Tuesday, August 4, 2009

In the News & Around the Blogosphere

Alexandra Clough, Palm Beach Post, Ex-WorldCom exec out of prison, back in area (Scott Sullivan)

Reuters, Massachusetts attorney general targets economic crime

(esp) (blogging from Palm Beach)

August 4, 2009 in News, WorldCom | Permalink | Comments (2) | TrackBack (0)

Tuesday, March 24, 2009

Experts in White Collar Cases - The Goyal Case

In the Nacchio case (see here), the defense was precluded from having an expert witness testify.  In the Goyal case (see here), the issue is that the prosecution failed to provide an expert witness to show that there was a GAAP violation. It is interesting to see the importance of expert testimony in white collar cases -- cases that tend to be more complicated and require educating the jury on the technicalities of transactions.

The National Association of Criminal Defense Lawyers (NACDL) has filed an amicus brief in the Goyal case arguing that the government was required to "offer expert testimony that a GAAP violation in fact occurred."  As stated in the brief, "a jury should not be treated as a team of accountants and asked to interpret and apply GAAP without expert guidance." (note- a similar issue, although not the same circumstances, was discussed in the  Rigases and Ebber's case - see here).  This is a particularly interesting issue as the need for an expert has been noted in civil accounting cases. The amicus brief notes that "the need is even more pressing in criminal cases, where the burden of proof of each element is higher- beyond a reasonable doubt, rather than merely by a preponderance of the evidence." The brief also examines the mens rea requirement for corporate officers.

NACDL Amicus Brief in U.S. v. Goyal - Download U.S._v._Goyal_Amicus_Brief


March 24, 2009 in Prosecutions, WorldCom | Permalink | Comments (1) | TrackBack (0)

Friday, November 2, 2007

The Decline in Corporate Fraud Prosecutions

The American Lawyer has a detailed article (here) What's Behind the Drop in Corporate Fraud Indictments describing what it calls the decline in prosecutions of corporations and senior officers for fraud since the heyday of the President's Corporate Fraud Task Force.  The article and a supporting spreadsheet (here) provides a detailed look at corporate prosecutions since 2002, when the Task Force came into existence shortly before Congress passed the Sarbanes-Oxley Act, the symbol of the government's response to the collapse of Enron, WorldCom, and Adelphia Communications amidst allegations of accounting fraud.  The analysis provides the most comprehensive listing of prosecutions of companies and their executives that I have seen, including information about sentencing and appellate dispositions of cases.

One of the core findings is the drop in corporate fraud prosecutions, particularly since 2004:

Perhaps the most curious of our findings -- and one not highlighted by the Department of Justice -- is the precipitous decline in the number of major corporate fraud indictments in the two years since the re-election of President Bush. After issuing detailed reports in 2003 and 2004, the task force stopped reporting on its efforts in 2005, just as corporate fraud indictments slowed to a trickle. Our analysis shows 357 indictments in major corporate fraud cases between 2002 and 2005. But only 14 indictments were identified by the Justice Department as significant corporate fraud cases in 2006. There have been only 12 major corporate fraud cases indicted so far in 2007.

There are any number of reasons for the decline, and I doubt there is one single "cause" for the slowdown in these types of cases.  One explanation offered by the former U.S. Attorney for the Central District of California takes the "when life gives you lemons make lemonade" approach: the Task Force was so successful that there is no more corporate fraud, at least not on the scale seen a few years earlier.  A more plausible explanation is the almost natural ebb-and-flow to cases in a particular area, be it corporate fraud or drug prosecutions.  Companies change in response to the marketplace, be it products or prosecutors, and so are acting differently.  That doesn't mean they will stay out of trouble forever. 

Perhaps more imporant is the decline in the number of federal prosecutors devoted to corporate crime investigations, which place significant demands on the resources of U.S. Attorney's offices.  With budget resources devoted to the war in Iraq and Afghanistan crimping other departments, and the focus on new prosecutorial initiatives, such as child pornography and terrorism, something has to give and corporate crime is an easy place to cut back when there are no spectacular bankruptcies grabbing the media's attention.  Without the manpower, cases can languish, which is especially difficult in this area because corporate fraud cases are not known for their timeliness.  Filing a case about transactions involving technical accounting issues that occurred in a few years earlier just doesn't leap off the page and demand attention. 

