White Collar Crime Prof Blog

White Collar Sentencing - Looking at the Individual

Often the sentence given to convicted offender focuses on the offense, as opposed to the offender.  But Tracy Bishop of the Baltimore Sun has an incredible article/story, titled  Contrary Criminal, that tells of a woman being sentenced on a backdating case out of SafeNet. Judge Rakoff gives her 6 months. 

What do you do with someone who did not benefit from the crime, who was always helping people, and accepts responsibility?  One has to wonder whether her sentence is the equivalent of someone receiving a much harsher sentence in actual jail time in that the truly "good person" will be affected greater by a sentence than the person who is less caring and more self-centered. The truly "good person" who missteps in the law, oftentimes because the law is unclear or unenforced, may be more concerned about having failed their family, as opposed to the time that they will actually have to serve. And does the truly "good person" who tries to please people stand more of a chance of being charged and convicted for such crimes? 

(esp)

What Will Cooperation Bring?

Carrie Johnson's Washington Post article titled, Ex-Aide Sentenced, New Probe Emerges discusses a 6 month sentence being given to an individual who faced a possible 2 years for an embezzlement related charge.  But the telling part of this article pertains to a probe involving lawmakers using staff members for political related activities.  The problem here being that the political activities may have occurred during government paid time. So, what does an embezzlement plea have to do with this new probe?

• Will it be a Political Investigation: The article notes that the person being sentenced is affiliated with two lawmakers who are Democrats. So a first question will be whether this investigation will be limited to one political party? With a politicized justice department in the recent past, such investigations raise concerns as whether they will be an outgrowth of the politics in the department.
• Can't Give too Good a Deal: An individual facing 2 years gets 6 months. The government doesn't want to give too good a deal (such as no time) if they plan on using the person to testify against others.  Credibility of the individual providing the information is important, and too good a deal makes one wonder whether the person is in fact being truthful.
• How Many Dominoes Will Fall: One has to wonder whether this plea is but one domino in a major investigation.  Will this individual provide information that will be verified by others, and will there be more pleas prior to the filing of a major indictment of a top person?
• How High Will it Go: One problem for the government with these types of investigations -- in seeing how high you can go --is determining the knowledge of the top individuals.  Did the individuals leave such matters to those below them, did they have actual knowledge of how their staff was used, or is it a willful blindness situation, where the individual knows what is going on but just avoids being a part of the conduct to avoid criminal culpability?
• Will it Hit a Wall: What may sometimes seem like a major investigation can sometimes fall flat when there just isn't any criminal conduct there.  Could this be the case here?

A lot of unanswered questions, but Carrie Johnson at the Washington Post is onto something worth watching.

(esp)

Commentary on the Wesley Snipes Sentence

Wesley Snipes received the maximum sentence for his convictions, a sentence of three years (see here).  Co-defendants who were found guilty of conspiracy to defraud the IRS and presenting a false claim to the IRS received 10 years and 4 years and 6 months. A likely question on appeal will be whether Wesley Snipes deserved to receive the maximum penalty as his sentence. 

"'Snipes' long prison sentence should send a loud and crystal clear message to all tax defiers that if they engage in similar tax defier conduct, they face joining him and his co-defendants, . . . , as inmates in prison,' said Nathan J. Hochman, Assistant Attorney General of the Justice Department's Tax Division." (see press release). But some may question whether an individual should receive the maximum sentence in order to provide deterrence to others.  And should a person's celebrity status, warrant the imposition of a harsher sentence? 

See also Doug Berman's Sentencing Law & Policy here.

(esp)

Wesley Snipes Gets 36 Months

The government asked for 3 years (see here) in a memo that focused on the criminal activity that formed the basis of the convictions against Snipes. It's a memo filled with numbers.  In contrast, the defense asked for probation in memo that very much focused on the individual (see here-Download snipes20sentencing20memorandum.pdf)  The defense memo was accompanied with letters in support, something that is common in white collar cases. (see here - Download snipes20exhibits.pdf ).  As noted by Professor Paul Caron on the Tax Prof Blog, there are an array of letters including the celebrity letters. (see here) One very thoughtful letter caught my eye as it was written by Marc Greenberg, professor of law and director of the intellectual property program at Golden Gate University Law School. Now the decision rests in the hands of the judge.  Stay tuned.

Just in - the Orlando Sentinel - Wesley Snipes Sentenced to 36 Months; see also CFNEWS 13 here; CNN - Snipes Gets the Max here Stay tuned for Commentary.

(esp)(w/thanks to Whitney Curtis)

Former IRS "Revenue Agent" Sentenced to a Year

A press release of the U.S. Attorney's Office for the Southern District of New York reports that "a former Internal Revenue Service (“IRS”) Revenue Agent -- was sentenced [ ] in Manhattan federal court to a year in jail for carrying out a scheme to obstruct the IRS by fraudulently attempting to sell to other taxpayers, and fraudulently using on his own personal income tax returns, tax losses belonging to a separate company he controlled."

Press Release - Download willner20sentencing20pr.pdf

(esp)

Another Long Sentence for a White Collar - But This Time With A Plea

This time it is 20 years for a white collar offender.  But unlike Bernie Ebbers who received 25 years, Jeffrey Skilling who was given 24 years, and the Rigas sentences of 20 and 15 years -  the accused - Samuel Israel III - plead guilty. 

In the past the exorbitant sentences have been given for the most part to individuals who risked trial. We have seen individuals who enter pleas receiving lower sentences, like six years (Fastow) in return for testimony. 

But what happens when you have no one to testify against and when the amount of loss is high? The co-founder of the defunct hedge fund Bayou Group found out that the reduction for a plea brought it to a sentence of 20 years.

The Wall Street Jrl here,  NYTimes here, USA Today here, Reuters here.

