Near North Insurance's Mike Segal appeals to U.S. Supreme Court

CHICAGO—Attorneys for one-time insurance mogul and political power Mike Segal have filed an appeal asking the U.S. Supreme Court to overturn his conviction on federal fraud charges.

In a petition for a writ of certiorari filed Friday, lawyers from Mayer Brown L.L.P. argue, as did attorneys at his trial, that Mr. Segal neither intended to defraud nor in fact defrauded anyone when he dipped into a trust account of his Near North Insurance brokerage.

But they also add a few twists.

The petition extensively discusses the government's use of a theory of prosecution known as breach of "honest services" that was effectively banned in many cases after the Segal conviction. And, in an apparent appeal to the high court's conservative wing, it suggests that the prosecution so relied on alleged violation of an Illinois statute that states' rights are at issue.

The trial court "stretched the law of fraud beyond the breaking point, sustaining a conviction despite the absence of every element of traditional common law fraud," the petition asserts. "There was no evidence of promises to the alleged victims of the scheme, no evidence of materiality and no evidence of intent to deprive the victims of money or property."

But most of those arguments already have been reviewed—and rejected—by the 7th U.S. Circuit Court of Appeals in Chicago.Mr. Segal in 2005 was sentenced to 10 years in prison and forfeited his interest in Near North Insurance, along with $15 million. The 68-year-old now is at Oxford Correctional Institution in central Wisconsin, from where he is scheduled to be released in April 2013.

His central defense always has been that, while he did take funds from a premium trust fund used to pay clients' insurance bills, there was nothing wrong in doing so—despite an Illinois law to the contrary. All bills were paid on time, all money was returned and no client lost insurance coverage, he asserted.

But Mr. Segal owed his clients more, prosecutors countered, relying in part on an implied fiduciary responsibility known as honest services.

That theory later was thrown out by the U.S. Supreme Court—complicating, among others, the prosecution of former Sun-Times owner Conrad Black.

But in Mr. Segal's case, the 7th Circuit held that there was sufficient evidence of fraud even without the honest services argument. Mr. Segal's lawyers argue that's inconsistent with findings with other courts of appeal in other regions of the country.

The petition for cert also makes an interesting states' right case.

"Elevating a regulatory infraction subject to state enforcement to the level of a federal crime encroaches upon traditional state police powers and alters the federal-state balance in the prosecution of crimes, without any clear directive from Congress," it states.

The 7th Circuit's ruling "conflicts with…important principles of federalism."

The petition is signed by four lawyers at Mayer Brown serving in its Chicago and New York offices.

Greg Hinz is a writer for Crain's Chicago Business, a sister publication of Business Insurance.