Tuesday, September 20, 2005

Will He Survive?

Has Richard Hatch realized that the television show, the Survivor, is over? Or is he out to show the government that he is a true survivor?  Whatever the case be, Richard Hatch plead not guilty to charges alleging that he failed to pay taxes on his winnings.  See here (AP).

(esp)

September 20, 2005 in Tax | Permalink | TrackBack (0)

Head Start

The very concept of someone stealing from kids is appalling.  But it appears that money is missing at Head Start and two former officers have now been charged with conspiracy, mail fraud, and theft.  To the indictment they have plead not guilty.  See more St Pete Times (AP) here.

(esp)

September 20, 2005 in Prosecutions | Permalink | TrackBack (0)

SEC Finds Liability for Broker's Actions

According to the St Pete Times here and Newsday(AP) here, the SEC found Raymond James Financial Services liable for alleged fraud acts committed by one of its brokers.  It will cost the company $6.9 Million. This sends a strong message to all companies that they need to be monitoring what is going on inside the company. The St Pete Times provides full details on how the judge computed this hefty fine.

(esp)

September 20, 2005 in Securities | Permalink | TrackBack (0)

Monday, September 19, 2005

Equally Culpable in Jail Time, But Not Fines

The court has pronounced its sentence on Dennis Kozlowski and Mark Swartz, with each receiving a sentence of 8 1/3 to 25 years. Kozlowski received a fine of $70 million and Swartz a fine of $35 million.  Additionally both were ordered to pay restitution. See here (NYTimes). Not surprisingly, the prosecution asked for the court to impose the maximum sentence of 15-30 years, while the defense asked for leniency.

Unlike Bernard Ebbers, but like Jamie Olis, the defendants were sent off to jail immediately. They were not released pending the appeal.  See more here (AP), here (AP), and here (Wall St.Jrl).

Unlike those sentenced in the federal system (e.g. Rigas, Ebbers, and Olis), both Kozlowski and Swartz have the opportunity to present their case and circumstances for parole after they have served 8 1/3 years.  But some will argue that the prisons awaiting Kozlowski and Swartz will be harsher than those facing the federal offenders (although it should be noted that Jamie Olis does not exactly have luxury quarters).

Is this sentence necessary?  No.  The minimum would have been 1-3 years and perhaps the sentence should have been closer to that time frame.  Closer not because the crime was not wrong and should be punished, but closer because these individuals are first offenders who are unlikely to commit a crime again in the future.  Their positions of power have been stripped from them and they are unlikely to have the ability or power to ever be a menace to society again.

Are the fines and restitution appropriate?  Yes. Make them pay back every dime that was taken and more. 

(esp)

September 19, 2005 in Sentencing | Permalink | TrackBack (3)

Kozlowski and Swartz A Challenge to NY to Be Reasonable

(Reposted for Monday, Sept. 19) It is likely to be a sleepless night for Dennis Kozlowski and Mark Swartz, as tomorrow is the day they are to be sentenced. Posted here are some thoughts on this sentencing, particularly the fact that if sentenced harshly they will be sent to a maximum security prison. But this case presents a challenge to NY State to show the rest of the world what sentencing is all about.  This case presents a challenge to New York to be reasonable in light of the ridiculousness of the federal system.

Sentencing Jamie Olis to 24 years, Bernie Ebbers to 25 years and John Rigas to 15 years may seem to be saying to the rest of world that we will not tolerate white collar offenders.  What people are not noticing is that this same message can be accomplished with significantly less sentences.  The corporate workers who are considering establishing shells to inflate the profit of their corporation would just as easily be deterred knowing that they could receive 10 years in prison as to receive 25. Where general and specific deterrence may have an effect when the robber decides whether to be armed or not in committing the robbery, the SHAME in the community is by far the harshest punishment felt by the white collar offender. That shame is felt irrespective of whether the sentence is 10 years or 25 years. In contrast the incapacitation of the robber is important to keep him or her from committing a future offense.  The white collar offender in almost all cases is without the power or ability to ever be a future menace on society.  This is especially true for the offenders who were in high profile positions like Olis, Ebbers, Rigas, and Kozlowski.

Recidivism is occasionally seen in the context of white collar crime, but the instances are with small time consumer frauds, internet scams, and thefts to companies.  In this context the crimes should appropriately be given equal treatment as if it had been a theft in a blue collar context.  Where the individual might be a menace to society in the future, incapacitation is necessary. The bottom line is to get them off the streets so that they can't commit the crime again.

Some may say that blue collar offenders feel the same shame and therefore all white collar offenses deserve equal treatment.  In some cases that may be true, and in those cases, it should be factored into the sentence received. Likewise disparity in drug sentences caused by the appalling difference in how we approach crack/cocaine sentencing is equally as offensive. It has gotten so bad in this context that not only is shame not felt, but honor may be seen in being given some time.  Check out rap music and read some of the work of Professor Paul Butler ("Much Respect: Toward a Hip-Hop Theory of Punishment," 56 Stanford Law Review 983 (2004) ) to understand this.  The system has obviously failed here.

