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April 12, 2010

Are federal sentences in many high-profile white-collar cases now much too harsh?

The question in the title of this post is prompted by this notable new post by Professor Peter Henning over at the New York Times DealBook under the headline "Sentences Get Harsher in White-Collar Cases." Here is part of Peter's discussion:

The 50-year prison term given to a one-time business mogul, Thomas J. Petters, is the latest in a string of harsh punishments imposed on defendants convicted of orchestrating frauds. Twenty years ago, a sentence of more than five years for a white-collar offender was rare, and most sentences were measured in months, not years.

The sentence meted out to Mr. Petters last week is similar in severity to the 150 years given to Bernard L. Madoff for defrauding investors of tens of billions of dollars in his vast Ponzi scheme, and it is the latest signal that many defendants, at least in high-profile cases, are looking at prison terms that will amount to life behind bars.

Even in less notorious cases, the prison terms for financial crimes have been moving higher, raising questions whether sentences once reserved for violent criminals are appropriate for white-collar defendants....

It is hard to justify sentences like the 50 years imposed on white-collar defendants on the need to protect society from future harm.  It is unlikely that someone like Mr. Petters would ever be in a position to defraud investors again, and he presented no physical threat. Whether other potential offenders will be deterred because of the sentence is also open to question, because many white-collar defendants often do not start out planning to defraud investors or customers, but pursue the fraud to avoid disclosing losses from poor business decisions.  What can start out as a small lie can burgeon into a huge Ponzi scheme, as Mr. Madoff demonstrated.

The tough sentences may be more of a reflection of the conduct of the individual defendants and their hubris in taking advantage of investors.  Courts often express a desire to send a message to the community that financial crimes are deserving of the same significant punishment more commonly given to drug dealers and violent offenders because the harm is just as great....

Whether harsh sentencing is a good thing is open to debate, especially when the cost to society from increased incarceration of criminals strains budgets at every level of government.

Unlike drug or organized crime defendants, white-collar offenders often claim innocence because they were unaware of any wrongdoing, a position that can infuriate a judge.  Mr. Petters testified at trial that he was misled by other executives as his company, an assertion that the sentencing judge found was “unbelievable — let’s leave it at that.”

Faced with a distinct lack of contrition, coupled with evidence that the defendant abused a position of authority to mislead investors, judges often feel they need to impose long sentences to let those in the upper reaches of society know that they will suffer the consequences of their conduct.

As more financial frauds come to the surface, do not be surprised to see more white-collar defendants receive long prison sentences. This does not appear to be a trend that will abate any time soon.

April 12, 2010 at 05:29 PM | Permalink

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They're lucky the liberals on the supreme court won't let them get the death penalty.

Posted by: . | Apr 12, 2010 7:01:08 PM

based on this i'd say you have it backward.

"white-collar offenders often claim innocence because they were unaware of any wrongdoing, a position that can infuriate a judge. Mr. Petters testified at trial that he was misled by other executives as his company, an assertion that the sentencing judge found was “unbelievable — let’s leave it at that.”

SOUNDS more like his bosses and supervisors are luck he didn't have his person and office bugged to record them for his own SELF PROTECTION!

any bets we start seeing a lot of that.

Posted by: rodsmith | Apr 13, 2010 1:44:17 AM

The real cost of these sentences will occur much lower on the food chain, with defendants most of us never hear about.

Under any plausible scenario, Bernie Madoff was going to spend the rest of his life in prison. Even a 20-year sentence would probably have been tantamount to Life. But the effect of his 150-year sentence is to make 20 years look just average, and 5 years seem short.

Over time, you’ll see a ton of white collar defendants getting 20-year sentences that should have been 5, 5-year sentences that should have been one, and so forth.

Posted by: Marc Shepherd | Apr 13, 2010 8:58:09 AM

It is interesting to see white collar defendants receiving these sentences. These long sentences have been given to many non-violent offenders for years, they were just reserved for those convicted of drug crimes.

