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Case 4:04-cr-00025 Document 1145 Filed in TXSD on 10/23/06 Page 1 of 11

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

UNITED STATES OF AMERICA
v.
JEFFREY K. SKILLING

§
§
§ CRIMINAL NUMBER H-04-025-02
§
§

MEMORANDUM OPINION AND ORDER

In paragraphs 157-160 and 177, the PSR recommends that
Skilling receive a two-level enhancement for obstruction of justice
pursuant to Guideline Section 3C1.1 based, inter alia, on allegedly
perjurious testimony given before the Securities and Exchange
Commission (SEC) on December 6, 2001. Guideline Section 3C1.1
provides that

[i]f (A) the defendant willfully obstructed or impeded,
or attempted to obstruct or impede, the administration
of justice during the course of the investigation,
prosecution, or sentencing of the instant offense of
conviction, and (B) the obstructive conduct related to
(i) the defendant’s offense of conviction and any
relevant conduct; or (ii) a closely related offense,
increase the offense level by 2 levels.

U.S. Sentencing Guidelines Manual § 3C1.1 (2000). The Commentary
to this section lists “committing . . . perjury” as an example of
conduct capable of triggering the enhancement. U.S. Sentencing
Guidelines Manual § 3C1.3, cmt. n.4(b)(2000). Perjury for purposes
of obstruction of justice is defined as giving “false testimony
concerning a material matter with the willful intent to provide
false testimony, rather than as a result of confusion, mistake, or

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faulty memory.” United States v. Dunnigan, 113 S. Ct. 1111, 1116
(1993), abrogated on other grounds by United States v. Wells,
117 S. Ct. 921 (1997).

Skilling objects to an enhancement for the obstruction of
justice on grounds that his SEC testimony was not false, material,
or willful. The Fifth Circuit has stated that the preferred
procedure for applying the two level obstruction of justice
enhancement is to make a clear finding on each element of the
alleged perjury. See United States v. Como, 53 F.3d 87, 89 (5th
Cir. 1995), cert. denied, 116 S. Ct. 714 (1996). Factual
determinations at sentencing are made according to the
preponderance of the evidence standard. See U.S. Sentencing
Guidelines Manual § 6A1.3 (2000); United States v. Mergerson,
4 F.3d 337, 343 (5th Cir. 1993), cert. denied, 114 S. Ct. 1310
(1994) (holding that it is well established in this circuit that as
a general matter the burden of proof at sentencing is by a
preponderance of the evidence).

I. Skilling’s Testimony Before the SEC Was False

Paragraph 158 of the PSR states that
[o]n December 6, 2001, Skilling voluntarily appeared
for a deposition before the Securities and Exchange
Commission and was asked under oath if he had sold or
had planned to sell any stock after he resigned as CEO.
He informed the SEC of the September 1[7], 2001 sale
and told the SEC that his sole motivation for that sale
was the effect of the events of September 11, 2001 on
the stock market. Skilling stated, “[A]nd then
September 11th happened. And then I got scared. I

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like my Enron stock but I was scared after
September 11. So, when the markets reopened that next
Monday, I sold 500,000 additional shares at $30 a
share.” When asked again if there was another reason,
Skilling reiterated, “there was no other reason other
than September 11th that I sold the stock . . . Oh, I
agonized over it, absolutely agonized over it.”1
(emphasis added)
The court finds that Skilling’s testimony before the SEC that
he sold Enron stock on September 17, 2001, for “no other reason
other than [the events of] September 11th” was false because “Glenn
Ray, Skilling’s broker at Schwab, testified at trial that Skilling
had attempted to sell 200,000 shares on September 6, 2001.
However, due to a paperwork glitch, the sale fell through.”
(PSR ¶ 160) The falsity of Skilling’s SEC testimony is also
demonstrated by Skilling’s testimony at trial where, on direct
examination during the defense case, Skilling stated that he
attempted to sell stock on September 6, 2001, to create a “bull
hedge” for a short position in AES stock,2 that after the attempted
sale fell through he contacted Enron attorney Rex Rogers and

1See Transcript of December 6, 2001, SEC Hearing, p. 462,
Exhibit D included in Exhibits to Defendant Jeffrey Skilling's
Motion in Limini to Exclude Task Force Exhibit 1901 and Any Other
Testimony or Evidence Obtained from Him During the Security and
Exchange Commission's Investigation in the Matter of Enron Corp.,
Docket Entry No. 566 (filed under seal).

2See Jeffrey K. Skilling’s Sentencing Memorandum, p. 30
(citing Trial Tr. at 12,958:18-12,961:21, and asserting that “[t]he
undisputed evidence establishes that Mr. Skilling’s September 6
broker call was not part of any ‘plan’ to liquidate his Enron
position, but was an attempt to create a ‘bull hedge’ (a common way
to spread risk throughout one’s portfolio).”).