See also my article, The Challenge of White Collar Sentencing

(esp)

Government Asks for 36 Months for Snipes

The government filed its sentencing brief (see here - Download usa_sentencing_memo_re_snipes.pdf ) in anticipation of the forthcoming Wesley Snipes sentencing hearing set for April 24, 2008. The brief calls for the court to impose a sentence of "36 months’ imprisonment and a fine of at least $5 million."  It also requests the court to deny bail pending appeal.  See Professor Doug Berman's Sentencing Law & Policy for his comments on this brief.

(esp) (w/ a thanks to Whitney Curtis)

U.N. Procurement Official Gets 8 Years

A press release of the U.S. Attorney's Office of the Southern District of New York, states that "the former Chief of the Commodity Procurement Section within the Procurement Division of the United Nations ("UN"), was sentenced ... in Manhattan federal court to 97 months in prison on his convictions for accepting hundreds of thousands of dollars’ worth of benefits from a UN vendor in exchange for his assistance in awarding tens of millions of dollars’ worth of UN contracts to the vendor."

(esp)

White Collar Offenders in Prison

With the increased sentences being given to non-violent white collar offenders, more and more are finding themselves being housed near or with those who commit violent acts.  Is it really necessary to spend the extra funds of a higher level security facility on those who are non-violent white collar offenders? It is also interesting to note that those who do not risk a trial and take a plea, are not only avoiding the risk of a higher sentence, but also the risk of being placed in a more restrictive environment. A perfect example here is Jamie Olis.  Olis initially went to a very secure facility because of the exhorbitant sentence given to him.  When his sentence was reduced he was sent to a less restrictive facility.  But even then - it is prison.  And as seen this past week, it was the facility near Olis where there was a prison riot and death. (see here)

(esp)

In the News - Wecht, Kilpatrick, Prosecutor, University President

Pittsburgh Post Tribune - Wecht Jury at Impasse?

Freep.com - Will Beaty Make a Plea Deal (she is the former chief of staff to Detroit Mayor Kilpatrick).

Martha Neill, ABALaw JrlNewsNow - 20-Year Texas Prosecutor Convicted of Stealing Office Funds

Houston Chronicle - Plea Deal for former Texas Southern University President Priscilla Slade - she will pay the fine and do no time ($127,672.18 fine) here (represented by Mike DeGeurin)

(esp) (w/ a Stetson Hat Tip to Frank Klim on the last)

11th Circuit Pattern Jury Instruction for Mail Fraud Has Problems

The Eleventh Circuit Court of Appeals in United States v. Svete reversed and remanded 5 counts in a case where the defendants were "convicted of conspiracy, mail fraud, money laundering, and interstate transportation of money obtained by fraud, all charges being related to their dealings with viaticals."  Additionally, the court sent the entire case back for resentencing as a result of this holding.  The court stated:

"In this Circuit, mail fraud requires the government to prove that the defendant intended to create a scheme 'reasonably calculated to deceive persons of ordinary prudence and comprehension.' . . .This burden is not reflected in the current Eleventh Circuit pattern jury instruction for mail fraud. Pattern Instruction 50.1 merely states that a 'scheme to defraud' is 'any plan or course of action intended to deceive or cheat someone out of money or property by means of false or fraudulent pretenses, representations, or promises.' Pattern Jury Instructions (Criminal Cases), No. 50.1 (11th Cir. Jud. Council 2003 rev.) (Mail Fraud). Because the definition does not include the reasonable person standard as articulated in Brown, Pattern Instruction 50.1 is deficient. (some citations omitted)."

(esp)(w/ congratulations to Attorney Peter Goldberger)

Export Violation Nets 24 Year Sentence

A press release of the Department of Justice states that an individual was "found guilty by a federal jury in May 2007 of conspiracy, two counts of attempting to violate export control laws, failing to register as an agent of a foreign government and making false statements to federal investigators."  The sentence imposed was 293 months in prison.  The press release also states that the defendant is "[a]n engineer who conspired with family members to export United States sensitive military technology to the People’s Republic of China."  White collar cases will sometimes implicate military and defense issues.

(esp) 

Upcoming Seminars

The Federal Bar Association and the US Sentencing Commission, with the ABA as a co-sponsor, is having its 17th Annual National Seminar on the Federal Sentencing Guidelines Conference May 21-23, 2008 in Orlando, Florida.  For information, see here.

National Consitution Center - How to Conduct Internal Investigations - and Not Screw it Up.  April 23 - audio conference  For information, see here.

NACDL - 50th Anniversary - White Collar Crime Track- May 1-4th New York City here. 

(esp)

Presidential Commutation & Disbarment

With the recent disbarment of I. "Scooter" Libby, there have been questions regarding the effect of the president commuting his sentence on his later disciplinary matter.  The bottom line is - probably none. This issue was examined in the context of Eliot Abrams, the former Assistant Secretary of State for Inter-American Affairs. In the case In re Abrams, 689 A.2d 6 (1997), the court held that a presidential pardon does not negate the ability of a disciplinary committee from imposing professional discipline. The Abrams case resulted after President Bush gave Abrams a "full and unconditional pardon" on Christmas Eve in 1992. Although there are four judges that offer a dissent in the Abrams case, the precedent remains for saying that a presidential commutation of sentence does not change the disciplinary board's decision. 

(esp)(w/ a hat tip to Professor Greg Miller)

White Collar Sentence Reversed - Too Short

The Second Circuit Court of Appeals in the case of Cutler v. United States, vacated the sentence and remanded for a new sentencing, stating in part:

"procedural errors, the clear factual errors, and the misinterpretations of the § 3553(a) factors discussed above--in particular of the needs to provide just punishment, to afford adequate deterrence of crimes by others, to avoid unwarranted disparities among similarly situated defendants, and to promote respect for the law--we conclude that the court's sentence on Cutler insofar as it ordered him to serve a relatively short term of imprisonment, and its sentence on Freedman insofar as it imposed no term of imprisonment, are substantively unreasonable and constituted an abuse of discretion. Accordingly, the sentences imposed on Cutler and Freedman are vacated, and the matters are remanded for further proceedings not inconsistent with this opinion."

