United States v. Brown

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 1, 2006
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 05-20319
_____________________

UNITED STATES OF AMERICA,

Plaintiff - Appellee,

versus

JAMES A. BROWN; DANIEL BAYLY; ROBERT S. FURST; WILLIAM R. FUHS,

Defendants - Appellants.
_________________________________________________________________

Appeals from the United States District Court
for the Southern District of Texas
USDC No. 4:03-CR-363-2
_________________________________________________________________

Before REAVLEY, JOLLY, and DeMOSS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This appeal arises from a six-week trial in which the

Government charged that Enron and Merrill Lynch employees of

engaged in a conspiracy and scheme to defraud Enron and its

shareholders by “parking” an Enron asset -- an equity interest in

three power-generating barges moored off the coast of Nigeria --

with Merrill for six months for the purpose of artificially

enhancing Enron’s 1999 end-of-year earnings report. Merrill agreed

to invest $7 million to purchase equity in the barges so that Enron

could record $12 million in earnings and meet its forecasts. The

Government contended, however, that the sale was a sham because

Enron executives orally promised Merrill a flat fee of $250,000 and
a guaranteed 15% annual rate of return over the six-month period of

Merrill’s investment; Enron executives allegedly promised that

Enron or an affiliate would buyback Merrill’s interest in the

barges if no third party could be found. Such a buyback agreement,

the Government contended, rendered Merrill’s interest in the barges

risk-free, meaning that Enron’s accounting of the deal as a sale

rather than a lease was false. The jury agreed and convicted the

appellants of conspiracy and wire fraud. Additionally, appellant

Brown was convicted of perjury and obstruction of justice. For the

reasons stated below, we reverse the conspiracy and wire-fraud

convictions of each of the Defendants 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. We further vacate appellant Fuhs’s

conviction on the ground that the evidence is insufficient to

support his conviction. Finally, we affirm appellant Brown’s

convictions of perjury and obstruction of justice.

I

The trial below involved six Defendants. Sheila Kahanek, an

accountant by training and a Senior Director in Enron’s

Asia/Pacific/Africa/China (“APACHI”) energy division, was acquitted

of all charges against her. Daniel Boyle, an Enron Vice President

of Global Finance, was convicted on all counts against him and does

not appeal. The following four Merrill Lynch executives (the

“Defendants”) were convicted on all counts against them and appear

2
before us on appeal: Jim Brown, the head of Merrill’s Strategic

Asset and Lease Finance Group in New York City; William Fuhs, a

Vice President under Brown in the New York office; Daniel Bayly,

the head of Merrill’s Global Investment Banking division; and

Robert Furst, a Merrill executive answering directly to Bayly,

responsible for generating business from Enron.

A

The Nigerian barges at the heart of this case were held by

Enron’s APACHI energy division. At the close of 1999, APACHI was

pressured to monetize or sell assets in order to show a gain and

meet earnings targets that, in turn, would allow Enron as a whole

to meet the company’s forecasted earnings for the final quarter of

1999. Various attempts at selling APACHI’s primary asset, the

barges, to an industry buyer were made in the final months of 1999,

but each prospective deal collapsed. In early December 1999, Enron

executives discussed the need for an “emergency alternative.” When

executives were informed that the barges would not be sold by

year’s end, they responded that a “friend of Enron,” Merrill Lynch,

might be able to buy the barges and “help Enron out.”

In late December, Enron approached Merrill about buying the

barges. Boyle discussed the deal with Furst, Merrill’s Enron

relationship manager. Furst communicated with others at Merrill,

including Bayly, Brown, and Schuyler Tilney, the head of banking in

Merrill’s Houston office. Furst explained that Enron’s then-

Treasurer, Jeff McMahon, “asked Merrill to purchase $7 [million] of

3
equity in a special purpose vehicle that will allow Enron to book

$10 [million] of earnings. The transaction must close by 12/31/99.

Enron is viewing this transaction as a bridge to permanent equity

and they believe [Merrill’s] hold will be for less than six months.

The investment would have a 22.5% return.” Furst emphasized the

importance of fostering an ongoing business relationship with Enron

and that the deal offered Merrill a chance to differentiate itself

from other investment banks. When Furst explained the deal to

Katherine Zrike, chief counsel for Merrill’s Global Investment

Banking, Zrike noted her concern due to the year-end nature of the

deal, its unique quality, and a lack of due diligence.1

Furst and Brown communicated by fax regarding the deal, and

Brown noted his concerns: “Enron credit/performance risk,” a lack

of “repurchase oblig. from Enron,” and the “reputational risk” of

“aid[ing]/abet[ting] Enron income stmt. manipulation.” Brown also

communicated his concerns to Fuhs, who in turn communicated the

risks, including the risk of aiding Enron with “income

manipulation,” to Tina Trinkle, an analyst. Due to these concerns,

the short timeline, and a lack of information about the deal, some

1
On December 1, 1999, Merrill reissued its policy, warning of
problematic end-of-year transactions by clients seeking to show
gains or losses prior to the end of the year. “Clients wishing to
effect a sale and then reestablish a position must be advised that
there can be no prearrangement as to the availability of the
financial instrument or the specific purchase price, if and when
the client decides to reestablish the position.”

4
Merrill employees, including Trinkle, thought the deal would not go

through.

According to the Government, the barge deal proceeded because

Enron agreed that either it or an affiliate would repurchase the

barges from Merrill if a third-party buyer could not be found and

that Enron would pay a fixed rate of return for the duration of

Merrill’s hold of the interest in the barges. Ben Glisan, a

colleague of Boyle’s and a Government witness, testified that

multiple sources informed him of Enron’s oral guarantee that

Merrill would be taken out of the transaction within six months for

a set return on the investment.

On December 22, Bayly, Brown, Furst and others (excluding Fuhs

and any lawyers) participated in a conference call about the deal

(the “Trinkle call”). Furst and Tilney explained that Enron needed

to sell the barges by year-end in order to book additional earnings

in 1999 and that someone at Enron indicated that Enron would agree

to take Merrill out at a fixed rate of return. Bayly asked for a

written assurance to support Enron’s promise, and someone responded

that a writing was not possible because such an assurance would

prevent Enron from receiving the accounting treatment it sought

with the deal. But either Furst or Tilney responded that Enron had

given its strongest verbal assurances that Merrill would not own

the barges after June 30. That same day, Brown and Fuhs received

an e-mail from Furst’s office in Dallas, describing some of the

material terms of the deal including that Bayly would confirm

5
Enron’s promise with senior Enron management. In a later meeting

with Furst that day, Zrike warned that for Enron to show the sale

as a profit on its books, Merrill would have to own the barges

outright without any buyback agreement. Furst stated that the

agreement contemplated only Enron’s attempt to remarket the barges.

Zrike restated her concerns in afternoon meetings with Bayly on

December 22, where the Government alleges Bayly had a duty, under

Merrill’s policy, to disclose his awareness of Enron’s buyback

promise to Zrike but failed to do so. At the end of the day on

December 22, Furst e-mailed Boyle to announce the conference call

between Bayly and Enron management –- Andrew Fastow, McMahon, and

Boyle -– for 9:30 the next morning.

According to Government witness Eric Boyt, an accountant for

APACHI, both Fastow and Boyle said that during the conference call,

Fastow promised that Merrill would not own the barges for longer

than six months and that if Enron could not facilitate a buyer, it

would “guarantee a 15 percent buyback within six months.” In this

vein, Boyle authored an e-mail explaining the transaction as

follows: “[Merrill’s] decision to purchase the equity was based

solely on personal assurances by Enron senior management to

[Merrill] that the transaction would not go beyond June 30, 2000.”

Although Brown was not on the December 23 conference call, the

Government alleges that he understood Fastow’s promise on Enron’s

behalf; this allegation is supported by Brown’s later e-mail of

March 2001, describing a similar, prospective deal: “I would

6
support an unsecured deal provided we had total verbal assurances

from [the company’s C.E.O. or C.F.O.] . . . . We had a similar

precedent with Enron last year, and we had Fastow get on the phone

with Bayly and lawyers and promise to pay us back no matter what.

Deal was approved and all went well.”

Following this call, the initial draft of the “engagement

letter” for the deal, including reference to Enron’s oral buyback

promise, was circulated. On December 28, Boyle sent out a revised

version of the engagement letter, with “strike-through” indicating

proposed removal of the language about the annual rate of return

and that Merrill’s interest would be subsequently sold or

repurchased by Enron or an Enron affiliate. Another draft, with

the oral promises redacted entirely, was circulated shortly

thereafter and signed by Brown and Fastow.

At the end of 1999, Enron recorded the barge deal and booked

from it $12,563,000 in earnings. The Government argues this

booking was a false entry because Merrill’s investment was never at

risk in the light of the guaranteed buyback, advisory fee, and

fixed rate of return. These oral but material terms, according to

the Government’s witnesses, required that the deal be booked as a

loan rather than as a sale.

The Government further asserted that the parties’ conduct,

between the end of 1999 and June 2000, was consistent with Enron’s

oral promise to buy back the parked barges from Merrill: Enron

wired a $250,000 “advisory fee” to a Merrill account at Citibank

7
even though Brown testified that Merrill did not provide advisory

services; Merrill did not monitor Enron’s attempts to remarket the

barges during the interim period; efforts to remarket the barges on

APACHI’s behalf were motivated by a desire to preclude Enron from

having to repurchase them from Merrill; Enron contacted Furst

seeking an extension of the deadline; and Merrill drafted for

Furst’s signature a letter to Enron demanding that Enron purchase

the barges by June 30 for $7,510,976.65, a number that was

consistent with the terms of the oral guarantee. Before the letter

left Merrill, however, Fuhs contacted Furst and told him that Enron

had lined up a buyer, an entity called LJM2.2 LJM2 served as a

temporary warehouse for Enron assets, according to Glisan’s

testimony, and was not wholly independent from Enron.

