A federal appeals court on Friday upheld [opinion, PDF] the conviction of ex-Merrill Lynch [corporate website] executive James Brown stemming from his role in the Enron fraud scandal [JUIRST news archive]. Brown was indicted on five counts in 2003 stemming from a 1999 transaction in which Merrill took a $28 million equity interest in a facility of barge-mounted power generators on the Nigerian coast along with Enron. The transaction, in which Merrill paid Enron $7 million and loaned $21 million more was ultimately exposed as a "sham sale" designed only to "allow Enron to artificially enhance its fourth-quarter earnings to meet forecasts." Brown served as the director in charge of Merrill's Strategic Asset and Lease Finance group at the time. With three of the charges dropped [JURIST report], Brown was convicted [JURIST report], along with three other former Merrill executives, in 2004 on charges of perjury and obstruction of justice. Brown challenged his convictions on the grounds that the government violated his right to due process by "withholding materially favorable evidence that it possessed pre-trial," specifically a set of FBI notes from an interview of Enron CFO Andrew Fastow, Senate investigators' notes from an interview with Enron Treasurer Jeff McMahon and transcripts of testimony delivered by Merrill Lynch Chief Counsel Katherine Zrike delivered to a grand jury and the Securities and Exchange Commission (SEC) [official website]. The court held that the evidence in question was not material and thus, under Brady v. Maryland [opinion], insufficient to overturn Brown's conviction:
Brown points to the divided panel in Brown I to argue that the case against him was relatively weak. It is true that the panel was divided on Brown's guilt, but that division was over whether a legally unenforceable oral promise could establish Brown's guilt, not whether there was an oral promise at all [as documented in the undisclosed FBI evidence]. . . . The alleged Brady evidence in this appeal only addresses the latter issue . . . It thus does not call the majority's holding in Brown I into question, and we have no authority to relitigate the issue that divided the panel. In short, the district court did not commit reversible error in holding that the Brady items, taken together, did not create a reasonable probability of a different outcome.The Fifth Circuit overturned fraud and conspiracy convictions [opinion, PDF; JURIST report] against Brown in 2006 "on the legal ground that the government's theory of fraud relating to the deprivation of honest services — one of three theories of fraud charged in the Indictment — is flawed." Enron CEO Jeffrey Skilling [JURIST news archive] was also absolved of fraud charges when the Supreme Court's interpreted the "honest service" doctrine [18 USC § 1346] narrowly in Skilling v. United States [Cornell II backgrounder; JURIST report]. Although the Court's ruling [text, PDF] did not overturn the rule as unconstitutionally vague, it limited its application only to instances of bribery and kickbacks.