Saturday, May 27, 2006
The past year has seen the conviction and sentencing of CEOs from WorldCom, Adelphia Communications, and Enron, and it may be that a pattern has emerged that establishes a likely parameter for the sentencing of Ken Lay and Jeffrey Skilling. In all the cases, the companies collapsed after the revelation of significant accounting issues, and investors lost billions of dollars, although arguments can be made whether that loss was directly attributable to the misconduct of the executives. Under the Federal Sentencing Guidelines, these executives could have received sentences of life in prison, which the government argued was the appropriate Guidelines sentence in the proceedings against former WorldCom CEO Bernie Ebbers and Adelphia Communications CEO John Rigas. Professor Frank Bowman has a powerpoint presentation (available through the Wall Street Journal Law Blog here) that works through the Guidelines and concludes that a term of life in prison is a possibility for Lay and Skilling based on the amount of the loss and other sentencing enhancements.
The Guidelines are no longer the governing law after Booker but only advisory, so U.S. District Judge Sim Lake need not adhere to them strictly. The prosecutors probably will argue for the highest sentence under the Guidelines, based on all possible enhancements, including perjury, and ask the judge to apply them as a "reasonable" sentence. That would mean life sentences for both defendants, although different loss calculations might result in a slightly lower sentence for Lay -- say, 30 years, which would not make much of a difference for a defendant in his early sixties. The government's memorandum for the Ebbers sentencing (available below) sets out what I expect will be the likely approach of the Enron Task Force regarding a non-Guidelines analysis based on comparable sentences given in other cases to avoid sentencing "disparity," one of the goals of the Guidelines. Here, the 25-year sentence imposed on Ebbers and the 15 years that the 80-year old Rigas received could be argued by the government as the appropriate parameters of a "reasonable" sentence for Lay and Skilling, and prosecutors would be expected to seek a sentence at the higher end of that range. The Ebbers memorandum undertook the same analysis, relying on the Rigas sentencing and two other cases involving CEOs convicted of securities fraud, Patrick Bennett and Steven Hoffenberg, who received 22-year and 25-year sentences respectively, as relevant to imposing a sentence that did not create gross disparities.
The defendants will not concede that the Guidelines calculation of life is appropriate or that the sentences of CEOs like Ebbers and Rigas are comparable situations. There is also a good argument to be made that defendants like Lay and Skilling do not deserve sentences that may result in their dying in prison, or leaving it when they are quite elderly, when they pose no real threat to society. Nevertheless, it is interesting that there is now a CEO parameter for sentencing that may provide Judge Lake with some guidance as to how to exercise his discretion in determining the punishment for Lay and Skilling. (ph)