Merrill and LJM2 closed the deal for the resale on June 29,

2000, when LJM2 paid Merrill $7,525,000 for its interest in the

barges.3 That figure represented exactly six-months’ return at a

2
Brown, Bayly, Furst, and other Merrill employees invested in
a Merrill partnership which in turn invested in LJM2. Brown
invested $32,500 of the $400 million LJM2 fund; Furst and Bayly
each invested $130,000.
3
In turn, the plan was for LJM2 to also flip the interest in
the barges after the end of 2000 so that Enron would not have to
show that the profits earned in 1999 were “unwound.” In return for
Enron’s use of LJM2's balance sheet in this manner, Enron was to
pay LJM2 a flat $350,000 fee and a 15% annual rate of return for
the period it held the barges, and ensure that LJM2 would be taken
out of the investment by January 15, 2001. An industry buyer, an
energy company, ultimately bought the barges during the period LJM2
held the barges; tellingly, this ultimate buyer conducted purchase
negotiations with APACHI, not with LJM2 which held the barges in
name.

8
rate of 15% annually. Including the $250,000 “advisory fee”

received at the end of 1999, Merrill made $775,000 on its

investment in the barges. At the close of the deal, Fuhs e-mailed

Brown and Furst to inform them that the money had been paid to

Merrill and referred to the fact that Brown and Furst (along with

Bayly) were investors in LJM2 and as such still bore an interest in

the barges.

B

The Government charged all six Defendants with one count of

conspiracy and two counts of wire fraud. The conspiracy count

alleged a conspiracy under 18 U.S.C. § 371 to commit wire fraud in

violation of § 1343 (the “money or property” charge) and § 1346

(the “honest services” charge), and to falsify Enron’s books and

records in violation of 15 U.S.C. § 78m(b)(2), (b)(5) and 78ff, and

17 C.F.R. § 240.13b2-1 (the “books and records” charge). The

substantive wire fraud counts were based upon two interstate

transmissions between Houston and New York. The Government also

charged Brown with perjury before a Grand Jury in violation of 18

U.S.C. §§ 1623 and 3551, and with obstruction of a Grand Jury

investigation in violation of 18 U.S.C. §§ 1503 and 3551.

The six Defendants were tried together by jury over six weeks.

At the close of the Government’s case in chief, each Defendant

moved for a judgment of acquittal under Rule 29(a), claiming that

the Government’s evidence was insufficient to sustain a conviction

on any count of the Indictment. The district court reserved ruling

9
on the motions under Rule 29(b). Boyle and the appealing

Defendants were convicted of the conspiracy and wire fraud counts;

Kahanek was acquitted. Brown was additionally convicted on the

perjury and obstruction counts. The Defendants renewed their

motions for acquittal, and the court denied the motions in the

light of “substantial evidence justifying an inference of guilt

with respect to each.” Brown was sentenced to 46 months’

imprisonment; Bayly was sentenced to 30 months’ imprisonment; and

Furst and Fuhs were each sentenced to 37 months’ imprisonment.

II

The Defendants raise numerous issues on appeal. The

Defendants’ broadest attack on their convictions suggests that,

even if the Government proved all the allegations in the

Indictment, the alleged scheme would not run afoul of the wire

fraud statutes -- there was no deprivation of Enron’s intangible

right to the honest services of its employees, and there was no

scheme to defraud Enron and its shareholders of money or property.

The Defendants also claim that the crime of conspiracy does not

apply to the falsification of a corporation’s books and records

because of explicit statutory language to that effect. 15 U.S.C.

U.S.C. § 78m(b)(2), (b)(5) and 78ff. The Defendants raise numerous

further claims regarding 1) jury instructions on the theory of the

defense, good faith, and the materiality requirement of the books-

and-records charge; 2) evidentiary and related rulings, most

notably, admission into evidence of an inculpatory e-mail by Brown,

10
allowance of testimony as to Furst’s belief that the barge deal

included an Enron guarantee, exclusion of an expert witness on

accounting standards, failure of the court to order disclosure of

allegedly exculpatory evidence in the form of details of Fastow’s

interview with the FBI, and exclusion of impeachment evidence in

the form of contradictory statements by Fastow; 3) the denial of

their individual motions for acquittal and the sufficiency of the

evidence supporting their convictions; and 4) the calculation of

their sentences. Brown additionally appeals the legal and factual

sufficiency of the evidence supporting his convictions for perjury

and obstruction of justice, and Fuhs additionally alleges

prosecutorial misconduct in the form of a repudiation of a

stipulation pertaining only to him.

Because we hold that the honest-services theory of wire fraud

does not extend to the circumstances as contended by the

Government, we vacate the conspiracy and wire-fraud convictions.

We therefore do not reach the remaining issues, with the exception

of the denial of the Defendants’ motions for acquittal, which we

reverse only as to Fuhs, and Brown’s appeal of his separate perjury

and obstruction convictions, which we affirm.

III

A

We begin with the Defendants’ broad attack on the legal

sufficiency of the Government’s assertion of criminal liability.

11
We review the legal sufficiency of an Indictment de novo. United

States v. Caldwell, 302 F.3d 399, 407 (5th Cir. 2002).4

The Indictment charged the Defendants with one count of

conspiracy and two substantive counts of wire fraud. The

conspiracy count alleged a conspiracy to violate two different

statutes. The first statute is the wire-fraud statute, 18 U.S.C.

§ 1343, which reads:

Whoever, having devised or intending to devise
any scheme or artifice to defraud, or for
obtaining money or property by means of false
or fraudulent pretenses, representations, or
promises, transmits or causes to be
transmitted by means of wire, radio, or
television communication in interstate or
foreign commerce, any writings, signs,
signals, pictures, or sounds for the purpose
of executing such scheme or artifice, shall be
fined under this title or imprisoned not more
than 20 years, or both. If the violation
affects a financial institution, such person
shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.

Following the Supreme Court’s decision in McNally v. United States,

483 U.S. 350 (1987), that § 1343 only protects “money or property”

and not an employer’s or the public’s right to the honest services

of employees and public officials, Congress added § 1346, which

reads:

4
The Government notes some confusion as to whether the
Defendants’ argument challenges the legal sufficiency of the
Indictment or the sufficiency of the jury instructions. If the
latter, the Defendants’ failure to object during the charge
conference would render our standard of review one for plain error.
However, it is clear the Defendants mount a facial challenge to the
Indictment, and the Government accepts the propriety of de
novo review.

12
 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.

Thus, the conspiracy count recited two objects of the alleged

conspiracy to commit wire fraud, namely, the fraudulent deprivation

of Enron’s intangible right to the honest services of its

employees, and the fraudulent deprivation of Enron’s money or

property. The second criminal statute is 15 U.S.C. § 78ff, which

punishes

[a]ny person who willfully violates any
provision of this chapter (other than section
78dd-1 of this title), or any rule or
regulation thereunder the violation of which
is made unlawful or the observance of which is
required under the terms of this chapter, or
any person who willfully and knowingly makes,
or causes to be made, any statement in any
application, report, or document required to
be filed under this chapter or any rule or
regulation thereunder . . . .

Thus, the conspiracy count alleged violation of the requirements

set forth in 15 U.S.C. § 78m(b)(2),(5) and 17 C.F.R. § 240.13b2-1.5

Because the jury was not asked to indicate the basis for its

verdict, the Government must prove all three theories in order for

us to affirm the convictions. Yates v. United States, 354 U.S. 298

(1957). The Defendants argue that the Government has proved none

of the three theories it alleges in the Indictment.

5
“No person shall directly or indirectly, falsify or cause to
be falsified, any book, record or account subject to Section
13(b)(2)(A) of the Securities Exchange Act.” 17 C.F.R. § 240.13b2-
1.

13
 B

Wire fraud is (1) the formation of a scheme or artifice to

defraud, and (2) use of the wires in furtherance of the scheme.

See Pereira v. United States, 347 U.S. 1, 8 (1954); United States

v. Caldwell, 302 F.3d 399, 406 (5th Cir. 2002). Violation of the

wire-fraud statute requires the specific intent to defraud, i.e.,

a “conscious knowing intent to defraud,” United States v. Reyes,

239 F.3d 722, 736 (5th Cir. 2001); however, specific intent to

defraud need not be charged in the Indictment.

Honest-services wire fraud is wire fraud in which the scheme

or artifice to defraud “deprive[s] another of the intangible right

of honest services.” 18 U.S.C. § 1346. This provision can be

understood only in the light of the long history of the mail- and

wire-fraud statutes, which were intentionally written broadly to

protect the mail and, later, the wires from being used to initiate

fraudulent schemes. See McNally, 483 U.S. at 356. Over time, the

lower courts came to construe the fraud statutes to protect not

just money and property but also intangible rights such as the

right to privacy,6 and the right to honest services of employees

and public officials. In McNally, however, the Supreme Court

excised the protection of intangible rights from the scope of §§

1341 and 1343, holding that the statutes as written protected only

money and property. The Court explained that the 1909 amendment

6
See, e.g., United States v. Condolon, 600 F.2d 7 (4th Cir.
1979); United States v. Louderman, 576 F.2d 1383 (9th Cir. 1978).

14
adding “or for obtaining money or property by means of false or

fraudulent pretenses, representations, or promises” was meant to

confirm that liability covered not just fraudulent misstatements

about existing facts but also fraudulent promises and

representations about the future. Congress’s use of the

disjunctive in specifying “obtaining money or property” as an

object of the fraud was not meant to expand the criminal statute

beyond the protection of money and property. Id. at 358-60.