When the public was outraged about marijuana offenders, the public demanded - or at least accepted - very harsh sentencing. Now the public is outraged about financial fraud. I guess it should not be a surprise that many people are pleased to see these harsh sentences.

Posted by: beth | Apr 13, 2010 10:10:09 AM

Isn't the deterrence value significant here? Unlike many other offenders, the white collar offenders are educated and fairly well to do. They have attorneys advising them on their transactions and they are not as likely (or at least, it wouldn't seem to be the case) to be impulsive, as drug offenders are. Given that they're in a better position to weigh the consequences of of their actions, and given their access to information on sentencing for these crimes, it seems like a longer sentence can be justified on deterrence grounds.

Posted by: Alec | Apr 13, 2010 10:20:54 AM

Given that they're in a better position to weigh the consequences of of their actions, and given their access to information on sentencing for these crimes, it seems like a longer sentence can be justified on deterrence grounds.

I think that’s doubtful, for at least a few reasons. First, these offenders have generally lived privileged lives. I’ll bet that most of them don’t even know anyone who has been in prison. For them, the prospect of even a relatively short (i.e., a few years) sentence is a pretty strong deterrent.

Second, once you take away all or most of someone’s remaining life, what deterrent effect do the extra years have? Most of these offenders are already in middle age, since it takes a while to rise high enough on the corporate ladder to be in a position to commit huge fraud. If even 20 years is likely fatal for a Bernie Madoff, what is the deterrent effect of the remaining 130 years? It cannot be very much, if anything.

Third, besides the long prison terms imposed, these offenders generally are hit with huge fines and legal costs that basically wipe them out, eliminate their social and professional standing, and once out of prison (if they get out) are unable to work again.

For all of these reasons, I suspect that the deterrent effect of even a few years in prison is pretty high, and that the marginal effect of each additional year is pretty low. By the time you get to 20 years, you’ve probably hit the maximum. Anyone who is undeterred by 20 isn’t going to be deterred by 30.

Posted by: Marc Shepherd | Apr 13, 2010 10:42:14 AM

Mark Shepard,

We can point to Martha Stewart as an example where such deterrence didn't quite work, given how there was documentation that she was violating the terms of her supervised release. You would think if a short sentence is going to work that she would be exactly the sort of defendant for whom it would be most effective: someone who retained enormous wealth and the ability to hire people to perform whatever other activities she needed done and had significant reason to walk the straight and narrow until getting out from under supervision. Yet that apparently wasn't enough to motivate her to not skirt with going back to prison.

Posted by: Soronel Haetir | Apr 13, 2010 11:23:02 AM

@Soronel Haetir, I think the subject of Doug’s post was white collar sentences that run into the decades. Martha Stewart’s sentence was six months. She also claimed that the alleged violation of her supervised release was inadvertent, but even if we assume it wasn’t, her sentence didn’t approach the scale Doug is referring to.

Stewart, by the way, is the rare white collar defendant who has been able to resume her old career, practically as if the crime and punishment never happened. That is exceedingly rare.

Posted by: Marc Shepherd | Apr 13, 2010 12:33:39 PM

yea marc that's probalby because MOST of the world knows the complete prosecution was a crock of the first order.

which she could have avoiaded completley if she'd just told the feebs to F...K OFF and get lost!

Posted by: rodsmith | Apr 13, 2010 1:38:12 PM

"...white-collar offenders often claim innocence because they were unaware of any wrongdoing, a position that can infuriate a judge."

Given the vague, sweeping statutes that typically apply, isn't it possible at least some of these defendants are telling the truth?

After all, even seemingly innocuous acts such as faxing a document and banking a commission check in a deal that goes sour can get you 30 years (wire fraud and money laundering)...particularly if you annoy authorities by proclaiming innocence and insisting on a trial.

Marc Shepherd -- "The real cost of these sentences will occur much lower on the food chain, with defendants most of us never hear about."

Exactly. Harsh sentences embedded in statutes crafted to bring down lawyered-up mob bosses are routinely used to squash small fries, including some who are innocent or wrongly accused.

