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Court to hear arguments in Skilling appeal of convictions for Enron collapse

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HOUSTON -- Hidden evidence. Prosecutorial misconduct. Flawed legal arguments. An unfair trial setting.

These are some of the claims attorneys for former Enron Corp. chief executive Jeffrey Skilling have made in appealing his 2006 convictions for his role in the energy giant's collapse.

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans will consider Wednesday if the conviction was rightfully obtained.

"The defense has put together a very good (case)," said Jack Sylvia, a Boston-based attorney with the firm of Mintz Levin, who is familiar with the appeal.

Skilling and company founder Kenneth Lay were convicted in May 2006 on 19 counts of fraud, conspiracy, insider trading and lying to auditors for their role in the collapse of Enron, once the nation's seventh-largest company.

Lay died less than two months later and his convictions were vacated. Skilling reported to a federal prison in Minnesota in December 2006 to begin his 24-year sentence. He will not be present for the appeal.

Skilling is the highest-ranking executive convicted for shady business deals that led to Enron's 2001 implosion, which erased thousands of jobs, more than $60 billion in Enron stock value and more than $2 billion in employee pension plans.

Key to the appeal is 400 pages of newly released notes from FBI interviews with former Enron chief financial officer Andrew Fastow, which Skilling attorney Daniel Petrocelli has argued contain important evidence hid by prosecutors.

Fastow testified that his bosses, Skilling and Lay, were aware of bogus financial structures engineered by Fastow and his staff. Fastow, considered the mastermind behind financial schemes that doomed Enron, is serving a six-year prison sentence.

The trial judge denied requests to turn over the full notes to Skilling's lawyers, but after the trial, another court ordered the notes released.

In those notes, Petrocelli claims, is evidence contradicting Fastow's testimony that Skilling orally approved secret side deals to manipulate financial statements.

"Dismissal with prejudice is necessary to remedy the grave injustice and prejudice to which Skilling has been subjected," Petrocelli wrote the court in March.

Prosecutors dispute the claims.

"Skilling's microscopic and misleading dissection of the Fastow notes provides no basis for overturning the jury's verdict," prosecutors wrote last month.

Christopher Bebel, a former federal prosecutor now in private practice in Houston, said the conviction should be safe because the trial judge reviewed the notes, which normally are not turned over to the defense, and Fastow's testimony was not the only reason Skilling was convicted.

"If Fastow had carried the load for the government, some of the convictions might be overturned," Bebel said.

But Chuck Ross, a white-collar crime attorney based in New York, said the notes could be a "real problem."

Appeals courts frown the withholding of notes from witness interviews, he said.

"As a defense lawyer, I'm troubled they weren't turned over," Ross said.

Ross and Bebel agree that Skilling has a better chance of overturning some of his convictions based on claims that prosecutors used a flawed legal argument at trial known as "honest services."

Prosecutors theorized that Enron employees were bound to serve honestly and not put their interests ahead of the company's. If they failed to do so, they deprived the company of "honest services" and committed a crime.

The 5th Circuit has already overturned several Enron-related convictions based on the honest services theory, ruling that executives did only what the company wanted them to do, and that their profit was not at Enron's expense.

Petrocelli argues that Skilling was trying to improve stock value.

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