Congress responded by passing § 1346, which reads in its entirety,

“A ‘scheme or artifice to defraud’ includes a scheme or artifice to

deprive another of the intangible right of honest services.” 18

U.S.C. § 1346. As we and other courts have held, § 1346 was

clearly meant specifically to overturn McNally, at least with

respect to the particular intangible right named in the statute,

i.e., the right to honest services. See United States v. Brumley,

116 F.3d 728, 733 (5th Cir. 1997) (en banc); United States v.

Rybicki, 354 F.3d 124, 134, 136-37 (2d Cir. 2003). Thus, the

meaning of honest services -– given that the statute provides no

perimeters -- is to be found in the pre-McNally case law. Brumley,

116 F.3d at 733; Rybicki, 354 F.3d at 136-37.

We have previously undertaken the task of considering the pre-

McNally case law. Thus, we have written, “‘Honest services’ are

services owed to an employer under state law,” including fiduciary

duties defined by the employer-employee relationship. Caldwell,

302 F.3d at 409; Brumley, 116 F.3d at 734. In order that not every

15
breach of fiduciary duty owed by an employee to an employer

constitute an illegal fraud, we have required some detriment to the

employer. United States v. Ballard, 663 F.2d 534, 540 (5th Cir.

1981). Ballard, however, implies that breach of the duty to

disclose material information is a sufficient detriment to the

employer because the materiality requirement, added to the false

disclosure or nondisclosure of information, contemplates that the

undisclosed information would have led a reasonable employer to

change its business conduct. Id. at 541; see also Rybicki, 354

F.3d at 145.7 Here, the Government alleged not only the harm

inherent in the failure to disclose material information -- that

the barge transaction presented no risk to Merrill because of the

oral side deal -- but also concrete harms to Enron in the form of

fees paid to Merrill to effect the deal and compensation bonuses

paid to Enron employees that depended on the completion of the

barge deal.

The Seventh Circuit has additionally held that honest-services

fraud requires some personal benefit accruing to the duty-breaching

employee. United States v. Bloom, 149 F.3d 649 (7th Cir. 1998).

Here, those same bonuses would likely constitute such a personal

benefit accruing to the Enron employees taking part in the alleged

scheme.

7
The Government must allege materiality in the Indictment, but
failure to do so is not fatal “if the facts alleged in the
Indictment warrant an inference of materiality.” Caldwell, 302 F.3d
at 409.

16
 Thus, the Government presents a very plausible, even strong,

case for a criminal deprivation of honest services, alleging a

fiduciary breach -- the failure to disclose the full truth about

the barge transaction -- that resulted in both a personal benefit

(increased bonus) to the duty-breaching Enron employees and

detriments (but also benefits) to the corporation itself.8

Nevertheless, the Defendants put forth an equally plausible

argument that the limiting statements we have expressed in our past

cases do not demarcate the exact outer-most boundaries of honest

services. Instead, those limiting statements represent only

minimal distinctions we have had occasion to declare, and thus they

do not exhaust the constraints that are appropriate to recognize.

Thus, for example, we noted in Brumley that “the boundaries of

‘intangible rights’ may be difficult to discern, but that does not

mean that it is difficult to determine whether Brumley in

particular violated them.” Brumley, 116 F.3d at 733. If we are

8
The Government’s contention that Enron suffered a detriment
is not trouble-free. The breach in question resulted in an
increase in Enron’s stock price, an immediate benefit Enron
specifically sought. The Defendants indeed argue explicitly that
their actions benefitted the company for this very reason.
Certainly, from a practical and short-term perspective, this is
true. The Government claims that the detriment was Enron’s
spending money (in the form of fees paid to Merrill and bonuses
paid to employees) for the “sole purpose of misleading shareholders
and the investing public.” This theory is not fully convincing
absent the implicit claim that this specific deal led to Enron’s
unraveling, a causal connection for which there is no substantiated
support. Nevertheless, we will assume for purposes of this opinion
that the alleged detriment satisfies that element of honest-
services fraud.

17
not to lapse into defining a common law crime, the outer boundary

of this facially vague criminal statute must be determined from the

factual circumstances supporting affirmed convictions, not by

negative implication from the few constraints mentioned in

disparate cases.9 In essence, the Defendants argue that between

the core of cases affirming honest-services fraud convictions and

the shell of cases reversing them, there is a gap, a lacuna, a

vacuum, a no-man’s land, a demilitarized zone, in which this case

awkwardly sits alone.

Appraising this argument requires a study of the case law to

understand what behavior justifies criminal liability. We begin by

noting that the Government urges the broadest reading by relying on

the barest reiteration of the few constraints we have previously

acknowledged, even going so far as to argue that no detriment aside

from the fiduciary breach itself is necessary because “it is

sufficient for the government to show that the defendants violated

a duty imposed by state law. . . . The plain text of Section 1346

. . . does not require any detriment . . . beyond proof that the

scheme or artifice to defraud ‘deprive[d] another of the intangible

right of honest services.’” Given our repeated admonition that

“not every breach of fiduciary duty works a criminal fraud,” see

Ballard, 663 F.2d at 540 (quoting United States v. George, 477 F.2d

9
Put another way, the Defendants argue that the scope of
honest-services fraud is defined by the set of cases in which
convictions have been upheld, not by the complement of the set of
cases in which convictions have been reversed.

18
508, 512 (7th Cir. 1973)), we consider such a broad theory of

liability with caution.10

Turning to the case law, we are guided by the leading opinion

on honest-services fraud, the Second Circuit en banc decision in

Rybicki, supra. Rybicki concluded, and we agree, that cases

upholding convictions arguably falling under the honest services

rubric can be generally categorized in terms of either bribery and

kickbacks or self-dealing. The great weight of cases are clear

examples of such behavior.11 The Second Circuit formulated the

following rule based on its analysis:

[A] scheme or artifice to deprive another of
the intangible right to honest services in
section 1346, when applied to private actors,
means a scheme or artifice . . . to enable an
officer or employee of a private entity . . .
purporting to act for and in the interests of
his or her employer . . . secretly to act in

10
It is also worth noting that the Government’s argument is
somewhat circular, relying as it does on the statutory text’s use
of the term “honest services.” As already stated, the statute
itself provides not a hint of the definition of the term; instead,
it is the case law that establishes the meaning of the vague and
amorphous phrase.
11
See Rybicki, 354 F.3d at 139-44. For bribery/kickback cases,
see United States v. Schwartz, 785 F.2d 673 (9th Cir. 1986); United
States v. Price, 788 F.2d 234 (4th Cir. 1986); United States v.
George, 477 F.2d 508 (7th Cir. 1973); United States v. Connor, 752
F.2d 566 (11th Cir. 1985); United States v. Bryza, 522 F.2d 414
(7th Cir. 1975); United States v. Hasenstab, 575 F.2d 1035 (2d.
Cir. 1978); United States v. Lemire, 720 F.2d 1327 (D.C. Cir.
1983); United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980);
United States v. Boffa, 688 F.2d 919 (3d Cir. 1982). For examples
of self-dealing cases, see Ballard; Epstein v. United States, 174
F.2d 754 (6th Cir. 1949); United States v. McCracken, 581 F.2d 719
(8th Cir. 1978); United States v. Von Barta, 635 F.2d 999 (2d Cir.
1980).

19
 his or her or the defendant’s own interests
instead . . . .

Rybicki, 354 F.3d at 141-42.12 Our circuit’s analysis has not been

much different from Rybicki’s, although perhaps we have couched our

language more broadly in terms of an understood divergence, rather

than a secret conflict, of interests. Thus, in Brumley, although

we recognized that bribery and self-dealing are the paradigmatic

cases of honest-services fraud, we wrote:

‘honest services fraud’ contemplates that in
rendering some particular service or services,
the defendant was conscious of the fact that
his actions were something less than in the
best interests of the employer – or that he
consciously contemplated or intended such
actions. For example, something close to
bribery.

Brumley, 116 F.3d at 734.

While it may be argued that the Defendants here were conscious

of the fact that their actions were “something less than in the

best interests of the employer,” at least long term, that argument

relies on the presumption, inherent in the Government’s insistent

argument, that a fiduciary breach is itself a sufficient reflection

of interest divergence. But that view encompasses every knowing

fiduciary breach, and we meet again our oft-mentioned chariness of

12
Note that the Second Circuit dissenters dissented not from
the narrowness of the construction but from the decision to uphold
the statute at all. They would have struck down honest-services
fraud as facially vague, emphasizing that “‘the average citizen .
. . must be forewarned and given notice that certain conduct may
subject him to federal prosecution.’” 354 F.3d at 159 (Jacobs,
Circuit Judge, dissenting) (quoting Brumley, 116 F.3d at 745-46
(Jolly and DeMoss, Circuit Judges, dissenting)).

20
making every knowing fiduciary breach a federal crime. What makes

this case exceptional is that, in typical bribery and self-dealing

cases, there is usually no question that the defendant understood

the benefit to him resulting from his misconduct to be at odds with

the employer’s expectations. This case, in which Enron employees

breached a fiduciary duty in pursuit of what they understood to be

a corporate goal, presents a situation in which the dishonest

conduct is disassociated from bribery or self-dealing and indeed

associated with and concomitant to the employer’s own immediate

interest.