When there are fewer resources committed to the area, the pressure to bring cases may actually decrease because it is not as stylish or important to an assessment of an office's effectiveness.  Moreover, the cases remaining from a few years ago are no longer the "low-hanging fruit" and may be just too difficult to prove without a commitment of significant resources.  Recent media reports indicate that a criminal investigation of accounting fraud at bankrupt auto parts maker Delphi ended with no criminal charges, a result that might not have occurred a few years ago when there was much more pressure to bring cases.

While the American Lawyer focuses on the decline in corporate fraud prosecutions, that does not mean there is a decrease in cases in other areas that fall within the "big tent" of white collar crime -- we are a welcoming niche.  Prosecutions under the Foreign Corrupt Practices Act are increasing, not declining, and the globalization trend probably means this will be a growth area.  [NB: For those interested in the FCPA, please be sure to check out the FCPA Blog (here), which provides outstanding coverage in this area.]   Antitrust prosecutions, especially for international price fixing, have not slowed over the past couple years, and the Antitrust Division's corporate amnesty policy -- first company in the door gets immunity -- seems to work in this area.  The FBI has announced that public corruptioin is a top priority, and the number of Congressmen and Senators under investigation, indictment, or imprisoned recently is staggering.  I doubt anyone is predicting a decline in healthcare fraud investigations, as the recent search at WellCare shows, and the Milberg Weiss prosecution may portend further scrutiny of class action law firms.

Finally, CEOs remain the target of government investigations, and I think that will continue in the future, even if prosecutions of corporations declines.  Former Collins & Aikman CEO David Stockman, former ESS Inc. CEO Michael Shanahan, and former Comverse CEO Kobi Alexander are among the corporate chiefs facing charges -- maybe not Alexander if he can avoid extradition from Namibia.  Regardless of priorities, a case involving the CEO of a public company will be a focus for the Department of Justice, and the resources necessary will be committed to these cases, in all likelihood.

Having seen the aftermath of the collapse of the banking industry up close in the early 1990s, and watching the corporate accounting and backdating cases develop over the past few years, I believe we will see another round of corporate scandals and prosecutions in the next few years.  I wish I knew where it would come from, and the continuing collapse of housing prices may give us a hint. (ph)

November 2, 2007 in Enron, Fraud, HealthSouth, Prosecutions, WorldCom | Permalink | Comments (0) | TrackBack (0)

Monday, March 5, 2007

Ebbers - Cert Denied

Bernard Ebbers sentenced to prison for 25 years, lost yet another possible hope for relief as the Supreme Court denied certiorari on his case today.  The listing appears among a long list of cases denied cert. -



The petition for a writ of certiorari is denied. The Chief

Justice took no part in the consideration or decision of this



March 5, 2007 in WorldCom | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 26, 2006

Ebbers & Fastow Finally Report to Prison, Campbell Went Immediately

Yesterday Andrew Fastow, who received a sentence of six years despite a plea agreement allowing him to receive ten years, was sent to prison. Also yesterday, Bernie Ebbers, who went to trial and received a 25 year sentence, reported to prison to begin serving his sentence. 

Both men were given the luxury of waiting a period of time to begin serving their sentences.  In the case of Fastow it was to allow his wife to first serve her sentence and also allow him to remain free to assist the government.  In the case of Bernie Ebbers it was because he was permitted to remain free pending his appeal.

The freedom each of these individuals experienced prior to starting to serve their sentence is yet another indication that the public does not fear these individuals.  Their sentences were for deterrence and retribution purposes and not for incapacitation.

In contrast, former Mayor Bill Campbell was ordered to serve his sentence immediately.   His sentence for a tax offense surprisingly was much shorter than both Ebbers and Fastow. (see here)


September 26, 2006 in Enron, Sentencing, Tax, WorldCom | Permalink | Comments (1) | TrackBack (0)

Sunday, September 24, 2006

Ebbers to Begin Serving 25 Year Sentence This Week

Bernard Ebbers will begin serving a 25 year sentence this week.  The Washington Post here notes comments on this upcoming sentence, including a comment by Professor Frank Bowman stating that "[m]y own sense is that any sentence over 20 years for anybody for an economic crime is hard to justify."

