By Peter Elkind, editor-at-large
FORTUNE -- Last week brought reports of a deal to chop as much as a decade off the prison term of Jeff Skilling, the former Enron CEO and convicted fraudster. But the real reason for the dramatic sentence reduction is different than some of the media coverage has suggested.
Skilling's unusually stiff sentence -- exceeded in the pantheon of white-collar crime only by WorldCom's Bernie Ebbers -- could be cut from 24 years and four months to as little as 14 years if the agreement is approved by Houston federal judge Sim Lake, who presided over Skilling's criminal trial back in 2006. (At the time, Fortune called the trial "a milestone in American business history.")
With credit for good time and a drug and alcohol program, Skilling, who is 59 and has served six years already, could get another two and a half years off, freeing him from prison by his mid-60s. The deal will also release more than $40 million in assets seized from Skilling, to be distributed to Enron's financial victims, and will require him to abandon his appeals.
The bulk of the proposed sentence reduction, however, results not from last week's negotiated agreement between the government and defense lawyers, but from a 2009 decision by the Fifth Circuit Court of Appeals.
Knowing the real story eliminates the prospect that the defense had some powerful new card to play, such as prosecutorial misconduct -- and suggests that it was instead simply a matter of both sides seeking closure.
"Today's agreement will put an end to the legal battles surrounding this case," a Justice Department spokesman said in a statement. "Mr. Skilling will no longer be permitted to challenge his conviction for one of the most notorious frauds in American history, and victims of his crime will finally receive more than $40 million in restitution they are owed."
During the time Skilling has been in prison (he's now incarcerated at a low-security facility outside Denver), both his parents and the youngest of his three children have died. Even if he gets out in the minimum time possible, he will have served twice as long as any other Enron defendant. (Ranking second is former Enron CFO Andy Fastow, who was released after about five years in prison.)
In a statement, Skilling's lead defense attorney, Daniel Petrocelli, said the proposed agreement "brings certainty and finality to a long, painful process … Jeff will at least have the chance to get back a meaningful part of his life."
"This is all about finality," says Houston lawyer Phil Hilder, a former federal prosecutor who has represented several Enron clients, including Sherron Watkins. "There comes a point of diminishing returns."
Here's what happened. Skilling was originally convicted in May 2006, after a four-month trial. (Former Enron chairman Kenneth Lay was also convicted, but died of a heart attack six weeks later.) Under federal sentencing guidelines, which use a points system, Skilling's offenses and background put him at a level 36. Judge Lake added a four-level "enhancement" for jeopardizing the safety and soundness of a "financial institution." This aggressive ruling -- which defined Enron's employee retirement plans as a "financial institution" -- boosted his level to 40, with a range of 292 to 365 months. Lake's sentence of 24 years and four months was at the minimum of that guideline.
In a January 2009 decision, the Fifth Circuit upheld Skilling's conviction, but threw out the "financial institution" enhancement, cutting his number back down to 36, with a range of 188 to 235 months -- or as little as 15 years and eight months. The appeals court ordered that he be resentenced.
But that resentencing was postponed indefinitely pending more Skilling appeals, which included two trips to the Supreme Court (which declined to overturn his conviction), and another round before the court of appeals. Negotiations began in earnest after Skilling's prospects for overturning his conviction grew dim.
The agreement announced last week trims his sentencing number just one more level, to a range of 168 to 210 months. If sentenced again at the bottom of the range, this would produce a further reduction of one year and eight months, to 14 years. The resentencing is scheduled for June 21 in Houston.
"Let there be no mistake about this," says Hilder. "It's not as though the government gave away a significant sentence. The government didn't just decide to throw out 10 years. The negotiations only shaved a couple of years off Skilling's sentence."
But Skilling, Hilder notes, can now "see light at the end of the tunnel. He will know that there is a day he'll be able to walk out of there."
Reporting by Doris Burke
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