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December 19, 2007

Is probation a fitting sentence for backdating convictions?

In this piece in the Wall Street Journal, Holman Jenkins makes the case for a lenient sentence for Gregory Reyes, who is today scheduled to be sentenced on 10 felony convictions related to options backdating at Brocade Communications.  Here is the pitch:

Mr. Reyes didn't benefit from backdating; he didn't have any discernible motive to overpay his underlings who did.... Mr. Reyes's story is not different from those of hundreds of executives who have not been charged and probably never will be charged, including Apple's Steve Jobs. Mr. Reyes's case featured all the ordinary lineaments of backdating, however, plus one: a claim that he conspired with Brocade's human resources department to keep its finance department "in the dark" about the use of so-called lookbacks to price employee options....

As the National Law Journal notes with exemplary precision, "Stock-options backdating is not illegal. It is the failure to properly account for backdating as an expense to the company that got so many in trouble."...

Punishment should fit the crime; dozens of executives have lost jobs over backdating; a few have been asked to disgorge money and sign regulatory settlements that don't require acknowledgment of wrongdoing. Even the trial lawyers have been unable to make a meal out of this scandal, thanks to an absence of demonstrable shareholder harm.

The great flaw in the Reyes prosecution, which was the first of its kind, was the prosecution's attempt to fulfill the media image of backdating, rather than focusing on the venial offense it was.  The government has suggested Mr. Reyes should face 10-20 years.  Judge Charles Breyer, in a recommendation recently unsealed, proposed 15-21 months.  Some law bloggers think it not impossible Mr. Reyes will receive a suspended sentence.

Let's hope so. Because unless we plan to send Steve Jobs and a hundred other executives to jail for backdating, it would be grossly disproportionate to inflict jail on Mr. Reyes.

I am not one of the "law bloggers" referenced in this post, and I am not sure there really is anything that can or should be called a "suspended sentence" under federal sentencing law.  That said, I think this pitch is for a sentence of probation or maybe a very brief confinement term that could be satisfied entirely through home confinement.

Given the various intriguing dimensions of this particular case and white-collar sentencing more broadly, I wonder if readers agree that proportionate justice for Reyes means no prison time at all.  Here are some questions to ponder in this context: Does the fact that DOJ apparently believes that justice demands decades in prison for Reyes a significant consideration in your analysis?  Does the fact that the guidelines suggest more than a year in prison for Reyes a significant consideration in your analysis?   Does the fact that the recent Gall decision calls probation a significant restriction on liberty a significant consideration in your analysis?

With this high-profile sentencing only hours away, I am eager to read both predictions and recommendations in the comments.

UPDATE:  According to this Reuters article, the sentencing of Reyes was postponed today.  The article explains that today "Judge Charles Breyer of U.S. District Court in San Francisco unsealed Reyes' pretrial statements after prosecutors said they needed them to prepare for Reyes' sentencing, which was postponed from Wednesday to an undetermined date."

December 19, 2007 at 10:54 AM | Permalink

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Comments

I like it when the lay media refers to “trial lawyers.” Do they mean lawyers who do more “trials” than others. That would be prosecutors and criminal defense lawyers.

In most other areas of the law, trials are a rarity.

Posted by: S.cotus | Dec 19, 2007 11:02:19 AM

To answer the questions, no, no and yes.

Posted by: Larry the Red | Dec 19, 2007 11:46:44 AM

There was almost no evidence in this trial, the jury found him guilty in this climate of hostility towards CEOs- later all these allegations of prosecutorial misconduct came out about the case. I say no jail time, and use this case as a barometer for the white collar prosecutorial climate in the US today. The Brits are right, the pendulum has swung way too far- and prosecuting for fraud with no benefit to the accused doesn't pass the smell test, for me.

Posted by: Smort4 | Dec 19, 2007 11:47:39 AM

Unrelated, sorry, but this is probably an article you might want to blog about (juvenile life sentences w/o possibility of parole):

Group wants limit on sentences for juveniles
By JoANNE YOUNG / Lincoln Journal Star
http://www.journalstar.com/news/local/doc4768575f920d2815727997.txt

Posted by: Sentencing Observer | Dec 19, 2007 11:53:53 AM

Some White collar crimes make more damage than street crimes. I think we should show leniency to all that wish to rehabilitate.

Posted by: EJ | Dec 19, 2007 12:02:22 PM

We have prosecutorial over reach on every level and category. It's difficult to say where limits should begin and lines should be drawn. It's just a very sad state of affairs. Europeans do shake their heads in disbelief.
Beth Curtis

Posted by: beth curtis | Dec 19, 2007 12:57:12 PM

I think this is another case where the us attorney was way out of line asking for a crazy guideline sentence what was he thinking when he put that number together.

In back to back cases now the Black case and now this one a judge used reason to craft the right guidelines.

The US attorneys in every office have forgot what the word reason means. They make arguements that make no sense and continue to lose credibility.

Posted by: | Dec 19, 2007 1:01:26 PM

Accountability and risk are separate issues. Accountability is really a question of public policy. There is probably a low risk that he will commit another crime, although we have very little information about his background.

Posted by: Tom McGee | Dec 19, 2007 1:01:41 PM

I certainly hope the judge uses his newly, newfound discretion and gives him nothing more than a year or two of probation and maybe a fine.

Posted by: bruce | Dec 19, 2007 2:36:36 PM

I suspect this article has several inaccuracies. First, the judges in federal court do not make recommendations, they mete out sentences. Second, the probation officer who writes the presentence report(depending on the district) makes a recommendation to the judge which is usually confidential; and lastly most likely the total number of years by statute Mr. Reyes is exposed to is 10-20 years, this is not the same as the guidelines. I am assuming the guideline calculations in the presentence report are 15-21 months. Even the government knows sentences are handed out in months not years, and I have my doubts about how it was reported in this article.

If there were no significant financial losses, the he shoud get probation.

Posted by: Sharon V. | Dec 19, 2007 3:26:49 PM

"Some White collar crimes make more damage than street crimes. I think we should show leniency to all that wish to rehabilitate."

The fact is that most of these corporate CEO crimes are one-offs. Rehabilitating Jeff Sklling or Bernie Ebbers is irrelevant. No one would ever hire these guys again, to be in the position to commit the same crime(s) again. Not even the DOJ contended that Ebbers needed 25 years behind bars for rehabilitation purposes.

Posted by: Marc Shepherd | Dec 19, 2007 3:30:19 PM

So what was his sentence?

Posted by: ej | Dec 19, 2007 4:21:12 PM

HEY, I already got that nick taken.

Posted by: EJ | Dec 19, 2007 5:34:22 PM

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