The example that comes to mind is a mortgage broker plausibly threatened with 30 years to secure a plea and sentence of six months home detention (plus a felony rap)...for following the "victim" lending company's doc-prep instructions...with the approval of the broker's business attorney.

Guys like that seldom complain in part because of the extortion clause the government puts in plea agreements. Under the clause, complaining about being rolled by the feds and left for dead amounts to "failing to accept responsibility" ...which ratchets up the punishment.

Soronel, Martha Stewart was convicted of lying to bureaucrats about a crime she was never charged with. Her imprisonment was a travesty. Using her as an example of the failure of deterrence is silly.

Posted by: John K | Apr 13, 2010 2:09:33 PM

I'm curious about white-collar sentences for smaller fraudulent schemes -- in the $2m-10m range. These long sentences for billion dollar schemes are interesting, but I wonder what others are seeing regarding smaller schemes. Long sentences?

I had a client sentenced above the (admittedly low) Guidelines range for a Ponzi scheme, so I'm curious what others are seeing.

Thanks.

Posted by: Mark Pickrell | Apr 13, 2010 3:10:21 PM

I enjoyed this thread. You guys/gals pretty much hit the nail on the head in a lot of areas...I always felt that Martha did tell the Feds to take a leap.. I thought she told the USA that she was too busy to answer his questions, I have a buisiness to run, unlike you, go away.... Thats what I thought happened....I'm sure Martha is no WIMP, shes self made and works a lot of hrs, to get her company where it is.... She started out in modeling and then a catering service....I believe....Type A, do ya think

Posted by: Goodyr | Apr 13, 2010 3:16:26 PM

@Goodyr, I think you are mistaken about Martha. Had she told the Feds to get lost, there would have been no crime. One always has the option of remaining silent. But if you choose answer their questions, you must do so truthfully.

Of course, the problem was that, as CEO of a publicly traded company, she couldn’t quite get rid of the feds that easily. The right to remain silent doesn’t jive with being a CEO, where cooperating with regulatory inquiries is part of the job.

Yes, it is true that the Feds never charged a crime, but the Feds investigate many things that do not turn into prosecutions. You aren’t obligated to cooperate, but if you do, your statements had better not be false.

Posted by: Marc Shepherd | Apr 13, 2010 5:42:40 PM

Right, Marc, but a sleazy trap.

If it were up-and-up, they'd read "persons of interest" and "targets" their rights (you can decline to answer, but say something that turns out to be false you're looking at five years).

They typically know the answers to the questions they ask. They count on citizens being shaken by the appearance on their doorstep of federal agents reeking of power and arrogance.

Sometimes the process seems designed more to trip people up and sandbag a felony charge than to gather information useful to an honest investigation of an actual crime.

It's the way it is, alright, but it's certainly nothing to be proud of.

Posted by: John K | Apr 14, 2010 12:54:29 AM

John K --

"If it were up-and-up, they'd read 'persons of interest' and 'targets' their rights (you can decline to answer, but say something that turns out to be false you're looking at five years)."

Or they could understand that the law requires nothing of the kind, and expect that the people they talk to will follow the normal practice of honest citizens and tell the truth. It's only on a defense-oriented blog that telling the truth has a bad name.

Do you encourage your teenagers to lie to the cops? To lie to authority figures generally? To lie to you? Or stonewall you? Is that your version of a morally healthy life?

You know, I've lived my entire life without feeling the need to lie to or stonewall a federal agent or any other kind of cop. Is that because I'm a saint? I sure don't think so. It's because I live a normal life and don't cheat or make shady deals. Is there something wrong with living that way? What would that be?

Martha Stewart had (and has) an army of lawyers, bodyguards, palace guards, and attendants. She is a smart cookie (so to speak) and plenty shrewd. She or any of her zillions of buffers, secretaries, schedulers, executive assistants or counselors could have told the agents, "I'm sorry, Ms. Stewart is unavailable today, but will be happy to meet with you next Wednesday at noon." At which appearance, if she follows through, she brings four or five of her lawyers and an equal number of accountants.

It's amazing that you attempt to portray one of the richest and most powerful women in the world as the terrified victim of agents who do their clothes shopping at Walmart.