Here, the private and personal benefit, i.e. increased

personal bonuses, that allegedly diverged from the corporate

interest was itself a promise of the corporation. According to the

Government, Enron itself created an incentive structure tying

employee compensation to the attainment of corporate earnings

targets. In other words, this case presents a situation in which

the employer itself created among its employees an understanding of

its interest that, however benighted that understanding, was

thought to be furthered by a scheme involving a fiduciary breach;

in essence, all were driven by the concern that Enron would suffer

absent the scheme. Given that the only personal benefit or

incentive originated with Enron itself -- not from a third party as

in the case of bribery or kickbacks, nor from one’s own business

affairs outside the fiduciary relationship as in the case of self-

dealing -- Enron’s legitimate interests were not so clearly

21
distinguishable from the corporate goals communicated to the

Defendants (via their compensation incentives) that the Defendants

should have recognized, based on the nature of our past case law,

that the “employee services” taken to achieve those corporate goals

constituted a criminal breach of duty to Enron. We therefore

conclude that the scheme as alleged falls outside the scope of

honest-services fraud.

We do not presume that it is in a corporation’s legitimate

interests ever to misstate earnings -- it is not. However, where

an employer intentionally aligns the interests of the employee with

a specified corporate goal, where the employee perceives his

pursuit of that goal as mutually benefitting him and his employer,

and where the employee’s conduct is consistent with that perception

of the mutual interest, such conduct is beyond the reach of the

honest-services theory of fraud as it has hitherto been applied.13

13
The Government cites one precedent that lies outside the bulk
of the honest-services case law and addresses a situation arguably
similar to the instant case. In United States v. Gray, 96 F.3d 769
(5th Cir. 1996), university basketball coaches were convicted of
mail and wire fraud for fraudulently establishing the academic
eligibility of transfer students recruited to play on the
basketball team. The court, relying on Ballard’s suggestion that
a non-disclosure of material information is itself sufficient harm
to the employer, rejected the defendants’ argument that their
actions furthered the fortunes of the basketball team and of the
university and were therefore not within the purview of fraud
statutes.

The Government argues, quite plausibly, that Gray is similar
enough to this case to dispose of the Defendants’ challenge,
because the principal argument of the Defendants is that they
believed their actions would benefit Enron. But Gray is
distinguishable both factually and legally. Gray is dissimilar to

22
Therefore, the Government must turn to other statutes, or even the

wire fraud statutes absent the component of honest services, to

punish this character of wrongdoing.

This opinion should not be read to suggest that no dishonest,

fraudulent, wrongful, or criminal act has occurred. We hold only

that the alleged conduct is not a federal crime under the honest-

services theory of fraud specifically. Given our repeated

exhortation against expanding federal criminal jurisdiction beyond

specific federal statutes to the defining of common-law crimes, we

resist the incremental expansion of a statute that is vague and

amorphous on its face and depends for its constitutionality on the

clarity divined from a jumble of disparate cases. Instead, we

this case in part because the opinion recognizes nothing akin to
Enron’s corporate incentive policy coupled with senior executive
support for the deal (the deal was sanctioned by Fastow, Enron’s
Chief Financial Officer), which together created an understanding
that Enron had a corporate interest in, and was a willing
beneficiary of, the scheme. The opinion in Gray presents only the
coaches’ own belief that their scheme benefitted the university; no
one or any authority outside the cadre of coaches encouraged,
approved, or even knew of the wrongdoing. Moreover, the Gray court
did not appear to have before it the limiting arguments presented
here based on Rybicki (decided years after Gray). Thus, without
attempting to call into question the result in Gray, we limit it to
its facts, since applying the wire fraud statute here, even if it
requires no new explicit statement of law, would expand honest-
services fraud to reach all manner of accounting fraud and
securities fraud, which have not generally been prosecuted as
honest-services fraud and are heavily regulated under other
statutes. The Government, in fact, would go even further; it
plainly stated at oral argument its position, explicitly based on
Gray, that the honest-services charge would reach the Defendants’
conduct even absent an oral buyback agreement. The Government’s
desire to build on Gray crystalizes the danger we face of defining
an ever-expanding and ever-evolving federal common-law crime.

23
apply the rule of lenity and opt for the narrower, reasonable

interpretation that here excludes the Defendants’ conduct. See

McNally, 483 U.S. at 360.

In sum, the convictions of each of the Defendants for

conspiracy and wire fraud cannot be upheld on the basis of the

honest-services theory and must be vacated per Yates, supra. We

therefore need not address the viability of the Government’s

remaining theories of criminal liability (the money-or-property and

books-and-records charges). Nor need we speak to the procedural

errors alleged by the Defendants. Instead, we turn to two

remaining issues: the Defendants’ motions for acquittal and Brown’s

conviction for perjury and obstruction of justice.

IV

A

We first consider the District Court’s denial of Fuhs’s Motion

for Judgment of Acquittal, which Fuhs submitted at the close of the

Government’s case-in-chief. Fuhs contends that the evidence in the

Government’s case-in-chief is insufficient to support a conviction.

Review for sufficiency where, as here, the motion was renewed

at the close of the evidence is de novo, meaning that “‘we

determine whether . . . a rational jury could have found the

essential elements of the offense beyond a reasonable doubt.’

United States v. Dean, 59 F.3d 1479, 1484 (5th Cir. 1995).” United

States v. Alarcon, 261 F.3d 416, 421 (5th Cir. 2001). As Fuhs

notes, because the District Court reserved ruling on the motion,

24
appellate review is limited to the evidence presented in the

Government’s case-in-chief. United States v. Rhodes, 631 F.2d 43,

44-45 (5th Cir. 1980). Thus, we ought not consider the

Government’s rebuttal evidence alleging that Fuhs lied on the

witness stand and that he may have edited, or even authored, a key

document -- the Appropriation Request (Govt. Exhibit 850.1) –- in

the prosecution’s case against all the Defendants.

The Government’s case-in-chief against Fuhs consisted entirely

of documents and e-mails, plus excerpts from Fuhs’s statements

before the SEC from 2002. The Government admits that none of its

witnesses testified about Fuhs’s knowing participation in the

alleged scheme and that Fuhs was absent from the critical calls and

meetings that allegedly put the Merrill Defendants on notice of

Enron’s intention to account improperly for the barge transaction.

Thus, the Government relies solely on the documentary evidence to

assert Fuhs’s knowledge of the oral buyback promise and his intent

to participate in the scheme to conceal that promise for the

purpose of effecting a misaccounting of the overall deal.

We find that the documentary evidence fails to sustain the

Government’s burden of proof beyond a reasonable doubt. Much of

the Government’s evidence consists of e-mails or memos not written

or initiated by Fuhs, not directly addressed to him, and in some

cases not even copied to him. They neither recognize a secret oral

side deal nor imply that the addressees of the correspondence knew

of such a secret deal. While they may support the assertion that

25
Fuhs knew Merrill wanted a buyback agreement to protect its

investment, and that it was at one point understood to be part of

the deal by Fuhs’s subordinate Geoffrey Wilson, the principal

documents relied upon by the Government simply do not sustain the

inference that Fuhs had knowledge of an oral guarantee that was to

be kept out of the written agreement and kept secret in (because it

conflicted with) the accounting of the deal.

Fuhs’s list of transactional risks was only a transcription of

Brown’s list to be passed along to analysts and executives. It

reveals nothing regarding Fuhs’s understanding of Enron’s intent to

misrepresent the transaction. The list does not reveal the

existence of a secret buyback promise or an intent to defraud; in

fact, the absence of a promise securing Merrill’s investment is

noted. Brown’s suggestion, passed on by Fuhs, that Merrill might

face reputational risk for aiding income manipulation does not

imply the specific understanding that such income manipulation was

to be effected by deception and fraudulent accounting. The

Government’s claim that “Fuhs would soon find out, if Brown had not

already told him, that Enron was ‘selling’ the barges only so that

it could book $12 million in earnings by the end of 1999,” is

neither here nor there –- selling an asset quickly to book earnings

by a certain date is not, by itself, fraudulent.

The Government, however, asserts that certain other documents,

especially a series of revisions of the engagement letter

representing the transaction, show Fuhs’s knowledge of an intent to

26
further a fraudulent accounting of the deal. The Government’s

inferences are deficient for two reasons. First, the revisions of

the engagement letter and other pre-deal memos received by Fuhs

suggest no more than an understanding that a buyback agreement was

desired by Merrill and was at some point, but not ultimately, a

part of the proposed deal. It is an unacceptable stretch to

conclude from these documents that Fuhs had knowledge that the

transaction ultimately included an oral promise to be kept secret

from the lawyers and accountants in order to effect a fraudulent

accounting. The fact that Fuhs forwarded to Merrill lawyers a

black-lined version of the edited engagement letter in which

mention of a buyback was redacted is only damning to Fuhs if one

assumes he was aware that the buyback guarantee remained part of

the deal. But the documents do not establish, nor does any other

evidence establish, that Fuhs knew the buyback obligation survived

the redaction such that the absence of references would suggest

concealment. The Government cannot simply assume the linchpin of

its case against Fuhs; yet it repeatedly frames documents as

inculpatory by presuming that Fuhs knew of the oral promise and

concluding that he willfully concealed the promise in furtherance

of the deception. Second, whatever understanding these documents

do reveal, such understanding is principally that of the primary

communicants of the correspondence, namely, Wilson, Furst, and

Boyle. The fact that Fuhs is copied on a stream of e-mails

documenting the transaction is far from sufficient to support

27
inferences that he knew of the details of an oral side agreement

that survived the removal of written references to it.

The Government also produced evidence stemming from six months

after the initial transaction, when Merrill was getting rid of its

purported equity interest. Fuhs wrote that he had spoken to Boyle

and that Enron had lined up a new buyer to purchase Merrill’s

interest “for the agreed upon amount outlined in the previously

forwarded memo.” This e-mail fails to prove anything other than

that Fuhs became aware of Enron’s procurement of a third-party

buyer to take Merrill out of its purported equity interest. Even

when taken together with the remainder of the evidence against

Fuhs, the e-mail demonstrates neither the knowledge of a secret

repurchase obligation owed by Enron nor the specific intent to

defraud by the concealment of that obligation. Nor does Fuhs’s

jocose reply, “only if i can guarantee a make-whole at par + return

in case of civil unrest/war,” to Brown’s query, “wanna buy a

barge?”, after Merrill had sold its stake but Brown was still

exposed because of his involvement in LJM2, add much evidence of

the requisite knowledge and the specific intent of Fuhs to defraud

in the purchase of the barge six months earlier.

