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January 19, 2010

"Punishing Lawyers in Corporate Frauds"

The title of this post is the headline given to this new piece by Peter Henning over at the New York Times' DealBook page.  Here are snippets from the effective piece about the sentencing lawyers involved in corporate frauds:

Joseph P. Collins, a former partner at the international law firm Mayer Brown, received a seven-year prison sentence for his role as the lead attorney for the failed futures trading firm Refco Inc., whose collapse as a result of accounting fraud cost investors and lenders more than $2 billion.  Mr. Collins was convicted of conspiracy, wire fraud and securities fraud in July 2009 for his role in the stunning demise of Refco only weeks after the firm’s initial public offering.

The company hid debts owed by its chief executive, Phillip R. Bennett, from a buyout firm in an leverage buyout in 2004 and then in the public offering in 2005.  In addition to Mr. Collins’s conviction, Mr. Bennett received a 16-year sentence, and Refco’s former president, Tone N. Grant, was sentenced to 10 years for their role in the accounting fraud.

Mr. Collins was Refco’s long-time outside counsel and the firm was his largest client, generating $35 million in billings for Mayer Brown.  It is rare that an outside lawyer is prosecuted for legal representation of a client, and the case can be understood as part of a growing trend in which federal prosecutors and regulatory agencies, including the Securities and Exchange Commission, focus on those who enable corporate fraud along with the officers and directors who orchestrate it....

What is striking about the sentence that Mr. Collins ... received is its length.  This is largely a product of a change in the Federal Sentencing Guidelines adopted in late 2001 that substantially increased the likely sentence in fraud cases.  The United States Sentencing Commission amended the fraud-loss table used to calculate the sentences so that a loss of more than $400 million pushed the potential punishment to more than 20 years and could even result in a term of life in prison when other factors, such as the number of victims, were considered....

Given the sizable losses in the Refco case, Mr. Collins may be fortunate to have received only seven years, as the potential punishment under the sentencing guidelines called for a maximum of 85 years in prison.  The Federal District Court rejected his request not to be sent to prison at all, an unlikely result given the amount of the loss.  Mr. Collins is seeking a new trial based on recently revealed e-mails, and he is certain to appeal the conviction.  Whether the district court permits him to remain free pending the appeal remains to be seen.

The substantial sentence is sure to be noticed in major law firms throughout the country, but whether it has any deterrent effect is another issue.

January 19, 2010 at 02:58 PM | Permalink


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Whether practicing lawyers yet realize it or not, the Justice Department views us as "Gate Keepers" of out clients' crimes and misconduct. And the penalty for failing effectively to fulfill the role of Gate Keeper is to be indicted with the client for conspiracy and/or aiding and abetting. I know all about this game. My sentence was 97 months, even longer than that imposed on Joe Collins. I was incarcerated in Federal prison between 2000 and September 2007. My wife divorced me. I was disbarred. My daughter was 3 1/2 months old when I went off to prison, and doesn't even know who I am. Her Mother doesn't want her to ever see or know me. And Starbucks won't even hire me to pour coffee -- they don't hire convicted felons, even ones with Univ. of Virginia Law Degrees. I sure hope Mr. Collins gets more justice than I have.

Posted by: Jim Gormley | Jan 19, 2010 3:47:52 PM

Seven years for 35 million dollars?

Where do I sign up?

Posted by: Daniel | Jan 19, 2010 5:27:10 PM

Mr. Gormley,

Perhaps you should have considered those things before engaging in money laundering. With the attitude you display I would be leery about hiring you as well.

Posted by: Soronel Haetir | Jan 19, 2010 5:32:37 PM

That's all fine, and sounds very "tuff" on crime Soronel, but it appears to me that Gormley has done his time. Where's the "deterrent" effect--or whatever else is accomplished by permanently rendering one unemployable--by the situation recounted by Gormley? When is the debt paid? Or do we prefer having a permanent "other" with which to periodically poke with a stick?

Posted by: Mark # 1 | Jan 19, 2010 8:21:05 PM

Mark # 1 --

Why should employers rush to hire people who have proven to be criminally dishonest when there are plenty of honest people looking for the same work? And why do you blame Sonorel for the quite understandable fact of life that employers look at past conduct? What SHOULD they look at? Felons and swindlers do not wind up in jail by magic. They wind up there because their sleazy behavior put them there.

At some point, people have to take responsibility for their own behavior and what their greedy choices have cost them, rather than sneer that it's all the fault of "tuff" sentencing. The criminal justice system doesn't make your reputation. You make your own reputation.

Posted by: Bill Otis | Jan 19, 2010 11:41:27 PM

Mark # 1,

I have actually hired one felon who was willing to be honest about his past, a sex offender no less. Unlike Mr. Gormley who I've seen try to talk past his past the guy I hired didn't try to pretend that his actions weren't wrong. It goes to attitude and is a fine line.

Someone who acts like a felony conviction is no big deal displays an attitude I don't want working for me. Someone who acts like I owe him /because of/ a felony I certainly don't want working for me. Someone needs to be both properly contrite, yet also not let it become who they are and that's where it's hard.