The defendants were convicted of "bank fraud, tax evasion, and false statements, and conspiracy to commit those offenses and mail fraud, 18 U.S.C. §§ 371, 1014, 1341, 1344, and 1623, and 26 U.S.C. § 7201."  On appeal the government argued:

"[T]he government contends that the district court erred or abused its discretion (a) in depreciating the seriousness of the bank fraud offenses based on the sums of money that Cutler and Freedman personally received and finding that the total amount of loss suffered by the defrauded banks overstated these defendants' roles and culpability; (b) in fashioning its sentence on Cutler without giving sufficient consideration to his conviction on the tax counts; (c) in refusing to adjust Freedman's offense level on account of, inter alia, obstruction of justice; (d) in granting these defendants downward departures for family circumstances; and (e) in concluding that Freedman could not be incarcerated because of his age and health. The government contends that the sentences imposed, to the extent that they ordered imprisonment of no more than one year and a day for Cutler and no iimprisonment at all for Freedman, are substantively unreasonable. For the reasons that follow, we conclude that there were errors in certain of the district court's Guidelines applications and in its departure decisions; that the sentences imposed did not properly interpret certain of the sentencing factors that the court was required to consider under 18 U.S.C. § 3553(a), such as just "punishment" and deterrence of others; and that some of the court's rationales would promote disrespect for the law."

Circuit Judge Pooler authored a concurring opinion that expressed the position that the sentence needed to be remanded for reconsideration because of procedural errors, but believed that a determination of the unreasonableness of the sentence should be left for the trial court on remand.

For additional discussion, see Professor Doug Berman's Sentencing Law & Policy Blog here and the ABA LawJrl News here.

(esp) (w/ a hat tip to John Wesley Hall)

What Conrad Black Says As He Enters Prison

Conrad Black reported to the Coleman, Florida prison today after being denied bail pending appeal. (see here).  But he did manage to express his side of the case prior to reporting to the prison facility.  In what is titled an Opinion piece in the New York Sun,  Conrad Black presents an in-depth account of the wrongfulness of his conviction. The piece is titled, My Faith in American Justice.  And it is a powerful piece that reaffirms his faith in our judicial system despite what he has suffered.  One paragraph was perhaps the most troubling, and it related to his inability to hire a particular legal counsel to represent him.  It states:

"When we pointed out its deficiencies in our legal motion, the prosecutors laid the charges in this case, stayed other proceedings, and froze almost $10 million owed to me. The action achieved its objective: Brendan V. Sullivan of Williams & Connolly, one of America's most respected trial lawyers, who was my chief counsel, was unable to take this case, because I was unable to provide him, for a time, after the New York seizure, with the retainer he required. In the climate created by these charges and press accounts of them, I was unable to raise any substantial amount of cash for a retainer, which prominent lawyers require, without some time-consuming liquidation of assets."

The government interference with choice of defense counsel (as noted above), with payment to secure proper representation (e.g. Stein Case), and intimidation of those who do defend individuals such as drug traffickers (Kuehne case), is becoming a trend that merits increased judicial oversight.  The right to counsel is crucial and needs to be protected to have a system that affords due process to those charged with crimes.

(esp)

   

Conrad Black Off to Prison

Conrad Black was ordered to prison and denied bail pending appeal.  After receiving a sentence of 6 1/2 years, and being given 12 weeks before having to report to prison (see here), Conrad Black will now enter a prison facility in Florida. The appellate court denied the newspaper leader bail pending appeal, although the Chicago Tribune notes here that the court acknowledged that a substantial question was raised. Conrad Black's two co-defendants were granted bail pending appeal.

To obtain bail pending appeal, the accused needs to show that he or she is not a flight risk and not a community danger.  It is also required that the defendant show that the case raises a "substantial question." The substantial question test is somewhat amorphous and courts are left to provide order in using this standard.   And although the court did not rule in favor of Conrad Black, they allowed him some time prior to ordering him to report to prison.

Conrad Black will be reporting to Coleman - here.

(esp)   

NatWest Three Sentenced to 37 Months and May Be Headed Back to England . . . Eventually

Three former British investment bankers for NatWest Bank who were charged for their role in helping former Enron CFO Andrew Fastow dress up the company's balance sheet were sentenced to thirty-seven month prison terms.  The so-called "NatWest Three" -- David Bermingham, Giles Darby, and Gary Mulgrew -- became a cause célèbre over their extradition from Great Britain under a new treaty between the U.S. and U.K. designed to facilitate the transfer of terrorist suspects.  The appeal went to the House of Lords, which upheld the extradition order, and the three have been living in Houston for the past two years.  Their guilty plea in November 2007 to wire fraud ended one of the few remaining cases arising from the Enron collapse.  A Houston Chronicle story (here) discusses the sentencing.

As foreign nationals, the NatWest Three will be eligible to apply to the Department of Justice's International Prisoner Transfer Program to serve their terms in Great Britain.  The DOJ website on the Program (here) notes that "[w]hen a prisoner is transferred to another country, the completion of the transferred offender's sentence is carried out in accordance with the laws and procedures of the receiving country, including those governing the reduction of the term of confinement by parole, conditional release, or otherwise."  The Chronicle article points out that in England a defendant has to serve one-half the prison term and is then released on a type of probation.  This is much less stringent than the federal sentencing law, which requires a prisoner sentenced to a term such as those given here to serve 85% of the time, i.e. about two and one-half years. 

