Case Problem with Sample Answer In 1999, Andrew Fastow, chief fi nancial offi cer of Enron Corp., asked Merrill Lynch, an investment fi rm, to participate in a bogus sale of three barges so that Enron could record earnings of $12.5 million from the sale. Through a third entity, Fastow bought the barges back within six months and paid Merrill for its participation. Five Merrill employees were convicted of conspiracy to commit wire fraud, in part, on an “honest services”

theory. Under this theory, employees deprive their employer of “honest services” when the employees promote their own interests, rather than the interests of the employer.

Four of the employees appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that this charge did not apply to the conduct in which they engaged. The court agreed, reasoning that the barge deal was conducted to benefi t Enron, not to enrich the Merrill employees at Enron’s expense. Meanwhile, Kevin Howard, chief fi nancial offi cer of Enron Broadband Services

(EBS), engaged in “Project Braveheart,” which enabled EBS to show earnings of $111 million in 2000 and 2001.

Braveheart involved the sale of an interest in the future revenue of a video-on-demand venture to nCube, a small technology fi rm, which was paid for its help when EBS bought the interest back. Howard was convicted of wire fraud, in part, on the

“honest services” theory. He fi led a motion to vacate this conviction on the same basis that the Merrill employees had argued. Did Howard act unethically? Explain. Should the court grant his motion? Discuss. [United States v. Howard, 471 F.

Supp.2d 772 (S.D.Tex. 2007)]

—After you have answered Problem 8–4, compare your answer with the sample answer given on the Web site that accompanies this text. Go to www.cengage.com/blaw/blt, select “Chapter 8,” and click on “Case Problem with Sample Answer.”