So why is it that a man with no prior criminal record was given a sentence of 25 years for a non-violent crime? The bottom line is the federal sentencing guidelines.  The effect of these guidelines is to rachet up the sentences for white collar offenses.  The sentence is computed to a large extent based upon fraud loss.  The character of the offender, the lack of prior criminal history, and rehabilitation are basically thrown out the window when courts look at a mathematical forumula that looks solely at the amount of fraud loss, a number that can rarely ever be computed with precision (see Olis). Anyone who contends that we need to worry about the discretion judges have in this post-Booker world, need only watch Ebbers as he goes off to prison.


September 24, 2006 in WorldCom | Permalink | Comments (1) | TrackBack (0)

Friday, September 8, 2006

Ebbers Set to Start His 25-Year Prison Term

In what will likely be the final chapter in the prosecution of former WorldCom CEO Bernie Ebbers, assuming the Supreme Court does not grant certiorari to review the conviction, U.S. District Judge Barbara Jones ordered him to report to the Bureau of Prisons on September 26 to begin serving his 25-year prison term.  The Second Circuit affirmed the conviction and sentence in July, and so the next step will be determining where Ebbers will be incarcerated.  Judge Jones recommended that Ebbers be sent to the federal correctional institution (FCI) at Yazoo City, Mississippi, which has both low- and medium-security facilities in the complex.  A Jackson Clarion-Ledger article (here) notes that former WorldCom controller David Myers served his term at the same facility.  The company's former CFO, Scott Sullivan, a star witness at the Ebbers trial, is serving his five-year sentence at the FCI in Jesup, Georgia, and according to the Bureau of Prison's website (here) is scheduled for release in March 2010.

With Ebbers apparently headed to prison, one of the only remaining issues in the case is completing the sale of his assets to satisfy the forfeiture to which he agreed to settle claims by prosecutors, the SEC, and the plaintiffs in the securities fraud class action against the company and its officers.  The Clarion-Ledger article notes that the assets "include the Brookhaven Country Club, an 18-hole golf course, clubhouse, swimming pool and tennis courts; the 28,000-acre Angelina Plantation that is a commercial farming operation about 30 miles west of Natchez and located in Louisiana; and majority interest in KLLM Transport Services Inc., one of the largest temperature-controlled, over-the-road truckload carriers in the United States."  The Angelina Plantation is scheduled to be auctioned shortly and there is an offer of $31 million.  The president of the company overseeing the auction noted that "[w]e have nothing but gratitude for the gracious way that Bernie has dealt with us." (ph)

September 8, 2006 in WorldCom | Permalink | Comments (0) | TrackBack (0)

Saturday, July 29, 2006

Commentary on Ebbers Decision

The Second Circuit ruling upholding the conviction and sentence of Bernard Ebbers is discussed here. As noted, the court states, "[t]wenty-five years is a long sentence for a white collar crime, longer than the sentences routinely imposed by many states for violent crimes, including murder, or other serious crimes such as serial child molestation."  The court decides to place the power with the legislature and uphold the sentence. What does this say:

  • In some cases money losses may be more important when it comes to determining a sentence, then loss of life.
  • The courts will take a hands off approach when determining reasonableness - the bottom line is that the federal sentencing guidelines still rule.
  • There is no fear of white collar sentences being overly lenient in a post-Booker world. 
  • Being a first offender doesn't mean much if the loss is high - the sentence basically ends up placing the convicted defendant in prison for the rest of his life.
  • If you decide to take the risk of trial and don't plead guilty and cooperate with the government, you may be spending the rest of your life in prison if the jury convicts you.

The more important questions here are: - Is this what Congress wanted? Have we gone overboard in sentencing white collar offenders?  Have we failed to consider the potential future harmfulness in sentencing white collar offenders?  Do we really need these extreme sentences to deter others who may be contemplating these crimes? Should being a first offender mean something when it comes to the sentence imposed?  And yes - should a white collar offender who commits an economic crime be receiving a greater sentence than someone who commits a murder?


July 29, 2006 in Judicial Opinions, WorldCom | Permalink | Comments (6) | TrackBack (1)

Ebbers Conviction Upheld

The Second Circuit Court of Appeals upheld the conviction of Bernard J. Ebbers, the former CEO of WorldCom. Ebbers argued four basic issues on appeal: defense witness immunity, the giving of a conscious avoidance instruction, the failure to require to prove violations of GAAP, and the sentence.