Among the criteria considered for authorizing a prisoner transfer are acceptance of responsibility, criminal history, seriousness of the offense, and ties to the two nations.  Also considered is whether the prisoner will remain in the home country or return to the United States -- rest assured, the NatWest Three are unlikely to darken our shores again any time soon.  In addition, according to the Bureau of Prisons Policy Statement (here) on transferring foreign prisoners, the transfer cannot be authorized until the prisoner pays any outstanding fine.  In addition to the sentence in this case, U.S. District Court Judge Ewing Werlein ordered the three to repay the $7.3 million they received from the transaction that triggered the charges.  While not a fine but restitution, I suspect there won't be a transfer until that money is repaid.  Even then, the application process will take at least a few months to complete ,once they begin their prison terms, as the bureaucracy processes the requests. (ph)

The Spider and the Fly

The sentencing of Brent Wilkes for paying bribes to former Representative Randy (Duke) Cunningham may well produce the longest sentence for public corruption seen in a very long time, and perhaps ever.  As discussed in an earlier post (here), the U.S. Probation Office recommended a sixty-year prison term for the offenses, based on the amount of the bribes and business gained from them, the involvement of an elected official, Wilkes' leadership role, and obstruction of justice.  The U.S. Attorney's Office weighed in by responding to objections raised by the defense in a brief (available below) that describes Wilkes as the spider and Cunningham the fly trapped in the web of corruption -- a little cute, to be sure.  Prosecutors take shots at both Wilkes and Cunningham in the filing, describing the former as "a war profiteer, a thug, a bully, a lecherous old man who preyed on his young female staffers and hired prostitutes" and the latter as "simpleminded" and "of limited intelligence."  Certainly not the way you hear a former Congressman described very often.

According to a San Diego Union-Tribune story (here), prosecutors recommend a sentence at least double Cunningham's 100-month prison term for Wilkes, which would be nearly seventeen years, and then ask for a twenty-five year term.  Under the Sentencing Guidelines calculation in the Presentence Report, Wilkes can be sentenced to life in prison.  While I doubt U.S. District Judge Larry Burns will come in at that level, he may well sentence Wilkes to a prison term that will rival those received by Bernie Ebbers (twenty-five years) and Jeffrey Skilling (twenty-four+ years) for corporate frauds.  How often do you see the U.S. Attorney's Office recommend a  lighter sentence than the Probation Office, especially for a defendant who went to trial and is assailed as having committed perjury in his trial testimony (note the "Top Ten Lies" section of the government brief)?  (ph)

Download us_v_wilkes_government_response_to_defendant_sentencing_objections.pdf

Lerach Draws a Two-Year Prison Sentence

William Lerach became the first partner from law firm Milberg Weiss to be sentenced for his role in paying kickbacks to representative plaintiffs in class actions in which the firm served as lead counsel.  U.S. District Judge John Walter sentenced Lerach to two years in prison -- he will serve about eighteen months of that in a federal correctional institution or work camp -- along with 1,000 hours of community service, two years supervised release, and a $250,000 fine.  The Judge stated that "[t]his whole conspiracy corrupted the law firm and it corrupted it in the most evil way" in giving Lerach the maximum sentence under the plea agreement.  Lerach's lawyers argued for a much reduced punishment of six months in prison and six months home confinement, while the government sought the full two years permissible.

With Lerach sentenced, the other two major cooperators in the case, former name partners Steven Schulman and David Bershad, will have to ponder what this means for them.  Each has provided information to prosecutors, and Bershad was especially important because he handled Milberg Weiss' finances.  Perhaps the greatest anxiety is being felt by Melvyn Weiss, who with Lerach served as the public face of Milberg Weiss and faces a multi-count indictment that includes RICO and money laundering charges.  While those who plead guilty get the benefit of cooperation through a substantially reduced sentence, Weiss has vowed to go to trial to clear his name.  Lerach got a particularly favorable deal in light of the potential Sentencing Guidelines range of 27 to 33 months for even the reduced charge to which he pleaded guilty.  RICO or money laundering convictions would likely put Weiss in at least a four to five year prison sentence range, and he could easily be bumped up to ten years with various enhancements.  Other charges in the indictment include obstruction of justice and false statement counts, and if Weiss is convicted of those that will only exacerbate the sentence.  The trial penalty that could be assessed if Weiss is convicted on all counts will be substantial, and he would likely receive a far longer sentence than his erstwhile partner Lerach, who will probably be out of prison not all that long after Weiss' trial is concluded, if it takes place.

The other major remaining defendant in the case is the law firm itself, which still has not entered into a plea agreement.  The admissions of Lerach, Schulman, and Bershad that they engaged in criminal conduct while at Milberg Weiss will make any defense nearly impossible under the principle of vicarious liability applied to organizations.  Predictions of the demise of Milberg Weiss and its plea agreement have all been proven wrong to this point, however, so I'm not going to hazard another guess about what the firm might do.  Judge Walter showed that he is not a softie on this case, so anyone going to trial will do so with some trepidation. An AP story (here) discusses the Lerach sentencing. (ph)

Wilkes in More Hot Water

As if defense contractor Brent Wilkes isn't in a heap of trouble already from his convictions for bribing former Representative Randy ""Duke" Cunningham to obtain no-bid Pentagon contracts, now he's accused of lying about his finances to get court-appointed counsel for a second corruption trial.  As discussed in a recent post (here), the Presentence Report on the Cunningham convictions recommends a sixty-year prison term -- essentially life -- based on the gains from the bribery to Wilkes company, ADCS Inc.  The second case involves alleged bribery of former top CIA official Dusty Foggo, and because of national security issues, all the lawyers in the case needed to have a top secret clearance to review materials.  Unfortunately for Wilkes, his lawyer from the first trial, Mark Geragos, declined to undergo the background check required for the clearance -- it's not clear why -- and so Wilkes needed new counsel.  He briefly had another lawyer, Eugene Iredale,* who never officially entered an appearance, and then sought court-appointed counsel based on an ex parte financial affidavit, which the district court granted.  Wilkes is now represented by the Federal Defenders office, but the government is seeking to have them removed from the case because of alleged misstatements about his purported financial need in the affidavit.