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requested a letter notifying his broker that he was no longer an
Enron officer required to publicly disclose his stock sales,3 that
Rogers mailed the letter on September 10, 2001,4 and that Skilling
placed a $30 per share restriction on his September 17th order of
sale.5 Accepting Skilling’s trial testimony as true, the court
concludes that his trial testimony shows that his SEC testimony was
false because his trial testimony shows that Skilling had reasons
other than the events of September 11th to sell Enron stock on
September 17th, that prior to September 11th Skilling took
affirmative action to enable the sale Enron of stock, and that
Skilling’s decision to sell Enron stock on September 17th was not
unconditional but, instead, conditioned upon his ability to sell
for a specific minimum price. Accordingly, using a preponderance
of the evidence standard, and based upon the evidence adduced at
trial, including Skilling’s testimony, the court finds that
Skilling’s sworn testimony to the SEC that his sale of Enron stock
on September 17, 2001, was effected for no reason other than
concern generated by the events of September 11, 2001, was false.


II. Skilling’s SEC Testimony was Material

The Commentary to § 3C1.1 defines a material statement as a
statement that, “if believed, would tend to influence or affect the

3See Trial Tr. at 12,955-12,957.
4Id.
5Id. at 12,952-12,953.

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issue under determination.” U.S. Sentencing Guidelines Manual
§ 3C1.3, cmt. n.6 (2000). Skilling argues that his SEC testimony
about the September 17, 2001, stock sale was not material because
the jury could well have believed that he had no plan to sell Enron
stock before September 11, 2001, yet still convicted him of insider
trading, and because whether he had a plan to sell or tried to sell
before September 11, 2001, has no bearing on whether he sold stock
on the basis of material non-public information as required to be
convicted of insider trading. See United States v. O’Hagan,
117 S. Ct. 2199, 2207 (1997). This argument is not persuasive,
however, because Skilling also testified before the SEC that he
made the September 17, 2001, sale for “no other reason other than
[the events of] September 11th.” If that testimony were believed
Skilling should not have been indicted or convicted of insider
trading. The court finds that Skilling’s SEC testimony was
material to the insider trading count for which he was convicted
and will be sentenced.

III. Skilling’s SEC Testimony was Willful

Willful obstruction of justice by a defendant is “conscious,
deliberate, voluntary, and intentional.” United States v. Greer,
158 F.3d 228, 239 (5th Cir. 1998), cert. denied, 119 S. Ct. (1999).
Although the Fifth Circuit has not explicitly held that a defendant
must have the specific intent that his actions or statements
obstruct justice, the Fifth Circuit has indicated that it defines

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“willful” in accordance with the Second Circuit’s opinion in
United States v. Reed, 49 F.3d 895, 901 (2d Cir. 1995). See Greer,
158 F.3d at 239 (citing United States v. O’Callaghan, 106 F.3d
1221, 1223 n.5 (5th Cir. 1997) (“Reed holds that a § 3C1.1
enhancement ‘implies a mens rea requirement,’ ‘is appropriate only
if the defendant had the specific intent to obstruct justice, i.e.,
. . . the defendant consciously acted with the purpose of
obstructing justice,’ and requires the district court to ‘make a
specific finding of intent.”). When a defendant gives false
testimony due only to confusion, mistake, or a bad memory, he has
not obstructed justice. See Dunnigan, 113 S. Ct. at 1116.

Citing United States v. Adam, 296 F.3d 327, 334-335 (5th Cir.
2002), and United States v. Upton, 91 F.3d 677, 688 (5th Cir.
1996), cert. denied sub nom. Barrick v. United States, 117 S. Ct.
1818 (1997), Skilling argues that this SEC testimony could not
support a § 3C1.1 adjustment because his testimony before the SEC
was given before he knew of the existence of an investigation
against him. Although Skilling acknowledges that prior to
testifying before the SEC he received a letter stating that “the
SEC was investigating possible fraudulent activities at Enron and
that the Commission could disclose to criminal authorities any
information it learned,”6 Skilling argues that while he “obviously
knew that an investigation into the collapse at Enron was underway,

6Jeffrey K. Skilling’s Sentencing Memorandum, p. 29.

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the SEC explicitly told him he was not a ‘target’ or ‘subject’ of
the investigation.”7 Skilling argues that before giving his SEC
testimony his attorney asked the SEC attorney

“whether it remains true today what you in essence said
in the cover letter . . . that this is a fact-finding
inquiry with no targets or subjects.” The SEC attorney
responded: “Yes, this is a fact finding inquiry. And,
from the point of view of the [SEC], we don’t have any
target subjects. And we have not yet made a decision
one way or the other about what, if anything, we might
do with Mr. Skilling.”8
Skilling’s argument that the SEC attorney’s response to his
attorney’s question means that the false testimony he gave before
the SEC cannot support a sentencing enhancement for obstruction of
justice is wrong under precedent established in the Fifth Circuit
as well as in other Circuit Courts of Appeals.

In Adam the Fifth Circuit stated that
the enhancement for obstruction of justice “is proper
any time the defendant is aware of the action or
investigation against him and he conceals or attempts
to conceal information material to the investigation,
prosecution, or sentencing of the instant offense.