The court rules that "[t]he government is under no obligation to grant use immunity to witnesses the defense designates as potentially helpful to its cause but who invoke the Fifth Amendment if not immunized." Although the court recognizes that prosecutor's have a "powerful tool," it will take the defendant showing "that the government has used immunity in a discriminatory way" and "that the evidence to be given by an immunized witness 'will be material, exculpatory and not cumulative and is not obtainable from any other source.'"  The court places the burden on the defendant to show that "the non-immunized witness's testimony would materially alter the total mix of evidence before the jury."  The court also held it was not error to deny a missing witness instruction here.

The mens rea required to be proved by the government would not be undermined by the giving of a conscious avoidance instruction or the failure to require to prove violations of GAAP.

Finally the court upheld the 25 year jail sentence Ebbers received. The court upheld the loss calculation, found that there was a basis for the sentencing disparity between Ebbers sentence and CFO Scott Sullivan.  The court admits that the sentence is "harsh but not unreasonable."

Although the decision does specify that Ebbers was a Category I with respect to criminal history, the court does not dwell on the fact that Ebbers is a first offender who in a white collar case is receiving a 25 year sentence.  The court does state, "[t]wenty-five years is a long sentence for a white collar crime, longer than the sentences routinely imposed by many states for violent crimes, including murder, or other serious crimes such as serial child molestation."  Basically it comes down to - this is what Congress wants, this is what Congress gets. The court finds that the sentence for Ebbers was not unreasonable. 

Decision can be found via Wall Street Jrl website here.

Check out Analysis of Harlan J. Protass - Second Circuit Sentencing Blog here - where he states -"Is 'reasonableness' an objective or subjective standard?  Which should it be?"


July 29, 2006 in Judicial Opinions, WorldCom | Permalink | Comments (0) | TrackBack (0)

Monday, January 30, 2006

Oral Argument in Ebbers Case

Bernie Ebbers has a lot riding on his appeal as he received a sentence of 25 years. (see here)  He has been permitted to be free pending his appeal, and in large part this is because of the significant issues raised in this appeal. (see here).  A panel of the second circuit, in oral argument, heard Reid Weingarten, Ebber's attorney, argue that defense witness immunity should have been provided in this case. (see here)

Although the prosecution has ample opportunity to obtain immunity for its witnesses, the defense usually is not provided with this benefit.  It is a major disadvantage that the defense has in a criminal case.  While prosecutors can offer plea deals and witness immunity and then use the individuals against an accused, the defense has to find witnesses who are not intimidated by fear of future prosecutorial action, like being indicted.   

CNN (Reuters) (here) also notes that the issue of "conscious avoidance" of knowledge of the fraud at WorldCom and court instructions regarding the mens rea of the crime were discussed at the oral argument. (See here) Should the jury have been allowed to consider the "ostrich" defense? Finally, as one might imagine, the court asked about the high sentence received by Ebbers. (CNN Reuters here)

It is interesting to see these issues being discussed just as Ken Lay's and Jeffrey Skilling's trial begins.  Like Ebbers, Lay and Skilling also may have problems presenting some of their witnesses as a result of these individuals being fearful of prosecutorial retribution.  And like Ebbers, a key issue for Lay and Skilling will be whether they can be held criminally liable for acts in which they may not have been a major or minor participant.  Where is the line between actual knowledge and avoiding knowledge?  For Ebbers the question is surely whether avoiding knowledge should be a sufficient standard for someone receiving a 25 year sentence.


January 30, 2006 in WorldCom | Permalink | Comments (1) | TrackBack (3)

Tuesday, October 4, 2005

Looks Like NO Bail for Kozlowski and Swartz

The sentences in the federal system under the guidelines may in some cases be tougher than the NYState system, but the placement and privileges can assist the individual convicted of a crime. 

Bernard Ebbers remains free on bail, although this is not the case in all federal cases (Jamie Olis remains in prison awaiting his long overdue decision from the federal appeals court). 