As counsel for Fuhs noted at oral argument, if we begin with

the assumption that Fuhs is guilty, the documents can be read to

support that assumption. But if we begin with the proper

presumption that Fuhs is not guilty until proven guilty beyond a

reasonable doubt, we must conclude that the evidence is

28
insufficient to prove beyond a reasonable doubt that Fuhs had the

knowledge and intent to enter into the fraudulent scheme alleged by

the Government.

Ultimately, we do not have to conclude that Fuhs was an

innocent in the deal to relieve Enron of the barges. We only

conclude that at the close of its case, the Government had failed

to support its charges against Fuhs with sufficient evidence of

guilty knowledge, as charged in the Indictment, to survive his

motion for judgment of acquittal.

B

Regarding the other Defendants’ motions for acquittal, we have

reviewed the record and are satisfied that the Government’s

evidence was not so patently deficient that a judgment of acquittal

was required as a matter of law.

V

We turn finally to Brown’s convictions for perjury and

obstruction of justice. These charges stem from testimony Brown

gave to the grand jury investigating the barge transaction in the

fall of 2002. The Government charged that Brown’s testimony

concerning the agreement between Enron and Merrill was perjurious

and ultimately constituted obstruction of justice. The jury agreed

and convicted Brown under 18 U.S.C. § 1623 of one count of

perjury, and under 18 U.S.C. § 1503 of one count of obstruction of

justice. We affirm these convictions.

A

29
 18 U.S.C. § 1623 defines perjury as “knowingly mak[ing] a

false material declaration” to a grand jury. The Government

charged Brown with one count of perjury, contending that Brown knew

or understood that Enron promised to remove Merrill from the barge

deal by June 30, and that Brown perjuriously denied under oath any

such knowledge or understanding.14 The Indictment quotes the

following testimony by Brown as constituting perjury (the

underlining is in the original and indicates the portions alleged

to be false):15

14
Specifically, the Indictment alleges that “[w]hile under
oath, Defendant BROWN testified falsely as to a material matter by
stating, among other things, that he did not know of any oral
promise between Enron and Merrill Lynch relating to the barge
transaction.”
15
The portion of the testimony from which the excerpts in the
Indictment were taken is as follows:

Q: Do you see where it [e-mail from Boyle, Grand Jury
Exhibit 11] says, “To be clear, Ene. (Enron) is
obligated to get Merrill out of the deal on or
about June 30th?

A: Yes, sir.

Q: Do you have any understanding of why Enron would
believe it was obligated to Merrill to get them out
of the deal on or before June 30th?

A: It is inconsistent with my understanding of what
the transaction was.

. . . .

Q: . . . And the question to you is do you have any
understanding as to whether – how or why – Enron
would believe that it was – it understood that it
was required . . . to get Merrill Lynch out of the
deal by June 30th?

30
A: I did not understand – you know, my understanding
of the transaction was that they were not required
to get us out of the transaction, but we made it
clear to them that we wanted to be out of it by
June 30th.

. . . .

Q: Now, do you see in this E-mail [still discussing
Grand Jury exhibit 11] where it says, “And someone
should be working on a backstop, as you will not be
able to extend Merrill, and I understand that there
are accounting ramifications if Enron repurchases”?
Now, do you have any understanding about
whether or not Merrill could extend past June 30th?

A: I don’t know anything about that.

Q: Okay. And under – if it was a true sale and if
Merrill purchases something, there would be no
extension needed. I mean Merrill has the asset and
until somebody comes along and buys it, they have
it; correct?

A: Correct.

. . . .

Q: Now, do you see in this document [LJM-2 document,
Grand Jury Exhibit 18]. . . in the first sentence
where it says, “Enron sold barges to Merrill Lynch
in December of 1999, promising that Merrill would
be taken out by sale to another investor by June
2000.”
Again, do you have any information as to a
promise to Merrill that it would be taken out by
sale to another investor by June 2000?

A: In – no, I don’t – the short answer is no, I’m not
aware of the promise. I’m aware of a discussion
between Merrill Lynch and Enron on or around the
time of the transaction, and I did not think it was
a promise though.

Q: So you don’t have any understanding as to why there
would be a reference to a promise that Merrill
would be taken out by sale to another investor by

31
 June of 2000?

A: No.

. . . .

Q: [Discussing America’s Credit Flash Report for the
week ending 12/23/99, Grand Jury Exhibit 9] And let
me now direct your attention to the paragraph on
the Nigerian barge project.
Now, do you see where it says . . . , “IBK
[Merrill] was supportive based on Enron
relationship, approximately $40 million in annual
revenues, and assurances from Enron management that
we will be taken out of our $7 million investment
within the next three to six months.”
Does that accord with your understanding of the
transaction?

A: No. I thought we had received comfort from Enron
that we would be taken out of the transaction
within six months or would get that comfort.
If assurance is synonymous with guarantee,
that is not my understanding.
If assurance is interpreted to be more along
the lines of strong comforts or use of best
efforts, that is my understanding.

Q: [Discussing the Merrill appropriation request for
the Enron/Merrill barge transaction, Grand Jury
exhibit 7]. . . Do you see where it says, “Take
out,” where it says, “project start/finish,” and it
says, “Needs to close by 12/31/99"? And I’d for now
like to focus on the part where it says, “Take out
by June 30th, 2000.”

A: Yes, sir.

Q: Does that comport with your understanding of the
transaction, that the finish of the project was
June 30th of 2000 when there would be a take out?

A: You know, “take out” could mean that the
anticipated time frame of the investment runs
through that period, or in my mind it could, or it
could mean some sort of legal take out. So I
really – I can’t draw a conclusion from just those

32
Q: Do you have any understanding of why Enron would
believe it was obligated to Merrill to get them out
of the deal on or before June 30th?

A: It’s inconsistent with my understanding of what the
transaction was.

. . . .

Q: . . . Again, do you have any information as to a
promise to Merrill that it would be taken out by
sale to another investor by June 2000?

A: In – no, I don’t – the short answer is no, I’m not
aware of the promise. I’m aware of a discussion
between Merrill Lynch and Enron on or around the
time of the transaction, and I did not think it was
a promise though.

words.

Q: Do you see where it says “maturity”? . . .

A: Yes.

Q: And its says “less than 6 months”?

A: Yes.

Q: Do you have any understanding why it would say
“less than six months” if the terms of the
agreement are open-ended?

A: Well, I’d be speculating but I would assume that
that would reflect – at least my understanding or
whoever wrote this’s understanding, that the
anticipated hold period was less than six months.

Q: But if the contract between the parties is an open-
ended investment, why does the maturity just say
less than six month[s] when the terms of the
contract bring Merrill Lynch well beyond six
months?

A: I don’t know.

33
 Q: So you don’t have any understanding as to why there
would be a reference [in the Merrill Lynch
document] to a promise that Merrill would be taken
out by a sale to another investor by June of 2000?

A: No.

Brown makes three primary arguments: first, that he testified

truthfully as to his subjective understanding of the barge deal;

second, that the questions posed to him before the grand jury were

too “vague and ambiguous” to support a perjury conviction; and

third, that any misrepresentations by Brown were not material and

thus cannot sustain a conviction under 18 U.S.C. § 1623. Each of

these arguments is properly characterized as an attack on the

sufficiency of the evidence.16 Consequently, “[w]e ask whether a

rational trier of fact could have found that the evidence

established the elements of the offense beyond a reasonable doubt.”

United States v. Holmes, 406 F.3d 337, 351 (5th Cir. 2005).

First, Brown argues that the evidence presented is

insufficient to support a reasonable juror’s finding that his

testimony was untruthful. We disagree. Along with other

16
Brown mischaracterizes his challenges as a legal sufficiency
challenge, which we would review de novo. It is clear, however,
that Brown’s challenge is to the sufficiency of the evidence. See,
e.g., United States v. Abrams, 568 F.2d 411, 417 (5th Cir. 1978)
(holding that when examining a jury’s determination that the
defendant “gave false testimony”, “[t]he applicable standard of
review is not whether we think the evidence sufficient but whether
a reasonable jury could so conclude beyond a reasonable doubt.”);
United States v. Bell, 623 F.2d 1132, 1136 (5th Cir. 1980) (“the
prevailing view is that the defendant’s understanding of the
question is a matter for the jury to decide”); United States v.
Gaudin, 515 U.S. 506 (1995) (holding that materiality is an element
of perjury and thus a question for the consideration of the jury).

34
circumstantial evidence of Brown’s knowledge of the details of the

transaction, the Government presented the following:

1. Brown was approached in late December 1999 by Furst, who

explained that Enron Treasurer Jeff McMahon “asked Merrill to

purchase $7 [million] of equity in a special purpose vehicle that

would allow Enron to book $10 [million] of earnings”, and that the

transaction “must close by 12/31/99". Furst further explained to

Brown that “Enron is viewing this transaction as a bridge to

permanent equity and they believe [Merrill’s] hold will be for less

than six months”.

2. Brown was a part of a conference call on December 22, 1999

(the Trinkle call) in which Brown, Bayly, Furst and others, all

Merrill Lynch employees, but excluding lawyers, discussed Enron’s

need to close the deal to achieve needed revenue goals. Further,

it was noted that Enron told Merrill that it would help find a

third party buyer and that, if a third party buyer was not secured

by June 30, 2000, Enron would repurchase the barges from Merrill.