In a brief (available below) seeking to revoke the appointment of counsel, reimbursement of the costs of the Federal Defenders, and release of the financial affidavit, the government asserts:

Based upon a sealed ex parte financial affidavit, defendant Wilkes convinced the Court that he was unable to retain counsel to represent him in Criminal Case No. 07CR0329. Yet, at the time this affidavit was provided to the Court, Defendant and his wife were: (1) in the process of distributing over $2.5 million in cash proceeds; (2) the owners of a residence in Poway that had equity of approximately $800,000; and (3) owners of two properties in Rancho Bernardo and one in Chula Vista. Following the appointment of public counsel, defendant Wilkes, unknown to the Court or the government, distributed over $1 million in assets, including $100,000 in cash provided to the Wilkeses (apparently for spending money), $40,000 to their divorce attorneys, and an untold amount of cash that was transferred to their children’s trust accounts. The use of public funds while defendant continues to spend his ill-gotten gains must stop.

If the court strips Wilkes of the court-appointed lawyers, then the pending trial will have to be postponed until he retains new counsel, who will have to undergo the requisite background check.  Moreover, if the court finds that Wilkes' financial affidavit was false, it could lead to a separate perjury charge and a sentencing enhancement for obstruction of justice -- although if he receives anything near the recommended sentence for the Cunningham bribery, any additional term won't matter too much.  Wilkes has filed a motion (available below) for a new trial on the first convictions, arguing that the government violated its Brady obligation and that he was prejudiced by the denial of a continuance.  These motions are difficult to win, and the grounds asserted are not the type that usually lead to overturning a verdict. (ph)

*  Law-Geek Trivia: The attorney who briefly entered the case on Wilkes's behalf before the appointment of the Federal Defenders, Eugene Iredale, is a well-known defense lawyer who was disqualified because of a potential conflict of interest in Wheat v. United States, 486 U.S. 153 (1988), the Supreme Court case that established the broad discretion district courts have in criminal cases to disqualify counsel.

Download us_v_wilkes_motion_to_terminate_counsel_feb_4_2008.pdf

Download us_v_wilkes_new_trial_motion_feb_5_2008.pdf

Former Wal-Mart Exec Gets Low Cost Sentence on Remand

Tom Coughlin, the former Chief Operating Officer and key executive at Wal-Mart, received a 27-month term of home confinement with five years probation after pleading guilty to five wire fraud counts (aiding and abetting) and one false tax return filing count. The government appealed the sentence and the appellate court spoke by remanding the case back for re-sentencing finding it unreasonable.  In the interim the Supreme Court issued the Gall decision.  The district court, on remand, has now issued its new sentence and it's probably not quite the way the government hoped.  The court added 1,500 hours of community service.

In failing to impose jail time, the court states:

"[This] punishment is far from an act of leniency, and its characterization as such deprives sentencing courts of a valuable and effective form of punishment.

That form of punishment is especially appropriate in cases such as Coughlin’s, where there is little concern for future criminal activity on the part of the defendant and the defendant is in need of medical attention."

The Hon. Robert T. Dawson should be credited for demanding individualized sentencing and explaining all the rationales that support his issuing this particular sentence.  He states:

"Punishment is imposed parsimoniously and with respectful consideration for the individuality of each peculiar defendant. A court that mechanically doles out precalculated sentences on a wholesale basis to categories of faceless defendants fails to do justice. A court that succumbs to apathy, bred by repetition, will cease to see defendants as individuals, with pasts and potentials, with humanity and promise."

Also check out WSJ here, Benton County Daily Record - NW Arkansas News Service here, Professor Douglas Berman's Sentencing Law & Policy Blog here.

(esp)

Is the Government Going Soft in the Lerach Sentencing

It isn't every day that federal prosecutors point to the collateral consequences of a white collar defendant's guilty plea as a reason to impose a lighter sentence, but that seems to be what happened in the recommended sentence for leading plaintiffs lawyer William Lerach.  The government's sentencing memorandum, available below, tries to walk a fine line between advocating for a higher sentence than  the one recommended by the Probation Office while still adhering to the plea agreement that capped Lerach's potential prison term at twenty-four months for his role in making secret payments to representative plaintiffs in cases litigated by his former firm, Milberg Weiss.  So in the same filing prosecutors asked for a higher Sentencing Guidelines calculation to trigger the maximum twenty-four month sentence, nine months longer than recommended in the Presentence Report.  Then in defending the decision to limit the potential punishment to a maximum of two years, the government states:

Defendant, who will be sixty-two years old upon commencement of his sentence, now stands in disgrace before the profession of which he considered himself a national leader, and the courts before which defendant practiced. Given what is surely an ignominious conclusion to an otherwise successful career, a period of incarceration greater than twenty-four months is not necessary to promote the sentencing goals set forth in Section 3553(a).

While that position is nothing new in argument by defense lawyers on behalf of their clients, I don't recall seeing prosecutors point to the reputational effects of a guilty plea as a justification for a sentence lower than the one called for in the Guidelines. 

In Lerach's case, it is an odd argument because his reputation was built at least in part on the very conduct involved in the prosecution.  In a different section of the brief seeking a higher sentence, albeit still within the twenty-four month limit, the government asserts that "[t]he conduct at issue amounted to a systematic effort to obstruct and undermine the lawful functioning of the judicial system in hundreds of lawsuits brought in federal and state courts throughout the United States."  So Lerach attacked the heart of the legal system, while the "ignominious conclusion" of his career argues in favor of some measure of leniency.  Part of his prominence in the profession likely contributed to his ability to pursue class action lawsuits while making the secret payments, so the loss of prestige is not just a tangential result of his crime.  I almost get the feeling that portraying Lerach's fall from grace as a justification for a lighter sentence is a bit like the person convicted of setting fire to his home for the insurance money begging for mercy because he's now homeless -- this isn't so much a "collateral consequence" as a direct result of one's choice to commit a crime.