Posted by: Soronel Haetir | Jan 20, 2010 2:41:11 AM

If people read the transcripts of my trial, they would understand how it feels to be an innocent man wrongfully convicted. but in white collar cases, their is no DNA to test, no scientific way to prove your innocence later. One of the biggest problems in my case was that my defense was the bona fide practice of law, within acceptable legal and ethical boundaries. The propsoed jury instructions my paid counsel submitted to the Court contained no citations of authority, so it is not surprising the Court refused to give them. Counsel missed several crucial Court decisions that would have supported the jury instructions. See, U.S. v. Casperson, 773 F.2d 216, 222-224 (8th Cir.1985); U.S. v. Lieberman, 106 F.3d 393 (Table),1997 WL 26554 (4th Cir.1997); U.S. v. Kelly, 888 F.3d 732, 743-44 (11th Cir.1989); U.S. v. Beckner, 134 F.3d 714, 718-21 (5th Cir.1998); U.S. v. cavin, 39 F.3d 1299,, 1308-1311 (5th Cir.1994); U.S. v. Reamer, 589 F.2d 769,, 771 (4th Cir. 1978); U.S. v. Klauber, 611 F.2d 512, 520 (4th Cir. 1979); Schatz v. Rosenburg, 943 F.2d 485 (4th Cir.1991). What is surprising is that when the Judge indicated at the Charge Conference that he would not give the proposed instructions, my counsel failed to object to perfect the record on appeal. Thus, my appellate counsel did not raise this issue on appeal because it would have been subject to a "harmless error" standard of review, since no contemporaneous objection was made. The indictment in this case charged that I engaged in illegal conduct under the "guise" of practicing law, but how was the jury to decide that question if they were never instructed on the legal and ethical limits of practice? Keep in mind that all I got out of my clients' crimes was about $30,000 of hourly attorneys' fees and expense reimbursements over a 2 1/2 year period of time, during which my practice brought in over $630,000. I never had any other interest in my clients proposed "deal", and I was even fired for telling him not to do it. he came back to me six weeks later after he had proceeded against my advice and lost $400,000. He told me the lost funds were his money, but it turned out that he had fraudulently obtained the money from a doctor. I would never have knowingly engaged in any criminal conduct. At the time of my trial, I have practiced law for 11 years without any problems, never even had a bar complaint filed against me.
Prof. Stephen A. Saltzburg of George Washington Univ. Law School, who many of you would know (he was 2008 Chair of the ABA Committee on Criminal Justice), provided his Declaration "pro bono" in support of my Habeas Corpus Motion:
"The trial record in Mr. Gormley's case contains sufficient evidence for a jury to find and for the defense to argue that Mr. Gormley's conduct was conssistent with the the ethical duties of a lawyer. Consequently, Mr. Gormley would have been entitled to a theory of defense jury instruction explaining those ethical duties. Absent such an instruction, the jury might have convicted Mr. Gormley for acting as a lawyer is required to act by the Rules governing professional lawyer conduct."
I was robbed of my Constitutional right to have the jury instructed on my Theory of Defense, leading to my wrongful conviction. See, Mathews v. U.S., 485 U.S. 58, 63 (1988); Luchenburg v. Smith, 79 F.3d 388, 391 (4th Cir.1966); U.S. v. Span, 75 F.3d 1383, 1387-90 (9th Cir.1996). Unfortunately, the Courts did nothing to address this error. In America today, the Scarlet Letter is not an "A" for adultery, but an "F" for felon, even though 6% of the adult population of America has a felony conviction. The debt is deemed never to have been paid.

Posted by: Jim Gormley | Jan 20, 2010 11:22:25 AM

Soronel --

Spot on.

Posted by: Bill Otis | Jan 20, 2010 11:50:40 AM

I write this without reading Gormley's response. 1) The label of "felon" has been expanded in the modern arena to include persons convicted of such innocuous "offenses" as stealing a goat valued over $35, harvesting oysters out of season, and other shockingly ridiculous offenses against "lawn order." Consequently, such inflammatory labels hold little value for me' especially when such a embarrassingly high percentage of the American populace now carries such a label. 2) One of the (alleged) beauties of our great experiment, is that one can't be forced to testify against himself. I assume that Gormley believes himself to be innocent. Just because a jury believed otherwise, is no reason to require a convicted offender to mouth obsequious mea culpas--the fact that one is not "contrite" enough for your taste should not make one a second-class citizen. As a matter of conjecture, I would wager that you, and our resident torture cheerleader Bill, would vehemently protest your respective innocence--notwithstanding what any jury found--if you believed in your innocence. 3) As one who observes first-hand the concept that juries are composed of the twelve people who weren't smart enough to get off the jury; or God forbid--persons who seek vengeance against anyone for some slight, real or perceived--I caution you against having unsubstantiated faith in jury verdicts. We are reaping the harvest of our rush to fiddle with the rules to "enhance" prosecutions and incarcerate more of our fellow citizens--the innocence project has the dirty details on its website. In short, he's done his time. You are free to not hire him; but the drumbeat of ostracization and denigration smacks of the power structure merely creating the "other" to create fear and cast doubt amongst the gullible. By chastising one who has done his time because he is not "contrite" enough merely plays into that scapegoating, and does nothing to repair the destruction that our shameful incarceration addiction has inflicted on our country.

Posted by: Mark # 1 | Jan 20, 2010 11:04:41 PM

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