At some point during the call, Bayly asked whether a written

assurance of Enron’s promise was available, and someone responded

that a writing was not possible because such an assurance would

prevent Enron from receiving the accounting treatment it was

seeking from the deal.

3. Three versions of the engagement letter were circulated

among Brown and others, the final draft being executed by Brown on

behalf of Merrill. The initial draft of the engagement letter

35
included reference to Enron’s buyback guarantee. On December 28,

Boyle sent out a second draft of the letter with “strike-through”

indicating the proposed removal of all references to the buyback

guarantee. The final executed version of the engagement letter

contained no reference to the buyback guarantee.

4. Finally, Brown’s own e-mail in March 2001, more than a

year prior to his grand jury testimony, plainly stated that “we had

Fastow get on the phone with Bayly and lawyers and promise to pay

us back no matter what.”17 (Emphasis added.)

Based on this proof, a reasonable jury could have found that

the evidence was sufficient to conclude that Brown’s answers were

untruthful. Brown further argues that his testimony was not

actually false, as he never denied knowledge of some

“understanding” or “comfort” between Enron and Merrill as to the

buyback; rather, he merely denied knowledge of a “promise” of such

a side-deal. This distinction and the spin placed on selective and

hyper-technical word choice provides no refuge from the jury’s

17
Brown, who was not a party to the “Fastow call,” argues that
the e-mail is inadmissible hearsay and that it is unreliable and
fails to provide evidence that his grand jury testimony was false.
However, the e-mail is admissible as non-hearsay under Federal Rule
of Evidence 801(c) to reveal Brown’s state of mind, i.e., his
belief that the side deal had been entered into and confirmed by
Fastow. Additionally, although Brown argues that any knowledge he
had of the call was based on hearsay, the e-mail is admissible
against him under Rule 801(d)(2)(A) as an admission by a party
opponent. Despite Brown’s contentions to the contrary, a
reasonable jury could consider such an admission reliable and
reject Brown’s proffered explanation that the e-mail was an
exaggeration of “the strength of the promise [made by Fastow] . .
. .”

36
verdict. “[I]f after conviction the defendant offers ‘a contrived

hypertechnical or lame interpretation of his answer’ . . . the

jury’s decision must be left undisturbed.” Bell, 623 F.2d at 1136

(quoting United States v. Clifford, 426 F.Supp. 696, 704 (E.D.N.Y.

1976)(citations omitted)). Based on this proof, a reasonable jury

could have found that the evidence was sufficient to conclude that

Brown knew that oral agreements had been made and that Brown’s

answers before the grand jury were untruthful.

Second, Brown argues that the grand jury questions were

“fundamentally ambiguous”. Our review of this testimony convinces

us that the questions posed adequately conform with the principle

that “[p]recise questioning is imperative as a predicate for the

offense of perjury,” Bronston v. United States, 409 U.S. 362, 358

(1973). There is no indication that Brown struggled to understand

or actually misunderstood the meaning of the questions. Brown’s

answers were carefully responsive to the questions posed. Brown’s

caution in his word choice, using words like “comfort” and “best

efforts,” rather than “assurance,” “promise,” or “guarantee,”

indicates he was keenly aware of the thrust of the prosecutor’s

questions.

Finally, Brown’s third argument challenging the materiality of

his answers is two-fold: First, he contends that any knowing

misrepresentations that he may have made were not material to the

grand jury investigation; second, he argues that the refusal of the

District Court to admit the entirety of his grand jury testimony

37
was error, because consideration of that evidence would have

prevented the jury from believing his testimony to be material.

Materiality under § 1623 requires only that the defendant’s

statements “[had] a ‘natural tendency to influence, or [were]

capable of influencing, the decision of the decisionmaking body to

which it is addressed.’” United States v. Gaudin, 515 U.S. 506,

509 (1995) (quoting Kungys v. United States, 485 U.S. 759, 770

(1988)); see also Abrams, 568 F.2d at 421 (same). The Government

does not have to demonstrate that the grand jury was actually

hindered in any way by the falsehood. See Abrams, 568 F.2d at 421

(“Actual impediment of the investigation is not required. . . .

Grand jurors are capable of judging credibility and they are free

to disbelieve a witness and persevere in an investigation without

immunizing a perjurer.”). The central issue before the grand jury

at the time of Brown’s testimony was whether there was an oral

buyback guarantee between Enron and Merrill and if there was such

an agreement, who was culpable. Any testimony by Brown relating to

the existence of the agreement, or his knowledge or understanding

about that agreement, was necessarily material to the inquiry of

the grand jury.18 Brown’s argument to the contrary is meritless.

18
The materiality requirement of § 1623 has been satisfied in
cases where the false testimony was “relevant to any subsidiary
issue or [wa]s capable of supplying a link to the main issue under
consideration.” United States v. Griffin, 589 F.2d 200, 207 (5th
Cir. 1979) (noting that “[t]he testimony need not be directed to
the primary subject under investigation”). Consequently, it appears
that even if Brown’s falsehood was relevant only as to his
participation in the buyback agreement (and was not, as Brown

38
 Brown’s second argument as to materiality is that the District

Court erroneously excluded his entire grand jury testimony. This

evidentiary ruling is reviewed for an abuse of discretion. United

States v. Walker, 410 F.3d 754, 757 (5th Cir. 2005) (citing United

States v. Phillips, 219 F.3d 404, 409 (5th Cir. 2000)). Brown

contends that it was impossible for the trial jury to determine if

his statements were perjurious without seeing the context in which

they were given. The District Court reviewed Brown’s proffered

testimony and declined to admit it, finding that “the questions .

. . and answers” contained therein “are not genuinely in question,”

and concluding that the testimony was not relevant and would lead

to jury confusion. We have reviewed the record, including the

proffered testimony, and find no abuse of discretion by the

District Court.

For the reasons given, we find no reason to upset the jury

verdict and accordingly, affirm Brown’s conviction for perjury

before a grand jury.

B

Brown next argues that even if the perjury conviction must be

sustained, there is no basis for the verdict on obstruction of

justice. Obstruction of justice is defined in 18 U.S.C. § 1503(a)

as “corruptly . . . endeavor[ing] to influence, obstruct, or impede

. . . the due administration of justice”. 18 U.S.C. § 1503(a)

argues, material to the existence of the buyback itself) the
materiality requirement of § 1623 is still satisfied.

39
(1996). This clause “clearly forbids all corrupt endeavors to

obstruct or impede the due administration of justice.” United

States v. Williams, 874 F.2d 968, 977 (5th Cir. 1989) (emphasis in

the original). Brown contends, however, that where false testimony

alone is the basis for the offense, “it still must be shown to have

the effect of impeding justice.” Brown essentially argues that

perjury and obstruction are separable and distinct offenses;

consequently, the mere fact that one perjures himself does not mean

that he has obstructed justice.19 Thus, the obstruction conviction

must be reversed because “[t]he government introduced no evidence

. . . [to] establish that Brown’s testimony had any effect (actual,

natural, or probable) on the Grand Jury proceeding.”

Brown’s argument is reasoned and appealing. Nevertheless, our

precedent makes clear that material false testimony regarding one’s

knowledge of the subject matter of a grand jury investigation has

an effect beyond its falsity; it also impedes the investigation of

the grand jury. In both United States v. Griffin, 598 F.2d 200

(5th Cir. 1979), and Williams, the defendants testified falsely to

a grand jury by giving “evasive answer[s]” and “denials of

knowledge” relating to the subject of the grand jury inquiry. In

19
We acknowledge this argument is well reasoned and persuasive.
However, under the precedent of this circuit, as discussed infra,
false testimony as to one’s knowledge relating to the subject of a
grand jury inquiry does in fact establish obstruction; not because
the perjury ipso facto establishes obstruction, but because the
perjurious testimony has the effect of “closing off entirely the
avenue[] of inquiry being pursued.” Williams, 874 F.2d at 981.

40
both cases, the defendants, like Brown, argued that their § 1503

convictions must be reversed as the Government had not presented

independent evidence that these falsehoods actually impeded the

grand jury. Writing for this Court, respectively, both Judges

Wisdom and Garwood rejected those contentions, finding that “the

denials of knowledge had the effect of closing off entirely the

avenues of inquiry being pursued, namely, what appellants knew

about the subject under investigation.” Williams, 874 F.2d at 981

(emphasis added); see also Griffin, 598 F.2d at 204. As explicated

by Judge Wisdom, “[b]y falsely denying knowledge of events and

individuals when questioned about them, [the defendant] hindered

the grand jury’s attempts to gather evidence [of the alleged

scheme] as effectively as if he refused to answer the question at

all.” Griffin, 598 F.2d at 204. Consequently, the “testimony had

the effect of impeding justice.”20 Id.

Brown attempts to distinguish his case, arguing that he

testified of his own free will, that he answered every question,

and that he never directly denied knowledge of the Fastow

conversation. Consequently, he cannot be found to have obstructed

the grand jury. Brown’s argument, however, presupposes that his

“voluntary” and “complete” testimony was true –- a presupposition

20
Because the testimony in Griffin and Williams did in fact
impede the grand jury, both cases declined to determine whether
perjury before a grand jury “ipso facto constitutes a violation of
section 1503," see Griffin, 589 F.2d at 204; Williams 874 F.2d at
980.