So, have prosecutors gone soft?  The language arguing for a more limited sentence is sure to be used in other white collar cases in which a defendant suffers from collateral personal and career consequences as a result of a guilty plea or conviction.  It may be that prosecutors have to take this almost schizophrenic approach because the plea agreement ended up being potentially too favorable to the second most powerful lawyer at Milberg Weiss, which itself is under indictment.  You learn to live with your deals, but the rhetoric used in defending this one could come back to haunt prosecutors later on. (ph)

Download us_v_lerach_government_sentencing_memorandum_jan_28_2008.pdf

The French Do It Differently

The media has been covering the French financial trader who is accused of trades resulting in significant losses. Co-blogger Peter Henning points out some contrasts with the U.S. system (see here).  Here are more to consider:

• What is fascinating is that the focus of the blame is not always on the individual accused of wrongdoing.  Rather, the Societe Generale is receiving media jabs as questions arise about their oversight.  If DOJ were investigating this case would they have given a non-prosecution or deferred prosecution agreement to the company in return for providing the case against the individual?
• If this were the U.S., would other companies/banks be considering buying the company out as is reported by the N.Y.Times as a possibility (see here)?  Or would fear of DOJ prosecutions preclude such a market resolution?
• Another difference is that there is discussion as to the motivation, or in this case the lack of monetary motivation of the individual charged here. In the United States, loss would be the driver of the train and there would be no stopping the engines once significant losses were determined.  The motive of the accused plays a part in some cases, but there are many that overlook this consideration.  The cold sentencing guidelines of the U.S. seldom offer relief in a system that examines whether the crime occurred and the amount of loss incurred.
• Finally, John Ward Anderson at the Washington Post notes that if convicted, the accused individual could face up to seven years in prison, in addition to a fine.  As one might suspect, if the losses measure the amounts anticipated and reported in newspapers, if this individual had been charged in the United States, he would be facing a devastating penalty if convicted -- just ask Jeff Skilling and Bernie Ebbers.

In looking at all of these differences, one has to realize that when the U.S. Sentencing Commission considered uniformity, it doesn't look like they went beyond the boundaries of this country. In a "flat world" perhaps it is important to start noticing these differences.

(esp)

Amici

Professors Doug Berman and Mark Osler have been blogging on law profs writing amici briefs, with discussion of the pros, cons, and the experience it can offer (see here).  But the Ohio State Criminal L.J. has a new fora for amici views (here), that debuts with a cast of incredible authors writing on the topic of sentencing.  It states:

The Ohio State Journal of Criminal Law is very pleased to introduce OSJCL Amici: Views from the Field, a first-of-its-kind, online resource for timely and critical commentaries on the cutting edge of criminal law. Our hope in creating this resource is to help bridge the divide between the academy and the practicing community by creating a venue for leading practitioners to engage with academics, students, the public, and others in the criminal law field.

The U.S. Supreme Court’s recent sentencing decisions in Gall v. United States and Kimbrough v. United States provide the focal point for our first four commentaries, all written by federal district court judges and published for the first time here.

Check out the Sentencing Law & Policy Blog here.

(esp)

Wilkes May Get Whacked

Brent Wilkes, the former owner of defense contractor ADCS, was convicted for paying bribes to former Congressman Randy (Duke) Cunningham to obtain contracts for his company.  The Presentence Report filed in the case recommends a 720-month sentence -- that would be sixty years for those who (like me) are a bit math challenged.  Wow!  That is by far the longest prison sentence I've ever seen recommended for a corruption defendant, and dwarfs the extensive sentences seen in corporate fraud cases, like those received by former CEOs Bernie Ebbers (25 years) and Jeffrey Skilling (24+ years).  Cunningham received a 100-month prison term, and Wilkes will definitely pay the price for going to trial if he receives anything close to the PSR recommendation.  Moreover, note that this is the Probation Office's recommendation in the PSR and not the position of the U.S. Attorney's Office, which can be expected -- despite the unseemliness of this approach -- to seek the highest potential sentence, thus fulfilling its role as an advocate.  Recommendations in the PSR usually carry great weight with the court, and even if U.S. District Judge Larry Burns does not accept the entire set of suggestions under the Sentencing Guidelines, I suspect Wilkes is looking at a sentence that may well put him in jail for much of the rest of his life.

How did the Probation Office get to this point?  The sentencing recommendation is discussed in a filing by Wilkes (available below).  Under the Guidelines, Sec. 2C1.1 governs bribery cases, and the starting point is an offense level of 18 because the bribe was paid to an elected official.  The bulk of the sentencing increase comes from the estimation of the gain from the bribe, which requires application of the fraud loss table of Sec. 2B1.1.  The PSR recommends a twenty-level enhancement, which means the gain to Wilkes and ADCS from the bribes was between $7 million and $20 million.  Throw in a two-level increase for obstruction of justice -- Wilkes testified at trial and was convicted on all counts by the jury, so there's a decent ground for this enhancement -- and another four levels for leadership role, and you've got the very top of the Guidelines (it only goes to 43) that calls for a life sentence. 

