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December 18, 2008

"Madoff Mercy: How long should the Ponzi schemer go to prison for?"

The title of this post is the title of this Slate commentary by Harlan Protass, who uses all the ugly Wall Street news to spotlight the the over-emphasis of loss in how the federal sentencing guidelines deal with white-collar fraud.  Here are lengthy excerpts from an effective piece:

[W]hen it comes to large-scale frauds involving public companies and their millions of shares, the guidelines' grounding in mathematics sometimes results in sentences that are, quite literally, off the chart.  They fall within the realm of prison terms usually reserved for mafia bosses, major international drug lords, cop killers, child molesters, and terrorists.

Remember Jeffrey Skilling — losses to Enron shareholders of more than $1 billion largely determined his 24-year-plus sentence.  Or consider WorldCom's former chief, Bernie Ebbers.  He got 25 years based principally on the $2.2 billion loss suffered by his company's shareholders. Sure, these men destroyed enormous shareholder value, just as the targets of today's criminal cases allegedly did.  But it's hard to contend that they deserved prison terms longer than the average sentence for murder (22 years), kidnapping (14), and sexual abuse (eight).

Tying jail terms to the amount of money lost also puts way too much power in the hands of prosecutors. It gives them the muscle to threaten long prison stretches in order to coerce guilty pleas. If it weren't for the risk of lengthy sentences if convicted, many defendants might opt to test the government's evidence before a jury.

Linking jail time to dollars lost also severs many of the ties to factors courts are supposed to consider when determining and imposing sentences.  For example, a relatively short prison term — years, not decades — can be enough to deter prospective financial fraudsters. And economic offenders pose little future threat because they're generally stripped of powers that would permit continued criminal conduct.  Also, aren't there more fitting and useful ways to punish the titan fraudsters of Wall Street?  Strip them of their wealth.  Make them work to pay back those they ripped off or to serve the public good.

The Supreme Court's landmark decision in United States v. Bookerallowed judges to use good, old-fashioned common sense to reduce radically long sentences produced by the guidelines. And some judges have done that.  In 2006, Richard Adelson, former president of Impath Inc., a laboratory services company that collapsed as a result of an accounting fraud, was convicted of securities fraud and filing false documents. The guidelines recommended a life sentence. Instead, a judge sentenced Adelson to 42 months in prison. (A federal appeals court in New York approved that call last week.)  Lennox Parris and Lester Parris, co-directors of a New York-based water company, were convicted of securities fraud in connection with a scheme to boost the value of their company's stock with a series of press releases misrepresenting its success in scoring distribution contracts.  They were each sentenced earlier this year to five years imprisonment, even though they faced 30 years to life under the guidelines. And this week, the former CEO of reinsurer General Re, Ronald Ferguson, who faced life imprisonment for his role in a rotten deal to artificially inflate the balance sheet of insurance giant AIG, was sentenced to two years in jail.

But honestly, that kind of largesse is rare.  Most judges still stick close to the guidelines and the huge sentence recommendations they make for causing huge financial loss.  Given that hundreds of billions, if not trillions, were lost on Wall Street this year, we could be talking about a parade of defendants swapping cuff links for handcuffs and facing not years behind bars but decades.  That's more punishment than even Bernard Madoff deserves.

Regular readers know that I agree with a lot of what Harlan has to say, and his point about the power federal prosecutors wield in this context is especially important and often overlooked.  That all said, Madoff's alleged crimes seem, at least from the early press reports, to be of a different character and magnitude than some of the other cases noted by Harlan. 

For me the core problem with an obsessive concern with loss amounts is that, in many settings, the quantifiable amount of "loss" under the guidelines often has little or no connection to offenders' culpable mental states and subjective culpability.  There are suggestions, however, that Bernie Madoff was in fact very culpable (perhaps for a very long time), and that the high loss levels in his case may have a direct relationship to his subjective culpability.  Like all good law professors, I am troubled by severe punishments based on strict liability sentencing factor, but it is not clear this is a major concern in the Madoff case.

Moreover, Harlan's effective commentary still effectively ducks in the hardest question: exactly what punishment levels should be the norm in large-scale frauds involving public companies.  He suggests that years and not decades may be the right ballpark, but there is a huge gulf between say three and thirty years imprisonment.  These cases are so hard — and the current guidelines are so inadequate — because we do not have a ready metric or shared moral sense of how best to assess these kinds of crimes.  But, as suggested above, I do think subjective culpability should be more important and that "loss" concepts are too important in the current federal sentencing scheme.