41
rejected by the jury’s conviction of perjury. Given our precedent,

we see no principled reason that justifies different treatment of

Brown’s untruthful testimony and denials of knowledge; as much as

the defendants in Griffin and Williams, Brown “closed off entirely

the avenue being pursued,” namely, his knowledge or understanding

of what actually occurred. We are bound by the precedent of this

Circuit, and under that precedent, no other proof of impediment is

required to demonstrate obstruction under § 1503. Williams, 874

F.2d 968; Griffin, 598 F.2d 200.21

Given the evidence presented by the government that Brown’s

testimony was false, and the jury’s apparent acceptance of that

evidence, Brown’s perjurious testimony had the effect of “closing

off entirely the avenue[] of inquiry being pursued.” Williams, 874

F.2d at 981. Consequently, Brown’s testimony was corruptly

attempting to influence the administration of justice in violation

of § 1503. As such, we affirm Brown’s conviction for obstruction

of justice.

VI

We sum up as follows: The convictions of each of the

Defendants for conspiracy and wire fraud are VACATED; the District

Court’s denial of Fuhs’s motion for judgment of acquittal is

REVERSED and his convictions are VACATED; and the conviction and

21
Brown repeatedly cites In re Michael, 326 U.S. 224 (1945),
for the proposition that an obstruction conviction based on perjury
alone cannot stand. However, Griffin squarely rejected that
argument. 985 F.2d at 205-06. See also Williams, 874 F.2d at 979.

42
sentences of Brown on charges of perjury and obstruction of justice

are AFFIRMED.

REVERSED in part; VACATED in part; and AFFIRMED in part.

43
REAVLEY, concurring in part and dissenting in part:

I concur in the dismissal of charges against Fuhs because of

the insufficiency of the evidence at the stage of the end of the

government’s case-in-chief. And I concur in affirming Brown’s

convictions for perjury and obstruction of justice. I would,

however, affirm the judgment against Brown, Bayly and Furst for

conspiracy and wire fraud.

The government’s theory of wire fraud relating to the

deprivation of honest services is warranted by 18 U.S.C. § 1346

because it applies to the behavior in this case. While the

majority recognizes that the government provides a “very

plausible, even strong case for a criminal deprivation of honest

services,” it goes on to hold that the scheme as alleged in the

indictment falls outside the scope of honest services fraud, and

unnecessarily sets up a new “demilitarized zone” for the honest

services fraud theory. (“[W]here an employer intentionally

aligns the interests of the employee with a specified corporate

goal, where the employee perceives his pursuit of that goal as

mutually benefitting him and his employer, and where the

employee’s conduct is consistent with that perception of mutual

interest, such conduct is beyond the reach of the honest-services

theory of fraud as it has hitherto been applied.”).

Both our pre- and post-McNally case law supports the honest

services fraud theory alleged in the indictment and proven at

44
trial. To prove a violation of the honest services branch of the

federal fraud statutes, the government must prove that a

defendant deprived his employer of services under state law.

United States v. Caldwell, 302 F.3d 399, 409 (5th Cir. 2002);

United States v. Brumley, 116 F.3d 728, 734 (5th Cir. 1997) (en

banc) (the employee “must act or fail to act contrary to the

requirements of his job under state law”). In United States v.

Ballard, 663 F.2d 534, 353 (5th Cir. 1981), this court held

that a breach of fiduciary duty of honesty or loyalty

involving a violation of the duty to disclose could only

result in criminal mail fraud where the information

withheld from the employer was material and that, where

the employer was in the private sector, information

should be deemed material if the employee had reason to

believe the information would lead a reasonable employer

to change its business conduct.

See also United States v. Gray, 96 F.3d 769, 774-75 (5th Cir.

1996) (same); United States v. Fagan, 821 F.2d 1002, 1009 (5th

Cir. 1987) (same). This court has held that “a breach of

fiduciary duty can constitute illegal fraud . . . only when there

is some detriment to the employer.” Ballard, 663 F.2d at 540.

The court went on to find that the detriment can be a deprivation

of an employee’s faithful and honest services if a violation of

45
the employee’s duty to disclose material information is involved.

Id. Thus, this court has focused its inquiry on the duty to

disclose and materiality.1

The indictment alleges that “[a]s Enron employees, Fastow,

Glisan, [and] Boyle . . . each owed a duty to Enron and its

shareholders to provide the company with their honest services.”

Count One then alleges that the defendants conspired to devise a

scheme or artifice to defraud Enron and its shareholders “of the

intangible right of honest services of its employees” and that

they used “materially false and fraudulent pretenses,

representations, and promises” in the process. Counts Two and

Three reiterate those allegations for the substantive wire fraud

offenses.

The evidence at trial proved that Fastow, Glisan, Boyle, and

McMahon, and other Enron personnel temporarily “parked” the

barges with Merrill Lynch so that Enron could meet its earnings.

The defendants never disputed that Fastow, Glisan, Boyle, and

McMahon were senior Enron executives and managers that owed a

fiduciary obligations under state law to Enron and its

1
I note that the Second Circuit in United States v. Rybicki,
354 F.3d 124, 145-46 (2d Cir. 2003), a case involving a kickback
scheme, followed the lead of this court and adopted the materiality
test in lieu of the reasonably foreseeable harm test. The court
found that private sector honest services cases fall into two
general categories: bribery or kickbacks and self-dealing. Id. at
139. While certainly these type of cases fit comfortably into the
plain meaning of § 1346, honest services fraud is not limited to
those categories, and any implication otherwise is unjustified.

46
shareholders. These fiduciary obligations included the duty of

loyalty, fair dealing, and candor. The Enron executives and

managers breached their fiduciary duties by “cooking” Enron’s

books and engaging in the fraudulent “sale” of the barges to

Merrill Lynch, withholding this information from Enron and its

shareholders, and causing Enron to pay nearly $1.5 million to

Merrill Lynch and LJM2 to hold the barges, along with paying

compensation bonuses to APACHI executives that depended on the

completion of the barge transaction.

In sum, the government proved that the defendants’ scheme

involved withholding material information from Enron and its

shareholders and caused a detriment to Enron and its

shareholders. Given that our pre- and post-McNally case law

supports the honest services fraud theory alleged in the

indictment and proven at trial, this should end the matter.

To distinguish this case from previous cases, the majority

relies on two important propositions: (1) that the barge

transaction was intended to serve a corporate purpose/goal,

(“This case, in which Enron employees breached a fiduciary duty

in pursuit of what they understood to be a corporate goal,

presents a situation in which the dishonest conduct is

disassociated from bribery or self-dealing and indeed associated

with and concomitant to the employer’s own immediate interest.”);

and (2) that there could no honest services violation because

47
certain Enron executives knew all of the specifics of the barge

deal and sanctioned the transaction, (“Enron’s corporate

incentive policy coupled with senior executive support for the

deal (the deal was sanctioned by Fastow, Enron’s Chief Financial

Officer), which together created an understanding that Enron has

corporate interest in, and was a willing beneficiary of, the

scheme.”). I object to both justifications for the conspiracy.

First, the barge transaction did not serve the purpose of

Enron’s shareholders, and it cost Enron nearly $1.5 million, plus

compensation to APACHI executives, that it should not have had to

pay. Most important, falsifying Enron’s books does not serve a

legitimate corporate purpose, even if it temporarily made Enron’s

finances appear more attractive to the investing public in the

short term. Second, it is no defense that the defendants’ co-

conspirators included high-ranking executives at Enron. The fact

that those co-conspirators were aware of defendants’ conduct does

not excuse defendants’ actions. But most important, Enron

executives are not Enron itself and, in any event, they owed a

fiduciary duty to Enron and its shareholders.2

I conclude that the behavior of the defendants falls

squarely within the meaning of a “scheme or artifice to deprive

another of the intangible right to honest services,” measuring it

2
For these two reasons, I find the majority’s attempt to
distinguish and limit United States v. Gray, 96 F.3d 769 (5th Cir.
1996), to be unpersuasive.

48
against our pre- and post-McNally case law. I therefore

respectfully dissent.

49
DeMOSS, Circuit Judge, concurring in part and dissenting

in part:

I join without reservation Judge Jolly’s opinion with

respect to the honest services theory of the Indictment

and the issue of insufficiency of the evidence as to

Fuhs. However, I write separately to explain two

additional points with respect to the honest services

charge and to dissent with respect to Brown’s convictions

for perjury and obstruction of justice.

I.

With respect to § 1346 and the honest services

theory, I would reach the Defendants’ constitutional

challenge and also point out the multiple and troubling

problems with the Government’s theory of applying § 1346

to these facts, even though the majority opinion disposes

of the Defendants’ appeal.

In our Brumley dissent, Judge Jolly and I did our

best to point out the ambiguities in the text of § 1346

that gave us grave reservations about the statute’s

application. While we did not there call into question

the statute’s constitutionality as applied, 116 F.3d at

736 (Jolly and DeMoss, JJ., dissenting), I have since
then twice had occasion to address § 1346. See United

States v. Griffin, 324 F.3d 330, 356 (5th Cir. 2003);

United States v. Evans, 148 F.3d 477 (5th Cir. 1998). The

Defendants have raised here a constitutional challenge to

§ 1346, and in my view the panel should now address that

issue. Years of review of the application of § 1346 to

varied facts persuade me that the constitutionality of §

1346 may well be in serious doubt. A federal criminal

statute must define the crime “with sufficient

definiteness that ordinary people can understand what

conduct is prohibited and in a manner that does not

encourage arbitrary and discriminatory enforcement.”

Kolender v. Lawson, 461 U.S. 352, 357 (1983). Section

1346's text is undeniably vague and ambiguous and is

subject to wide variation in application by the lower

courts. Rather than address the larger constitutional

problem with this statute, which would provide clarity to

Congress, prosecutors, and the lower courts, the circuit

courts have instead only clouded the meaning of § 1346 by

repeatedly resolving the ambiguities of the statute’s

text via judicially created definitions and limitations.

