Thursday, April 21, 2005
Two Merrill Lynch executives, Daniel Bayly and James Brown, were sentenced for their roles in the Enron Nigerian barge trial in which Enron agreed to sell the barges to Merrill and then repurchase them later, essentially a financing deal rather than a true sale, in order to inflate Enron's earnings for at the end of the year. This was the first of the Enron-related trials, and the jury determined the loss caused by the transaction was $13.7 million -- a procedure adopted by some federal courts before the Supreme Court's decision in Booker made such jury fact-finding unnecessary.
U.S. District Judge Ewing Werlein sentenced Bayly to 30 months imprisonment, below the Sentencing Guidelines range even after the judge determined the loss caused by the fraud was $1.4 million, based on Merrill's gain on the transaction. The Pre-Sentence Report recommended a 14 year prison term, based on the larger jury-based loss and other sentencing enhancements. Brown received a 46-month prison term. In addition to the conspiracy/wire fraud charges, Brown was also convicted of perjury and obstruction, and the jury determined he played a leadership role in the offense. (See Bloomberg story here)
In sentencing Bayly, Judge Werlein stated how impressed he was by the defendant's reputation: "I may have never had a defendant before me who had a more glowing and extraordinary record of being a good citizen . . . The ignominy of a conviction and sentence by one who commits a crime of this type is quite different than one that could be tolerated by people who committed (other types of offenses)."
Sentencing Law & Policy has an interesting post (here) continuing an earlier discussion about whether Booker will result in lighter sentences in white collar crime cases. In an earlier post (here), I discussed whether judges will favor white collar defendants who are more like themselves, with long-term charitable and family ties in the community. Two items in Judge Werlein's sentence are of interest, based on the Houston Chronicle story (here) discussing the sentence: the judge noted Bayly's "boy scout" reputation and opined that white collar defendants cannot tolerate long prison terms and are sufficiently deterred by shorter sentences.
"Boy scout" reputations are certainly not unknown among white collar offenders, and are more likely to be the norm. The collateral consequences of a prison term, including loss of livelihood, reputation in the community, licenses, etc. are exacerbated when the person has so much more to lose than the typical defendant in a street crime case, even the ones that come up in federal court involving drugs and weapons. Are these sufficient to justify lower sentences, so that a "reasonable" sentence in a white collar crime case will be less than that for a person who is a felon in possession or is a lower-level drug dealer in a large narcotics organization? Unfortunately, the message from a sentencing like Bayly's to Congress may be that judges will gradually move toward consistently lower sentences for white collar defendants who have the ability (and means) to present themselves in the best possible light to a judge who is naturally sympathetic to someone similar to himself or herself. The congressional overreaction is H.R. 1528, which would prohibit as least some of the grounds cited by Judge Werlein as the basis for a downward departure from the Guidelines (leaving aside the loss calculation).
That said, 30 months is not a short sentence, and Bayly could be barred from the securities industry by the SEC for his role in the barge transaction. This is a substantial punishment. (ph)
UPDATE (4/21): A USA Today story (here) gives some additional details about the sentencing of James Brown that were not available when I posted earlier. The PSR recommended a 33 year prison term, and even with the judge's lower fraud loss calculation the sentence certainly looks like a downward departure. An additional basis identified by Judge Werlein for giving Bayly and Brown lower sentences was his comparison with the sentence Andrew Fastow is expected to get for his cooperation, which is capped at ten years. Whether that is a fair basis for comparison is a different matter. Fastow cooperated while Bayly and Brown (among others) did not, although I have not always found that to be entirely persuasive.
One statement by Brown did catch my eye. He said at the sentencing: "Since I was indicted, I have been branded a liar and a criminal; I could no longer make a living in my chosen profession." Regarding the first part, being convicted of perjury, obstruction of justice and wire fraud tends to have that effect on a person. That he can no longer pursue his chosen profession is true of most people convicted of crimes, particularly professionals. I have a hard time seeing how either of those circumstances should affect a sentence, and I doubt that they did. (ph)
UPDATE (4/22): For an interesting discussion of Bayly's sentencing hearing by Tom Kirkendall, an attorney who was present, check his blog Houston's Clear Thinkers here.