2010
Judges Have Sufficient Options Available to Punish White Collar Defendants
On May 4, 2010, Sen. Patrick Leahy (D-Vt.) said the following in a Senate Judiciary subcommittee hearing on financial crime:
Despite the enormous losses in many securities fraud cases, a preliminary analysis by the United States Sentencing Commission suggests that securities fraud offenders may often receive shorter sentences than other white collar offenders who cause similar harm. Our amendment will direct the Sentencing Commission to review and amend the sentencing guidelines for these types of fraud, taking into account the importance of sending people to jail as a deterrent and the potential and actual harm to the public from these offenses. (emphasis added).
Sen. Leahy’s bold statement, although it certainly sounds righteously indignant and focused on popular anger at Wall Street crooks, does not appear to have a sound factual basis. Except for a mysterious citation to a preliminary analysis by the Sentencing Commission, Sen. Leahy does not explain how it is that “securities fraud offenders may often receive shorter sentences than other white collar offenders who cause similar harm.” A careful look at the facts shows that securities fraud offenders typically receive extremely lengthy sentences in federal court.
For example, Bernard Ebbers was sentenced to 25 years for false financial reporting at WorldCom.
John Rigas was sentenced to 15 years and later resentenced to 12 years (after one count was reversed by Court of Appeals) for the fraud in Adelphia.
Timothy Rigas was sentenced to 20 years and later resentenced to 17 years.
Jeffrey Skilling was sentenced to 24 years and four months for his part in the collapse of Enron. (Skilling’s pending Supreme Court appeal is unlikely to change his sentence on remand.)
Jamie Olis was originally sentenced to 24 years for his part in an accounting fraud that boosted cash flow at Dynergy Inc. by $300 million. (Olis’ sentence was reversed on appeal, in light of Booker, and he was resentenced to six years.
It appears that these days, the most serious sentences for white collar offenders are reserved for those who violate securities laws. Senator Leahy wants to change sentencing rules to provide a greater deterrent. But in many cases, the only room to move upward is from 25 years to a life sentence. Is that where the senator and his team want to go? What greater deterrent is there, other than a life sentence, than the 15 to 25 years that are common in securities fraud cases?
This charade of a crackdown in Washington is reminiscent of what we saw in the 2001 Economic Crimes Package and in subsequent amendments to a variety of new tools Congress has provided our nation’s prosecutors.
Hopefully the American people won’t buy into this band-aid fix to a serious problem that needs serious analysis. The current sentencing guidelines contain sufficient deterrence, probably much more than necessary. Granted, that deterrence may not be working, but the answer is not adding on another 10 years to a 25-year sentence, which has questionable extra deterrence value.
If Congress is serious about fighting financial fraud, it should spend some serious time trying to understand its origins, addressing some fixes, and stop increasing sentences for lack of a better idea.
About Ifrah Law
Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.
Ifrah Law specializes in federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys are leaders in internet advertising, data privacy, online piracy, iGaming law.
The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partner David Deitch, and firm associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey and Nicole Kardell. These posts are edited by Jeff Ifrah and Jonathan Groner, the former managing editor of the Legal Times. We look forward to hearing your thoughts and comments!
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Well written and apparently, the writer has researched his viewpoint more thoroughly than the senator. The article’s conclusion reinforces the lesson that should taken from the recent financial crisis; the root of the problem must be analyzed and addressed, rather than applying the ‘band-aid.’
Senator Leahy’s comments reflect the Obama administration’s apparent position that Wall Street is responsible for all the economic problems our country is having. Wall St. seems to be the scapegoat, but punishing Wall St. for making money will not solve the problem nor prevent future situations from occruring. As the writer points out, getting to the root of the problem will deter future scandals, not just more severe punishments.
I applaud the writer for bringing this issue to the forefront. Numerous loopholes exsit within the Wall Street regulations. The SEC’s limited ability to properly control these regulations, have allowed our financial services firms to be like “sharks in the water”. The SEC is left with egg on its face.
Well put. Senator Leahy fails to back up his claim with statistics to indicate that this is, indeed, a trend. Additionally, I question the premise that securities fraud should be punished more severly than Medicare fraud or other white collar crimes.
I very much appreciate being updated on the status of the type of punishment being doled out to white-collar workers. I was disappointed to hear that they were thinking of increasing the amount of time spent in prison when these are not murderers or the like, but it seems like they are being treated at times even more harshly. It just doesn’t make sense!
I agree with the writer. Increasing the sentencing time will not be a deterrent. I would like to see details from the analysis referred to by Senator Leahy. Unfortunately, focusing on band-aids takes attention away from the root cause of the problems we face.
While the author presents a cogent, well researched argument, there are some flaws in the reasoning presented. First, the author states that “current sentencing guidelines contain sufficient deterrence” and that current guidelines are “more than necessary”. Of course punishment alone is an insufficient deterrent to crime as is evident by the amount of murders being committed despite capital punishment. In any event, how can 20 years of prison be justified as sufficient punishment for ruining the retirement accounts of thousands of people? Imagine the simple blue collar employee who painstakingly saved a few dollars each paycheck towards his retirement only to have his entire savings wiped out? Second, though financial fraud is almost always a betrayal of public trust, there is no greater violation than securities fraud which shakes the core trust of our financial system. If we want to remain the undisputed leader of the financial markets, we must reward the trust the investors place in us by showing and exercising our commitment to punish those who violate that trust.
Well thought out and written article. I agree that there should be a better approach. Maybe a follow-up article by the author will go into more detail on what measures Congress should adopt? I am looking forward to that.
While the writer makes a persuasive argument, I find it interesting when defense attorneys don’t recognize that the possibility of a lengthy jail sentence acts a deterrent. It is well known that incarceration as punishment has a dual purpose: deterrence and rehabilitation. I see no harm in increasing the maximum amount of permissible jail time to further the goal of deterrence. Each case gets thoroughly evaluated by a judge before sentence is imposed, and we must trust the judge to impose the appropriate sentence to rehabilitate the defendant. The possibility of an increased maximum time does not mean that every defendant will be sentenced to the maximum time. Additionally, while white collar defendants may not be murderers, these defendants destroy lives in a different way.
The author is calling for a fix for the source of the financial fraud, which could largely be addressed with increased transparency in the realm of finances and securities. Until such transparency and proper regulation is achieved, our only recourse may be in fact to “play policeman.” The author represents the ideal approach towards resolving white collar crime, however, as in other areas of politics and economics, the status quo may be the only, perhaps subideal, option currently available to lawmakers.
Yes, Rachelle, I think you are right. I also think the unfortunate bi-product of our unmanageable Democracy is that only band-aid fixes that are relatively neutral from a public perspective – not to mention in an election year – are capable of managing sufficient Congressional support to become law.
I think you are missing the point. White collar defendants in securities fraud cases already face sentences of up to 25 years, the only bracket above 25 years under the federal sentencing guidelines is life. In the federal system, there is no parole, so life is life. Do you see no harm in increasing the sentences available in these type of cases to life in prison? That is the issue here.
While I agree with the author and believe that the current sentencing guideline are sufficient, I feel that the financial impact to our cpaital markets must be addressed. The capital markets are the lifeblood our economic engine and must be protected so that we can preserve and expand our economy and our way of life. Therefore, securities fraud should be punished with more monetary fines both at the individual level and at the company level. For example. the FSA on Thursday morning announced its latest fine of £33.32million to JP Morgan Securities for inappropriate segregation of client money. I can assure you that the rest of ‘Wall Street’ is scrambling and ensuring that their systems have proper checkpoints or else be subject to the same fines. To summarize, all you have to do is hit them where it counts, in the pocketbook.