New York State prisons are considered tougher.  A white collar offender, with a long sentence, can be placed with convicted felons who are incarcerated because they are a danger to society.  Attica, a place that Kozlowski and Swartz may be sent to, is not quite the same as some of the lower level federal prisons (although with long sentences the federal placement will not be a camp cupcake).  To make matters worse, Kozlowski and Swartz are on their way to Attica or a similar type place as the NYState Court of Appeals Appellate Division of the NY Supreme Court has denied their request for bail. (see more in CNN Money here).

(esp) (thanks to a sharp-eyed reader for pointing out which court denied bail)

October 4, 2005 in WorldCom | Permalink | TrackBack (0)

Thursday, September 22, 2005

WorldCom Securities Class Action Settlement Approved; Ebbers Prepares His Appeal

U.S. District Judge Denise Cote approved the settlement of the WorldCom securities fraud class action suit that involves a total of $6.1 billion.  The largest payments came from Citigroup ($2.575 billion) and JP Morgan Chase ($2 billion), while former CEO Bernie Ebbers turned over virtually all his remaining assets to settle the case.  WorldCom's former directors also made an approximately $25 million payment out of their personal assets, one of the few times directors have paid into a settlement for conduct that did not involve self-dealing or a conflict of interest. WorldCom bondholders will receive approximately $5 billion of the settlement fund, and shareholders who file claims will divide up approximately $1 billion, a pittance compared to the losses suffered by the owners of the company's stock who were wiped out in the bankruptcy (assuming the didn't sell before then). A Reuters story (here) discusses the settlement.

On a related front, a CNN.Com article (here) discusses one of the arguments Ebbers will advance on appeal, that the government's refusal to grant immunity to former WorldCom Chief Operating Officer Ronald Beaumont to allow him to testify for the defense at trial violated due process.  Prosecutors named Beaumont as an unindicted coconspirator before trial, most likely to avoid admissibility problems by designating conversations he had with cooperating witness Scott Sullivan as coconspirator statements that fall outside the prohibition on hearsay.  With that, Beaumont refused to testify by stating he would assert his Fifth Amendment privilege, and the only way around that roadblock is a grant of immunity, which the government must request.  U.S. District Judge Jones denied the defense motion during trial for an order directing the government to authorize immunity on the ground that the testimony was not exculpatory of Ebbers, at least not directly.  As a ground for a successful appeal, this is a very tough argument to win, even though Beaumont has not been indicted.  (ph)

September 22, 2005 in WorldCom | Permalink | TrackBack (0)

Wednesday, September 7, 2005

Bernie Ebbers to Remain Free Pending Appeal

Bernie Ebbers, sentenced to 25 years, has been granted the right to remain free pending his appeal.  See here and here.   This is in large part because he has significant issues for the appellate tribunal to consider.

This is clearly a difference between white collar and street offenses.  The chances that a person given a 25 year sentence for a street crime would be allowed to remain free pending appeal are slim. 

But this difference is also warranted.  There is little chance that the white collar offender will harm someone, especially since they usually are no longer in a position of power to do any harm.  Unlike the street crime, incapacitation is not needed here.   But one also has to wonder if the sentence should not account for the fact that incapacitation does not serve a legitimate purpose here.


September 7, 2005 in WorldCom | Permalink | TrackBack (1)

Friday, September 2, 2005

Government Will Not Prosecute MCI

MCI can breath a sigh of relief with the announcement by U.S. Attorney David Kelley of the Southern District of New York that the company will not be prosecuted for the accounting fraud that led to its collapse into bankruptcy in 2002.  The U.S. Attorney's Office noted that all of the employees with any involvement in the fraud have been terminated, and the convictions of former CEO Bernie Ebbers and CFO Scott Sullivan, among others, means the main perpetrators have been prosecuted and will serve time in jail.  The announcement is not surprising in light of the fact that most companies forced into bankruptcy by fraudulent accounting have not been charged criminally (e.g. Enron, Adelphia Communications) because there is so little to gain from a prosecution.  The government's decision does, however, make things easier for the proposed Verizon takeover of MCI, with the vote on the transaction scheduled for Oct. 6.  This will be one less item the companies have to discuss in the voluminous merger documents. An AP story (here) discusses the government's announcement. (ph)

September 2, 2005 in Prosecutions, WorldCom | Permalink | TrackBack (0)

Thursday, August 25, 2005

Ebbers Gets Medium Security Prison

Bernard Ebbers, former CEO of WorldCom, has been assigned to a medium security prison to serve his sentence. See Washington Post here and the Securities Litigation Watch here (who were kind enough to alert us to the Post article), Although it should be noted that the particular facility he has been assigned to does have both a medium security section and a "[a]n administrative Federal Detention Center (FDC) with a satellite prison camp that houses minimum security male inmates."  See here.  Ebbers sentence of 25 years was not only unusually long for a white collar offender, but now the location of serving that sentence (if it is in fact in the medium security facility) presents something new for white collar offenders.