The sentencing was originally set for January 28, but the PSR did not arrive in time so Judge Burns has pushed it back to February 19, thus meeting the statutory 35-day period between receipt of the Report and the sentencing.  Wilkes' counsel, Mark Geragos, will have to take aim at the gain amount, and unless that figure is reduced substantially, Wilkes is looking at a sentence that could be greater than any we've seen to date in a federal white collar crime case.  In its response to the defense motion for a delay in sentencing, the government asked the district court to take Wilkes into custody on the original sentencing date because he is likely to receive a prison term and does not meet the requirements for bail pending appeal.  If Judge Burns does sentence Wilkes to a significant prison sentence, it would not surprise me if Wilkes was ordered to be taken into custody immediately because of the severity of the punishment and possible concerns about flight in light of the sentence.  (ph)

Download us_v_wilkes_motion_for_production_of_documents_jan_15_2008.pdf

Proportionality in Sentencing - Padilla versus Ebbers, Skilling, and McFarland

A federal judge in Miami sentenced Jose Padilla to 17 years and 4 months today.  (see WSJ here; Miami Herald here).   The judge decided to give a lesser sentence because of the harsh conditions previously experienced by Padilla in his prior designation as an "enemy combatant." This below guideline sentence was for "terrorism conspiracy charges." (see AP here)  For complete coverage of the sentencing see Professor Douglas Berman's Sentencing Law & Policy Blog here and here and Howard Bashman's How Appealing Blog here.

But the question that we need to examine from the eyes of one examining white collar sentences is whether this sentence is proportional.  Should Padilla receive a lesser sentence than Bernie Ebbers (25 years), Jeff Skilling (24 years) and Chalana McFarland (30 years)?  Should these three white collar offenders be sent to prison for a greater period than someone who commits a crime related to "terrorism conspiracy?"  Perhaps the problem here is not the length of the sentence that Padilla received, but the draconian sentence being given to first offenders who commit economic crimes. (See Podgor, Yale Pocket Part here). Is this proportional, and if not which sentence(s) should be modified?

(esp)

Lawyer Sentencings

Two lawyers received federal sentences this past week. The first, a former lawyer in the Western District of Louisiana entered a plea that will net him 41 months in prison.  A Press Release of the US Attorney's Office of the Western District of Louisiana states the attorney "pleaded guilty to one count of making false statements to a bank and one count of forging securities of private entities." The release states that:

"beginning in 2002 while practicing law in Lafayette, [the attorney] established attorney/client lines of credit at a local bank which he used to finance his personal injury lawsuits. [The attorney] was obligated to pay off the bank’s line of credit after receiving funds generated by settling civil cases. On numerous occasions, when settlement proceeds were received by [the attorney], instead of repaying the bank’s line of credit, he requested extensions of time with the local bank and gave false reasons as to why the extensions were needed. In some instances, [the attorney] never repaid the line of credit.

Further investigation revealed that in 2003, [the attorney] opened several business accounts at another local bank, including a trust account, checking and payroll checking account, and personal accounts. [The attorney] admitted to forging the settlement checks from insurance companies received for certain clients and depositing the proceeds into his account without the client’s knowledge or consent.

The attorney was allowed to report to prison.  See also ABA Jrl here; Daily Advertiser here.

The second attorney received a sentence of 6 1/2 years. The ABA Jrl states that the accused had pursued "baseless diet drug litigation on behalf of clients." See ABA Jrl here and Mississippi Sun Herald here.

(esp) (w/ a hat tip to John Wesley Hall)

Reyes Receives 21-Month Sentence for Options Backdating

Former Brocade Communications CEO Gregory Reyes received a 21-month prison term from U.S. District Judge Charles Breyer for his convictions related to backdating options grants at the company.  I expected the Judge to impose a lower sentence, perhaps dropping all the way down to home confinement or a split sentence, but he said that this was a case about "honesty" and that ""[e]very time Gregory Reyes falsified documents over a three-year period, he was lying . . . Corporate fraud is not a victimless crime. If widespread, it can affect the overall economy, employment, and, as we've seen with Enron, people's life savings."  Once the dreaded "E" word is invoked, no mercy will be shown.  A San Francisco Chronicle story (here) discusses the sentencing.

While Reyes got the benefit of Judge Breyer's decision to find no provable loss from the backdating (see earlier post here), thus sparing him a sentence that could have easily exceeded ten years, he did feel the court's wrath when the Judge bumped up the sentence two levels under the Sentencing Guidelines for obstruction of justice.  The basis for that decision was a statement in an affidavit Reyes filed in support of his co-defendant Stephanie Jensen's severance motion.  Reyes' key statement was, "I told Ms. Jensen that the options grant dates were the dates that I made the granting decisions.  Options were priced at the fair market value on the grant dates."  The district court granted the motion, relying on Reyes' affidavit that in a joint trial this exculpatory evidence would not come out.  At his trial, however, Reyes' counsel conceded that the options were priced based on "look backs" -- the defense didn't dare call it backdating -- and not as described in the affidavit, which was sealed. 

Judge Breyer obviously was perturbed by the affidavit because it led him to conduct two trials rather than one, and he announced that the sentence would have been fifteen months rather than the twenty-one months he imposed because of the obstruction.  The Judge and Reyes' counsel did not get along all that well during trial, and I suspect Judge Breyer felt he had been played by the defense.  One wonders why counsel allowed Reyes to file an affidavit with that kind of statement when the trial strategy on the selection of the options prices was not entirely consistent with it.  It may be the defense did not really focus on what was in the affidavit, which was filed well before Reyes' trial, when it made the final trial preparations, or perhaps did not think the Judge would grant the severance so the affidavit would not be of any significance.  Regardless of the reason, Reyes is sure to challenge the obstruction determination, no doubt arguing that his statement was not untruthful and did not exclude the "look backs" his lawyer conceded at trial.  The enhancement resulted in a 40% increase in the prison time, so the decision to file the affidavit turned out to be a costly one, at least for Reyes.

Reyes will remain free on bond pending appeal, with Judge Breyer acknowledging that because this was the first options backdating case to go to trial there were novel legal issues involved.  It is unlikely Reyes will have to report to prison for at least a year, assuming the conviction is upheld.  The sentence certainly sends a message to other defendants charged in backdating cases that they are likely to face prison terms if convicted.  And, unlike the Reyes case, other prosecutions involve defendants who benefited from the backdating, so the loss (or gain) issue will not be resolved quite as favorably as it was in this case if there is a conviction. (ph)

Sentencing Reyes -- Are Attorney's Fees Subject to Restitution?