51
Our Court and our sister circuits end up doing precisely

what most would say we lack the constitutional power to

do, that is, define what constitutes criminal conduct on

an ex post facto and ad hoc basis. In this regard, I add

my voice to the dissenters in Rybicki. 354 F.3d at 163-65

(Jacobs, J., dissenting). Congress should repair this

statute that, in my opinion, fails to provide the

requisite “minimal guidelines to govern law enforcement.”

Id. at 358.

Additionally, the application of § 1346 to the facts

presented in this case is particularly problematic for

several reasons, the combination of which poses an even

greater harm to future business relationships and

transactions than would any one of the problems alone.

The Government’s extension of the already ambiguous reach

of § 1346 by way of an indictment for conspiracy to

commit honest services fraud is especially troublesome.

While § 1346's text offers little guidance on the scope

of the crime’s application, see Brumley, 116 F.3d at 741-

42, 746 (Jolly and DeMoss, JJ., dissenting), at a minimum

the word “services” has been in the past the basis for

52
the statute’s pre-McNally application to the

employer/employee relationship. See id. at 734

(Higginbotham, J., majority opinion). To the extent that

pre-McNally case law required a relationship that

generated a duty of honest services, such a relationship

does not exist in this case between the Defendants, who

are employees of Merrill, and Enron or its shareholders,

who are the purported victims of the alleged fraud. The

limitation of criminal activity to relationships giving

rise to a duty of honest services is ignored when any

person who negotiates with an employee of another

corporation is potentially entangled by the combination

of § 1346 with our very broad understanding of

conspiracy.

I also believe that a serious problem arises with

respect to the Government’s theory of harm in this case.

It is absolutely undisputed that Merrill paid $7 million

to Enron as a result of the closing of the transaction

contemplated by the Engagement Letter of December 29,

1999 that was the final written agreement of the two

parties (“the Engagement Letter”). Even granting the

53
Government that Enron paid back $250,000 as the advisory

fee to Merrill, Enron still had $6,750,000 more in its

bank account as a result of the Engagement Letter than it

had before. The Government’s theory of harm would have us

ignore the initial gains to Enron and focus solely upon

some later loss only tangentially connected to the

particular investment transaction that forms the basis of

the Indictment.

The cumulative effect of a vague criminal statute, a

broad conception of conspiracy, and an unprincipled

theory of harm that connects the ultimate demise of Enron

to a single transaction is a very real threat, of

potentially dramatic proportion, to legitimate and lawful

business relationships and the negotiations necessary to

the creation of such relationships.

II.

I dissent from the portion of the majority opinion

that affirms the convictions of Brown for perjury and

obstruction of justice. I cannot agree with the majority

that on this record, particularly the portions quoted in

the majority opinion, a reasonable jury could conclude

54
that Brown’s allegedly perjurious statements were in fact

false. Brown argues that his testimony was true because

it represented his subjective understanding of the

transaction contemplated by the Engagement Letter. I

agree. The majority relies primarily upon four points of

evidence to support its assertion of falsity: Furst’s

explanations to Brown that Enron viewed the deal as a

“bridge to permanent equity”; the discussions of the

December 22 conference call; working drafts of the

Engagement Letter transmitted between Merrill and Enron

that were never signed; and Brown’s own e-mail of March

2001. These four points, along with other circumstantial

evidence, comprise two types of evidence: (1) business

negotiations preceding a deal ultimately reduced to a

written agreement and (2) an after-the-fact

oversimplification and shorthand description of the barge

partnership investment by Merrill employees during the

discussion and evaluation of a subsequent and entirely

unrelated deal. Neither of these types of evidence should

be used to support an inference of the falsity of Brown’s

testimony.

55
 The evidence regarding both working drafts of the

Engagement Letter and discussions between employees of

Enron and employees of Merrill leading up to the final

written agreement are simply the heart and soul of

business negotiations and should not indicate the

character of the ultimate business transaction. Some

negotiations may ultimately be reflected in the final

written agreement, but some may not. Here, negotiations

are no evidence of the actual nature of the deal because

there was no legally enforceable take-out promise in the

final written agreement; instead, the parties merely

bargained for Enron’s best efforts to continue to market

Merrill’s investment interest in the barge partnership to

the mutual benefit of both companies.

Such an agreement does not undermine the nature of

the transaction as set forth in the Engagement Letter

that was ultimately agreed to and signed by both parties.

Employees of Enron and Merrill may well have considered

a buy-back agreement, promise, or guarantee during the

negotiations leading up to the barge deal; the evidence

would certainly permit a reasonable jury to so conclude.

56
But the final written agreement excludes this term.

Instead, the parties relied upon their established

business relationship and discussions of best efforts and

strong comfort that Enron would continue its efforts to

find a third-party buyer for Merrill’s interest in the

barge partnership. The conversations preceding the deal

are only negotiations, and the ultimate written agreement

speaks for itself. Two material facts corroborate this

reading: (1) Fastow himself averred to the Government

that he, in fact, made only assurances of best efforts to

Merrill, not promises or guarantees to take Merrill out

of the deal; and (2) in conformance with the written

agreement, Merrill actually paid $7 million to Enron,

consistent with its purchase of an interest in the barge

partnership investment, and therefore had absolutely no

legally enforceable claim to be taken out of the deal.

The Government mischaracterizes the transaction evidenced

by the Engagement Letter when it labels the agreement a

“sham” and asserts that Merrill was never “at risk”

during the transaction. The Engagement Letter expressly

states, “No waiver, amendment, or other modification of

57
this Agreement shall be effective unless in writing and

signed by the parties to be bound.” Likewise, the

Engagement Letter also includes the following provision:

“This Agreement incorporates the entire understanding of

the parties with respect to this engagement of Merrill

Lynch by Enron, and supercedes all previous agreements

regarding such engagement, should they exist.” In light

of these provisions, Merrill’s $7 million was absolutely

at risk. Any oral assurances of a take-out offered to

Merrill by any Enron employee would not have been legally

binding on Enron.

In my view, both parties acted to maximize mutual

benefits in a clear effort to solidify a business

relationship. Both parties relied on the good faith of

each other in laying a foundation for continued business

relationships. Merrill could not have enforced Enron’s

assurance of its best efforts commitment to remarket the

investment interest that Merrill had agreed to purchase;

Merrill could only have refused to deal with Enron in the

future if the Engagement Letter had resulted in an

unsatisfactory business investment. Such negotiations

58
should not be the fodder for criminal indictments. If

there is any criminal wrong arising from the facts in

this record, and I have serious doubts on that score, it

would be in Enron’s employees’ reporting of the

transaction described in the Engagement Letter, not in

the manner in which Merrill’s employees negotiated the

deal.

Brown’s March 2001 e-mail was not a statement under

oath; rather, it was a statement made to another Merrill

colleague fifteen months after the Engagement Letter

transactions that discussed a proposed loan transaction

with a potential borrower, a large corporate entity

entirely unrelated to Enron (referred to in the e-mail as

“CAL”). The talking point in the e-mail was whether

Merrill would be a secured or an unsecured lender in the

proposed deal. The pertinent part of the e-mail reads,

If it[’]s as grim as It sounds, I would support
an unsecured deal provided we had total verbal
[a]ssurance from CAL ceo or Cfo, and [S]hulte
was strongly vouching for it. We had a similar
precedent with Enron last year, and we had
Fastow get on the phone with Bayly and lawyers
and promise to pay us back no matter what. Deal
was approved and all went well. What do you
think?

59
 The text of the e-mail reveals that Brown was

attempting to use the success of the earlier deal with

Enron to persuade a colleague that the deal with CAL

would likewise be successful. In the email, Brown did not

distinguish the two deals. But the Enron deal and the CAL

deal discussed in the e-mail differ in at least one

important respect: the Enron deal involved the sale of an

equity interest in an Enron partnership to Merrill and

the CAL deal involved a loan by Merrill to CAL for funds

to be used in building an extension to CAL’s facilities.

At the time the e-mail was written, Brown may have

remembered the Enron deal as some sort of loan by Merrill

to Enron; however, the Engagement Letter and the evidence

before the jury reveal no such transaction. No legally

enforceable promise was ever made to take Merrill out of

the Enron deal. Accordingly, no reasonable jury could

construe the e-mail as anything but an overly simplified,

shorthand description of the barge investment made after

the fact in an effort to secure a subsequent, entirely

unrelated deal. Under this reading of the e-mail, Brown’s

60
testimony before the Grand Jury was not inconsistent with

the text of the email because there simply was no promise

or guarantee regarding a take-out in the Enron deal. The

questions posed by the Grand Jury related only to an

enforceable take-out, not to an oral “promise to pay us

back no matter what,” and Brown’s answers to those

questions therefore do not conflict with his statements

in the e-mail.

Finally, the Government’s own evidence supports a

conclusion that the only comfort offered to Merrill was

that Enron would use its best efforts to sell to a third

party. A reasonable jury could not convict Brown of

perjury where the Government speaks out of both sides of

its mouth with respect to the allegedly perjurious

testimony. The Government simultaneously proffers the

identical words as both evidence of Brown’s guilt of

perjury when the words are spoken by Brown and as

evidence of the nature of the Enron transaction not being

a sale when offered by the Government’s own witnesses.

I conclude, therefore, that no reasonable jury could

conclude that Brown’s testimony before the Grand Jury was

61
false. Accordingly, I must conclude that no reasonable

jury could convict Brown of perjury. See 18 U.S.C. §

1623. Moreover, the sole basis in the Indictment for the

charge against Brown of obstruction of justice, see 18

U.S.C. § 1503(a), was Brown’s allegedly false statements

to the Grand Jury. Accordingly, I would also conclude

that no reasonable jury could find Brown guilty of

obstruction of justice on this record.

For the foregoing reasons, I would reverse the

conviction of Brown on the perjury and obstruction of

justice counts.

62
63