296 F.3d at 334-335 (quoting United States v. Upton, 91 F.3d 677,
688 (5th Cir. 1996), cert. denied sub nom. Barrick v.
United States, 117 S. Ct. 1818 (1997)). The § 3C1.1 analysis
applied in Adam and in Upton is based on the Fifth Circuit’s
holding in United States v. Lister, 53 F.3d 66, 71 (5th Cir. 1995),

7Id.
8Id. at pp. 29-30 (citing Jan. 31, 2003 SEC Trial Tr. at

13:13-22 (filed with Objections as Ex. 8).

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that “the term ‘willfully’ should be reserved for the more serious
case, where misconduct occurs with knowledge of an investigation,
or at least with a correct belief that an investigation is probably
underway.” The Fifth Circuit based its holding in Lister on its
findings that

the obstruction of justice enhancement involves both a
temporal requirement and an awareness requirement
—requirements that reflect the notion that once
government action has been initiated, and an individual
is aware of such action, we expect and encourage that
individual to cooperate and to comply with the
authorities, and that cooperation and compliance
includes the cessation of any conduct that facilitates
the successful completion of a crime.

Id.

Because it is undisputed that Skilling knew when he testified
before the SEC that the SEC was investigating possible fraudulent
activities at Enron, that the SEC would disclose to criminal
authorities any information learned, and that no decision “one way
or the other about what, if anything . . . might . . . [be done]
with [him],”9 the court concludes that both the temporal and the
awareness requirements for application of the § 3C1.1 enhancement
have been satisfied with regard to Skilling’s SEC testimony.
Skilling’s SEC testimony occurred after an official, governmental
investigation was underway into the fraudulent acts at Enron for
which he was later convicted, and after Skilling had been informed
that no decision “one way or the other” had been made about what if

9Id.

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anything might be done with him. Based on these undisputed facts,
the court concludes that when Skilling testified before the SEC he
actually knew, and was not mistaken or confused, that an
investigation against him was underway. See Lister, 53 F.3d at 71.
Despite Skilling’s attempts to separate his SEC testimony from the
insider trading count for which he was found guilty, it is clear
that his testimony before the SEC that he sold 500,000 shares of
Enron stock on September 17, 2001, for “no other reason other than
[the events of] September 11th,” was intended to deflect the
investigators’ attention away from him and his September 17, 2001,
stock sale. Accordingly, the court concludes that a nexus exists
between Skilling’s SEC testimony and the insider trading count
based on the September 17, 2001, sale of Enron stock for which the
jury found him guilty.

The application of the § 3C1.1 enhancement for the
obstruction of justice arising from testimony that Skilling gave
before the SEC is analogous to cases in which other courts have
upheld the application of an obstruction of justice enhancement
based on a defendant’s perjurious testimony before the SEC. See
United States v. Poirier, 321 F.3d 1024, 1035-1036 (11th Cir.),
cert. denied sub nom. deVegter v. United States, 124 S. Ct. 227
(2003) (district court’s failure to apply obstruction enhancement
to defendants who had provided false testimony to the SEC in an
effort to conceal their conduct found to be “clearly erroneous” and

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to require correction on remand); United States v. Bennett,
252 F.3d 559, 566 (2d Cir. 2001), cert. denied, 252 F.3d 559 (2001)
(obstruction adjustment allowed for obstruction of only an SEC
investigation because “the enhancement applies to efforts to
obstruct an ‘official investigation’ · · · which includes
investigations that occur prior to indictment”); United States v.
Zagari, 111 F.3d 307, 328-329 (2d Cir. 1997), cert. denied sub nom.
Herzog v. United States, 118 S.C. 445 (1997) (perjury in a civil
regulatory suit held to support a § 3C1.1 adjustment in a criminal
action where “the connection between the two cases is quite close”
and the perjury was material to the criminal case); United States
v. Self, 132 F.3d 1039, 1043 (4th Cir. 1997) (“[I]n the initial
stages of a criminal investigation, it may be anything but clear
whether the conduct being investigated violates state law, federal
law, or both. Accordingly, the appropriate focus of inquiry is not
whether federal officials had begun involvement with the
investigation, but whether the investigation was for the instant
offense.’”)).

IV. Conclusions

Using a preponderance of the evidence standard, and based
upon the evidence at trial, including Skilling’s testimony, the
court finds that Skilling’s sworn testimony to the SEC that his
sale of Enron stock on September 17, 2001, was effected for no
reason other than concern generated by the events of September 11,

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2001, constituted (1) false testimony, (2) given under oath,
(3) concerning a matter material to the insider trading count based
on his September 17, 2001, sale of Enron stock for which the jury
found him guilty, (4) with the willful intent to provide false
testimony rather than as a result of confusion, mistake, or faulty
memory. The court finds that Skilling’s SEC testimony regarding
his sale of Enron stock on September 17, 2001, was given willfully
to obstruct or impede, or attempt to obstruct or impede, the
administration of justice during the investigation of events that
resulted in his conviction for insider trading in this case.

Skilling’s objection to the obstruction of justice

enhancement is therefore DENIED.

SIGNED at Houston, Texas, on this 23rd day of October, 2006.


SIM LAKE
UNITED STATES DISTRICT JUDGE

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