Former Brocade Communications CEO Gregory Reyes will be sentenced by U.S. District Court Judge Charles Breyer on January16 for his role in backdating options at the company.  There are the usual Federal Sentencing Guidelines issues in the case, including the government's request for an obstruction of justice enhancement based on Reyes' affidavit in support of a severance motion filed by his co-defendant, Brocade's former human resources manager, who was also convicted in a separate trial.  The argument is pretty thin for the enhancement, and I doubt Judge Breyer will buy it.  Under the now-advisory Guidelines, the Probation Office appears to have recommended an Offense Level of 15, comprised of a base offense level of 7 plus two four-level enhancements for leadership role and Reyes' position as CEO of a publicly-traded company at the time of the offense.  That would put the sentencing range at 18-24 months.  Reyes' sentencing memorandum (available below) argues for a below-Guidelines sentence on a variety of grounds, including extraordinary family circumstances that are redacted from his filing and the fact that Judge Breyer earlier determined there was no calculable loss from the violations (see earlier post here).  His attorneys have asked for a below-Guidelines sentence, recommending a short period of confinement in a half-way house and then home detention along with a term of community service, including a proposed project with the Boys & Girls Club.  The government recommends a sentence of 30-33 months, based on adding in sentencing enhancements for sophisticated means, which Judge Breyer earlier rejected, and obstruction.  The Probation Office also recommends a fine of over $17 million, which prosecutors want bumped up to over $40 million; not surprisingly, Reyes' counsel argues for no fine.  I suspect Judge Breyer will impose a substantial fine, given Reyes' economic means, and go to the low end of the Guidelines at a minimum.  It would not surprise me if he imposed a below-Guidelines sentence, perhaps a split term with a period in an FCI and then home confinement -- the ol' double-nickel (five in and five on the house).

The most interesting argument by the government is not on the sentencing but a proposal that Judge Breyer require Reyes to repay most of the cost of the attorney's fees Brocade has incurred for its employees, including Reyes, under indemnification agreements and its corporate by-laws.  As detailed in a letter from the company's counsel, Cooley Godward (available below), Brocade has paid over $64 million to date in attorney's fees from the criminal and SEC cases, along with shareholder derivative lawsuits spawned by the backdating.  The largest amount of attorney's fees is for Reyes, at $46.7 million, with another $7.1 million for his co-defendant in the criminal case, $3.7 million for a co-defendant in the SEC case, and the rest for various officers and directors caught up in the investigation.  The government asserts that Reyes should be liable for at least $57 million of the attorney's fees.

The government's argument for restitution is that Brocade would not have suffered these costs if Reyes had not backdated the options, and that the corporation is the victim of his offenses.  The government also argues that Reyes should pay the $28 million it has cost Brocade for the internal investigations and defending itself in the various cases, the $7 million fine paid to settle the SEC action, and the $3.3 million paid for taxes for its employees whose options were backdated in violation of certain IRC provisions. 

The Victims and Witnesses Protection Act (VWPA) provides that the court "“shall order restitution to each victim in the full amount of each victim’s losses as determined by the court . . . ."  18 U.S.C. Sec. 3664(f)(1)(A).  Are attorney's fees paid by a corporation pursuant to a contractual agreement or corporate by-law a "loss" that is subject to the VWPA, particularly for costs incurred by other officers and directors in the course of the investigation?  As first blush, the term "loss" usually is understood to mean the amount directly attributable to the crime and not consequential damages, but that term does not necessarily preclude including the effects of one's crime on a corporate enterprise.  The problem with the government's argument is that the company agreed to pay the defense costs regardless of whether Reyes committed a criminal act.  The indemnification agreement (available below) is a broad contractual arrangement that is not conditioned on an officer avoiding a criminal conviction, and the company can even commit to paying a fine on behalf of an officer or director.  Brocade made the agreements with its people as a matter of its own choice, and it seems contradictory to say that it can now recover costs from Reyes through the VWPA that it would not get back under the contract. 

Indemnification agreements are common in the corporate world, and indeed I doubt any publicly-traded corporation does not have provisions similar to Brocade's in its by-laws.  While the payment of attorney's fees for an officer convicted of a crime while acting on the company's behalf seems incongruous -- why should the company pay for the lawyer of an officer who engaged in misconduct on the company's time -- as a matter of corporate and contract law broad indemnification agreements are fully accepted (and enforced) by courts, particularly the Delaware courts that handle so many corporate cases.  I doubt Judge Breyer will order Reyes to repay the attorney's fees, leaving it to Brocade to try to get them back under its contract, if that's possible, rather than using the VWPA as a back-door means of negating indemnification.

The government's disclosure does give us a rare inside look at the cost of paying for lawyers for various corporate officials caught up in a large-scale investigation.  Needless to say, the amounts are significant, and I would not be surprised if the final tally for the legal fees hits $100 million when you include the charges for counsel to the board and in the internal investigations.  We can add Reyes' $46 million in fees to the list of totals in corporate prosecutions, such as the estimated $75 million spent by Jeffrey Skilling.  And that total continues to grow, because the appellate process will add to the cost of defending Reyes. (ph)

Download us_v_reyes_defendant_sentencing_memo_jan_10_2008.pdf

Download us_v_reyes_government_sentencing_memo_jan_10_2008.pdf

Download brocade_attorneys_fees_letter_jan_10_2008.pdf

Download brocade_reyes_indemnification_agreement.pdf

Marion Jones Sentenced to Six Months

Former Olympic gold medalist Marion Jones received a six-month prison sentence from U.S. District Judge Kenneth Karas for her guilty plea to two counts of making false statements, the maximum recommended term under the Federal Se