Monday, March 14, 2016
In November 2014, the American Bar Association Criminal Justice Section Task Force on the Reform of Federal Sentencing for Economic Crimes published its final report. The report recommended major changes to the structure of the Federal Sentencing Guidelines for economic crimes. In particular, the report sought to reduce the current Guideline's dominant focus on loss in favor of a more balanced approach that weighed loss, culpability, and victim impact. I discussed these proposed amendments more fully here. Though the ABA CJS Task Force recommendations were not adopted by the Federal Sentencing Commission (see here and here), some courts have begun to use the ABA "Shadow Guidelines" when varying in economic crimes cases.
Last week, a federal judge in New York used the ABA "Shadow Guidelines" in sentencing Mair Faibish, former CEO of Synergy Brands, Inc. Faibish was accused of kiting checks worth in excess of $1 billion. According to the DOJ press release in the case:
Synergy was a publicly-held food products company that traded on the NASDAQ and Over-the-Counter exchanges and manufactured and distributed various food products. As proven at trial, Faibish and his co-conspirators, on behalf of Synergy, funneled approximately $1.3 billion in checks that were not backed by sufficient funds through Signature Bank, Capital One Bank, and various Canadian bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, which were also not backed by sufficient funds, back to Faibish-controlled shell companies. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ account balances. Faibish and his co-conspirators used Synergy’s inflated bank account balances to book millions of dollars in fictitious accounts receivable and revenue.
As a result of this fraud, FDIC-insured Signature Bank lost approximately $26 million that Faibish and his co-conspirators had withdrawn before the bank uncovered the scheme. Following the scheme’s collapse, Synergy was taken into bankruptcy, and its publicly traded stock became essentially worthless, causing millions of dollars in investor losses. On November 4, 2014, the Court ordered Faibish to pay $51,166,000 in forfeiture.
The trial evidence also established that Faibish falsely inflated the values of Synergy’s sales, cost of goods sold, and pre-paid expenses in filings with the SEC for the quarter ending June 30, 2008. These material misrepresentations were breaches of the defendant’s fiduciary duties to investors.
The Federal Sentencing Guideline range in the case was life in prison, though the maximum available sentence was actually less due to applicable statutory maximums. Despite the Federal Sentencing Guideline range and the government's request for decades in prison for Faibish, the Court rejected these arguments and sentenced him to 63 months in prison (see here and here). According to LAW360, the judge stated at sentencing that the Federal Sentencing Guidelines for economic crimes are "almost useless" because of their reliance and focus on loss in calculating the applicable sentencing range. Instead, the judge used the ABA "Shadow Guidelines" to determine what he considered to be a more appropriate sentence.
This seems to be yet another indication of the growing dissatisfaction among judges with the Federal Sentencing Guidelines for economic offenses (see here and here) and should serve as yet another call for the Federal Sentencing Commission to consider more significant reforms in the future.