Some recent related posts:

UPDATE:  This postat ChattahBox provides something of a counter to Harlan's commentary.  It is titled "Bernard Madoff Deserves The Life Sentence He’s Likely To Get."

December 18, 2008 at 04:04 PM | Permalink

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Comments

Should a defendant whose conduct rose to the level of signifigantly damaging the national economy be punished more harshly than a defendant with the same dollar total in damage who did not? Madoff has destroyed major charities, and done signifigant damage to consumer confidence in our financial system. He could end up ACTUALLY harming millions, or even tens of millions of individuals. The benficiaries of those charities could be at risk for physical harm or even death. Meanwhile, that murderer only killed one person.

I understand and agree with the concern in most cases, but this doesn't seem like a very good example of how harsh sentences based on large dollar amounts is that unreasonable.

Posted by: Monty | Dec 18, 2008 6:41:58 PM

I tend to agree with the stance that an accused's culpability, or ill-intent, should be the focus of the sentencing. What is the utility of punishing him based on the consequences of his actions, or the magnitude of resulting loss, if there is no connection to his mental intent? How does punishment that is not related to mental intent serve to deter future crimes or rehabilitate the accused?

Regarding the broad spectrum of harm that the accused may have caused and the potential loss of life: even if we accept that the financial loss caused by the accused's actions could have resulted in loss of life, without having some proportionality between the accused's intent and his punishment, how does a large punishment serve utilitarian goals? Would a large punishment be driven primarily by retributive desires to see the accused suffer?

That being said, I think the suggestion that the amounts of money involved could be used to make inferences about an accused's culpability is sound. But such inferences must be made carefully and should perhaps be accompanied by evidence that the accused contemplated the magnitude of his actions.

Posted by: Jacob | Dec 18, 2008 9:14:57 PM

This defendant qualifies for a life sentence if any white collar defendant ever does! Sholam Weiss is presently an inmate at U.S. Penitentiary, Lewisburg, Pennsylvania. He has the longest white collar sentence ever rendered in America, 845 years! Yes, you read that correctly. If you doubt it, go to "bop.gov", the web site for the Bureau of Prisons, and put Sholam Weiss's name into the National Inmate Locator system. His "out date" is after the year 2,700. His white collar crimes involved the looting of a Flordia life insurance company of about $27 million, which led to the failure of the company and losses to thousands of policy and annuity holders, but nothing on the scale of the $50 billion dollars involved in the current case. He was sentenced by Chief Judge Particia Fawcett of the U.S. District Court for the Middle District of Florida at Orlando in 2000. His direct appeal was dismissed by the Eleventh Circuit under the "Fugitive Disentitledment Doctrine", as he was then on the run in Brazil and Austria. He was later captured in Austria extradited back to the U.S. Not surprisingly, he will be seeking a Presidential Commutation before President Bush leaves office.

Posted by: Jim Gormley | Dec 18, 2008 11:11:43 PM

"Tying jail terms to the amount of money lost also puts way too much power in the hands of prosecutors. It gives them the muscle to threaten long prison stretches in order to coerce guilty pleas. If it weren't for the risk of lengthy sentences if convicted, many defendants might opt to test the government's evidence before a jury."

Funny how prison terms become too excessive when it comes to the heart of America--violating the trust of the people by fucking with their money.

In the words of a Jamaican, "bun dem ded!"

Posted by: | Dec 19, 2008 11:33:32 AM

"Tying jail terms to the amount of money lost also puts way too much power in the hands of prosecutors. It gives them the muscle to threaten long prison stretches in order to coerce guilty pleas."

Whats ok for the little guy should be ok for the poor misunderstood ceo

Posted by: Mark | Dec 20, 2008 12:07:15 AM

apparently Madoff is now blogging his own story Talk about chutzpah! www.bernard-madoff-scam.blogspot.com

Posted by: Gordon G | Dec 21, 2008 3:33:27 PM

I read with interest the Harlan commentry. It is a good example of academics overthinking to create a twisted controversy where there should be none. Madoff has destroyed the lives of many people and he deserves to die in a small cell, abused in every way by prisoners and whatever comes with it. Gone are those expensive Manhattan lunches and dinners and respect he ill-deserved. He is a devil in a suit and so are most CEOs it appears. I think morons like Harlan and yourself need to lose your money and get a begging bowl in your and your familiy's hands and I would like to see if you are still trying to be a high level intellectual idiot or actually being practical about sentencing. I am a Ph.D. and work in the industry.

Posted by: s law | Mar 28, 2009 2:26:09 PM

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