud, and that Pete Kott was acquitted of that charge, while Bill Allen, Rick Smith, Jim Clark, and Bill Weimar all pled guilty to that charge, or to a conspiracy charge. So the only person getting immediate benefit from today’s decision is Bruce Weyhrauch.

--Mark Regan

Addendum from Mark Regan--

The oral argument in the Weyhrauch case can be found at on the Internet. The points in the transcript where there are questions about whether the Government could prove a case under something other than a nondisclosure theory, for example, under what Bruce Weyhrauch's attorney called "a traditional, simple allegation of bribery," are at pages 8-11, 26, 29-33, 38-39, 53-57, 58-59, and 61.

--Mark Regan

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