But the bottom line is that New York State has the opportunity here to impose a reasonable sentence.  A sentence that factors in sending a message that white collar crime will not be tolerated, but also noting that these white collar offenders have suffered the shame of society and are unlikely to be a menace to society in the future. Sentencing requires a case-by-case analysis in order for judges to analyze all the factors of this particular defendant to this particular crime.  Not that having guidelines doesn't help, but Booker and Blakely helped to restore some reasonableness to the federal system. A system that gave prosecutors the exclusive power.

The pressure will be on the NY State judge sentencing in the Kozlowski and Swartz case to be tough on crime and match the sentences received by white collar offenders in the federal system.  But hopefully the judge will not succumb to that pressure and examine this case on its merits looking at age old principles like deterrence, incapacitation, and rehabilitation.

Sentence harshly for the crime committed, but also sentence reasonably.

(esp)   

September 19, 2005 in Sentencing | Permalink | TrackBack (4)

Will Lord Black Be the Next to Try the "Honest-but-Ignorant CEO" Defense?

An article in Saturday's Wall Street Journal (here -- a nice addition to the weekend) discusses the possible response of former Hollinger International CEO Lord Conrad Black if the government indicts him for siphoning money from the company.  In August, the U.S. Attorney's Office for the Northern District of Illinois announced the indictment (press release here) of Black's long-time chief deputy, David Radler, and the Ravelston Corporation Ltd, Black's investment company that controlled Hollinger, for diverting $32 million from Hollinger.  The SEC is expected to announce a settlement with Radler this week, a sure sign that he is cooperating with the government, and his intimate knowledge of Black's business operation will be the key to putting together any further charges.  According to the Journal, Black's attorney's are already marshaling a defense that Radler was responsible for the negotiations related to various non-compete agreements and other transactions that resulted in the alleged diversion, while Black simply reported on the deals to the Hollinger board.  Thus, the "honest-but-ignorant CEO" position comes to the forefront, one that did not work for former WorldCom CEO Bernie Ebbers, but was successful for the once (and future?) HealthSouth CEO Richard Scrushy.  Look for the vilification of Radler to begin shortly, and the fight promises to be quite nasty because the two men have known each other for many years and are probably privy to all the skeletons in each's closet. (ph)

September 19, 2005 in Fraud, Investigations | Permalink | TrackBack (0)

SEC Charges Former Fleming Cos. Executives with Accounting Fraud

The SEC filed a civil fraud complaint alleging that five former officers of food wholesaler Fleming Cos., Inc., engaged in accounting fraud to pump up the companies revenue and earnings in 2001, before its collapse into bankruptcy.  Among those named in suit are Mark David Shapiro, the company's former chief accounting officer, and Phil Murphy, a vice president in charge of the procurement division.  The fraud involved a type of reverse channel-stuffing when Fleming loaded up on purchases to trigger larger rebates from vendors, which it immediately booked as income.  The officers obtained side-letters from the vendors which allowed the company to book the income, as described in the SEC's Litigation Release (here):

The Commission alleges that defendants obtained misleading letters from Fleming vendors that were used to improperly accelerate recognition of the vendors' up-front payments, in violation of generally accepted accounting principles. The complaint also alleges that Shapiro and Murphy inflated earnings by executing large quarter-end inventory purchases solely to generate discounts that Fleming could immediately recognize as earnings, to help meet Wall Street analysts' earnings expectations. Fleming failed to disclose that these purchases were part of an intentional scheme to inflate earnings. In addition, Shapiro improperly inflated Fleming's 2001 earnings by directing the release of extensive accounting reserves, without proper justification or disclosure.

One of the five defendants agreed to a settlement and will pay a $100,000 civil penalty. (ph)

September 19, 2005 in Civil Enforcement, Fraud, Securities | Permalink | TrackBack (0)

Former Illinois Governor's Corruption Trial Scheduled to Begin

The trial of former Illinois Governor George Ryan and lobbyist Larry Warner is scheduled to begin Monday, Sept. 19, in U.S. District Court in Chicago, with the selection of the jury.  Ryan is charged with RICO conspiracy, mail fraud, tax evasion, and lying to the FBI; his campaign committee and former chief of staff have already been convicted on RICO charges.  Ryan was caught up in a wide-ranging investigation of corruption in the Illinois Secretary of State's office involving payments for driver's licenses that occurred during his two terms in that office.  Ryan served only one term as governor, and was indicted within a year of leaving office in 2003.  Among his final acts as governor was commuting the sentences of all prisoners on death row in Illinois due to flaws in the system that had resulted in a number of wrongful convictions.  An AP story (here) discusses the charges against Ryan. (ph)

September 19, 2005 in Corruption | Permalink | TrackBack (0)

Sunday, September 18, 2005

Former Atlanta Braves Pitcher Receives Jail Time

A former pitcher for the Atlanta Braves (Rick Camp) received a sentence of 37 months in prison "for conspiring to steal more than $2 million from a mental health agency." (see AP in Sports Illustrated here).  The cast of characters in this case include a former state Representative (who received 10 years in prison) and the grandson of a longstanding ex-House Speaker in Georgia. Reporter James Salzer of the Atl. Jrl Const. provides more details here.

(esp) (w/ thanks to Christopher L. Padurano).

September 18, 2005 in Sentencing | Permalink | TrackBack (0)