"They typically know the answers to the questions they ask. They count on citizens being shaken by the appearance on their doorstep of federal agents reeking of power and arrogance."

I worked with agents. Did you? Your description of them is baloney. They typically know SOMETHING about the subject of their questioning (otherwise it would be a waste of everyone's time), but that's it. The agents do have power, that's true. How else do you think investigations can be conducted? With no power, hoping people who cheat and cut corners will now decide to be Ms. Nicey?

"Sometimes the process seems designed more to trip people up and sandbag a felony charge than to gather information useful to an honest investigation of an actual crime."

"Sometimes" being what, exactly? Half the time? One in ten? One in ten thousand? What's your number, and how do you know?

I'm not going to sit here and tell you there is NEVER an abusive investigation or an abusive agent. But I most certainly will tell you that your protrayal is biased, skewed and wildly excessive.

Posted by: Bill Otis | Apr 14, 2010 10:24:47 AM

Well, we don't really know the percentage of `abusive investigation, abusive agent, abusive prosecutor, or abusive prosecution. Were we to get this information, the outcome would most likely depend on who did the research, who paid for the research, the predisposition of the researcher, and the purpose of the research.

Whether or not sentences are too harsh will ultimately be decided by citizens who decide they are paying too much for the system. The payment is both monetary and personal. Harsh prosecution and sentencing requires a huge investment in government personnel. We may decide that we can tolerate a wider range of human behavior in order to save these resources.

Another determining factor in this change will be the percentage of the population that has had a personal adverse interaction with law enforcement or has had a family member or friend with such an experience. When people personally fear the power of the government they push back.

Posted by: beth | Apr 14, 2010 12:29:26 PM

beth --

"...we don't really know the percentage of `abusive investigation, abusive agent, abusive prosecutor, or abusive prosecution."

What would you say the percentage is of fully honest, forthcoming and candid defenses?

"Whether or not sentences are too harsh will ultimately be decided by citizens who decide they are paying too much for the system."

The harshest of sentences, the death penalty, enjoys the same support now it did five and ten years ago, even though it has become more expensive and its expense is far more widely known. A large majority supports the ever-so-costly death penalty, and, according to Gallup, half the people think it's not used often enough.

One might also say that whether sentences are too lenient will be decided by citizens who don't like the fact that their house got burglarized by a recidivist released last week to "save on bedspace."

"Another determining factor in this change will be the percentage of the population that has had a personal adverse interaction with law enforcement or has had a family member or friend with such an experience. When people personally fear the power of the government they push back."

A few weeks ago, some fellow who had a major beef with the IRS because of "a personal adverse interaction" (to wit, they wanted him to pay his taxes) engaged in some "push back," that being murder.

Do you think maybe we'd be better off with a little more law-abiding behavior and a little less such "push back?"

Posted by: Bill Otis | Apr 14, 2010 12:58:20 PM

works for me bill! OF COURSE i also REQUIRE the govt to OBEY THOSE SAME RULES....

Posted by: rodsmith | Apr 14, 2010 1:09:35 PM

Very good points - Of course no one wants to be stolen from, mugged,or murdered.

I just believe that people weigh the cost of government against what the government does for them. Perhaps there will be a tipping point. We do want law enforcement to protect us, but there has always been a line drawn somewhere on the continuum between a mortal danger and mere discomfort.

rodsmith's point may be that tipping point comes when fear of government is greater than fear of being harmed by others. I really don't know were that is, but it will be determined at the ballot box if we are lucky.

Posted by: beth | Apr 14, 2010 2:53:36 PM

thanks beth but you might want to check. the u.s. supreme court has alrady ruled americans dont' have a legal right to protection by the police. so that one is a wash.

as for a tipping point i'm both afraid and sad to say we hit that point YEARS ago The REAL criminals are too intrenched and in control of our govt and govt infrastructure. we're heading down the side of the hill for the CRASH at the bottom now the only question is how bad that crash is going to be.

Posted by: rodsmith | Apr 15, 2010 12:46:10 PM

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