In the past, most white collar offenders were assigned to camps or minimum security facilities.  At the worst they might receive a low security facility.  As there was little chance of escape, there was no need to place those convicted of white collar crimes in a prison setting that warranted the level of security needed for someone who had committed a crime of violence.

Camps and minimum security facilities are described by the Federal Bureau of Prisons as follows:

"Minimum security institutions, also known as Federal Prison Camps (FPCs), have dormitory housing, a relatively low staff-to-inmate ratio, and limited or no perimeter fencing. These institutions are work- and program-oriented; and many are located adjacent to larger institutions or on military bases, where inmates help serve the labor needs of the larger institution or base.

"Low security Federal Correctional Institutions (FCIs) have double-fenced perimeters, mostly dormitory or cubicle housing, and strong work and program components. The staff-to-inmate ratio in these institutions is higher than in minimum security facilities."

In contrast:

" Medium security FCIs have strengthened perimeters (often double fences with electronic detection systems), mostly cell-type housing, a wide variety of work and treatment programs, an even higher staff-to-inmate ratio than low security FCIs, and even greater internal controls.

Placement to specific prisons is often premised on the number of years of the defendant's sentence.  After all, a person receiving a higher sentence would normally be a greater threat to society. 

But the judge in the Ebbers case recognized the distinction here and requested that Ebbers serve his time in a minimum security facility.  Unfortunately, the prison officials were not convinced, or unable to make such a designation, and Ebbers has been assigned to serve his sentence in a medium security facility.

With white collar offenders receiving high sentences, and assignment to prisons often being premised upon the length of the sentence, we may find white collar offenders being placed in more secure facilities.  But is this really necessary?  Do we really have to fear that Bernard Ebbers will escape?  And now that he is removed from his position with the company, can he truly hurt individuals?   Maybe someone needs to rethink prison assignment in white collar cases to match the offender to the facility as opposed to being matched to the length of the sentence.


August 25, 2005 in Sentencing, WorldCom | Permalink | TrackBack (2)

Sunday, August 21, 2005

Mississippi and KMPG

KPMG may have more on its hands than just civil law suits (see post here). The LATimes (Reuters) reports here that Mississippi is considering filing "criminal charges" against KPMG. Will other states follow?  Should states be allowed to bring cases against national companies for criminal charges  where the federal government does not bring the charges?  Could a state bring a company down as was done by the federal government in the case of Arthur Andersen?  Should this be permitted? Stay tuned.


August 21, 2005 in Arthur Andersen, Prosecutions, WorldCom | Permalink | TrackBack (1)

Sunday, August 14, 2005

White Collar Sentences in China Tougher than in US

The New York Times reports here that a leading banker in China, convicted of embezzlement, has been given a sentence of death.  The sentence was suspended. 

So for those, like me, who thought Bernard Ebbers, Jamie Olis, and the Rigas' sentences were too high - I guess they certainly weren't according to the standards used in China.


August 14, 2005 in International, Sentencing, WorldCom | Permalink | TrackBack (0)

Thursday, August 11, 2005

Sullivan Receives Five-Year Prison Term for His Role in WorldCom Accounting Fraud

Former WorldCom CFO Scott Sullivan received the second longest sentence arising from the accounting fraud at the company when U.S. District Judge Barbara Jones sentenced him to a five year prison term.  Judge Jones characterized Sullivan as the "architect of the fraud at WorldCom" and said that his crimes "were of the highest magnitude."  The judge noted that Sullivan's cooperation was the key to the prosecution of former CEO Bernie Ebbers who was not indicted until after Sullivan agreed to cooperate, and also found that his family situation -- Sullivan's wife is quite ill and they have a young daughter -- was an additional ground for a lighter sentence.  Stories from the Wall Street Journal (here) and AP (here) discuss the sentencing.

Ellen Podgor's post from earlier today (below) raises questions about the fairness of giving significant sentencing breaks to the cooperator versus higher sentences for the defendant who goes to trial.  Ebbers has maintained his innocence, so that affects the calculation, at leas somewhat.  Sullivan's cooperation certainly brought him a much lighter sentence than his former boss, 80% less, and it's hard to ever say whether the benefit he received from cooperating was too great.  The government certainly touted Sullivan's cooperation, and will cite the 20 year difference in other cases in trying to entice agreements to assist.  The HealthSouth trial showed one of the dangers from cooperation agreements that largely give a defendant a nearly complete pass on punishment, but it is unlikely the government can stop seeking cooperation from corporate insiders if it ever wants to pursue higher-level officers of a company.  In the end, five years is a significant amount of time to spend in prison. (ph)

August 11, 2005 in Fraud, Sentencing, WorldCom | Permalink | TrackBack (0)

So Far Cooperation Brings Big Rewards in WorldCom Case

Yesterday, former WorldCom controller David Myers was sentenced to a year and a day, a sentence equivalent to that received by former WorldCom Accounting Director Buford Yates. (See Wall Street Jrl here).Giving a year and a day allows the defendant the opportunity to reduce the sentence premised on good time.  (See post here)

So far the WorldCom sentences have been:

Bernard Ebbers - 25 years (see here)

Betty Vinson- 5 months jail, 5 months house arrest (see here)

Troy Norman - no jail time (see here)

David Myers - year and a day in jail, and three years supervised release

Key cooperator Scott Sullivan is due to be sentenced today.

Reactions so far:

1. The Booker/Blakely cases have had relatively no effect on white collar sentences being issued by judges.  Atty General Gonzales (here) can't argue that there is a drift toward lower sentences or that sentence reductions are happening because of activist judges.  Perhaps the argument should be made that lower sentences are happening because prosecutors are "dealing" them out in return for testimony.  These WorldCom related sentences support the position that the best way to receive a reduced sentence is to provide some form of cooperation to the government.  Prosecutors, not judges, have been the ones calling for the reduced sentences. Prosecutors could do this prior to these Supreme Court decisions under 5K1.1 and they continue to request that judges treat cooperating defendants extremely favorably.

2. With the disparity in sentences so far (25 years for Ebbers in contrast to others), sentences not based solely on the culpability of the individual but significantly premised on cooperation, will defendants in other cases be encouraged to cooperate? It is obviously a goal of prosecutors in asking for these reduced sentences, to send a message that cooperation will be heavily rewarded. To some this may seem beneficial in reducing criminal activity.  But one also has to wonder if the incentive for cooperation is too high and may result in encouraging individuals to provide cooperation that may not be truthful.

3.  What happens to the individual who is last to be indicted when there is no one left to talk against and no way to provide cooperation?  What happens when the the accused has nothing to offer in cooperation because they did not see or hear anything?  Are we punishing these individuals with heavier sentences merely because they have nothing to offer the government?  Should we be afraid that they will invent something to tell the government just to obtain a reduced sentence?

4.  The Bill of Rights provides everyone accused of a crime with the right to a jury trial.  Are we punishing individuals who avail themselves of this right?


August 11, 2005 in WorldCom | Permalink | TrackBack (13)

Tuesday, August 9, 2005

Former WorldCom Accounting Director Receives a Year-and-a-Day Prison Term

Former WorldCom director of general accounting Buford Yates received a prison term of one year and a day from U.S. District Judge Barbara Jones for  his role in the massive accounting fraud at the company.  By having the extra day added to the sentence, Yates is eligible for the 15% good time credit to reduce his term by a little less than two months. According to an AP story (here), Judge Jones described Yates as "perhaps the lease useful" of the cooperating witnesses against former CEO Bernie Ebbers because he appeared to be reluctant to "upset the applecart" at WorldCom.  Yates did not testify at Ebbers' trial, unlike the other four WorldCom employees who entered into plea agreements.  The two former senior WorldCom executives, controller David Myers and CFO Scott Sullivan, will be sentenced over the next two days.  As the sentences have progressed for the five cooperators, each defendant has received approximately six months more than the previous one, so we'll see if that trend holds in the next sentencing. (ph)

August 9, 2005 in Sentencing, WorldCom | Permalink | TrackBack (0)