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March 30, 2012

Interesting appeal by federal prosecutors of interesting white-collar sentence

This local press report, headlined "U.S. appeals sentence of Michael Peppel, former MCSi executive," reports on federal prosecutors' decision to appeal an interest white-collar sentence that gave a maximum fine but minimum jail time to a corporate criminal.  Here are the basic details: 

Federal prosecutors are challenging the seven-day jail sentence given last year to Michael E. Peppel, former top executive of MCSi Inc., for his guilty pleas to felony crimes related to the company’s 2003 collapse and insolvency.

Peppel’s sentence failed to reflect the seriousness of his offenses, provide just punishment, promote respect for the law or send a message of deterrence for those who would commit similar crimes, U.S. Attorney Carter Stewart argued in his written arguments filed with the 6th U.S. Circuit Court of Appeals on Tuesday.

Stewart asked the Cincinnati-based appeals court to throw out the seven-day punishment and order resentencing by U.S. District Judge Sandra Beckwith, who sentenced Peppel on Oct. 24....  Peppel was also fined the legal maximum of $5 million, must disclose his criminal record to all employers, must submit to random drug testing and must do community service, according to his sentencing terms.  He has already served his seven days behind bars.

His lawyer, Ralph Kohnen, said the defense will fight efforts to impose a longer term of incarceration on Peppel, who was MCSi’s president and chief executive officer. “The government’s decision was unfortunate,” Kohnen said Thursday. “Judge Beckwith’s sentence was thoughtful and appropriate. Her sentence was just, proper and fair.”

Under a court-approved agreement that took effect this month, Peppel has committed to pay $3,000 per month toward his $5 million fine.  At that rate, it would take him 50 years to pay $1.8 million of the fine and 100 years to have paid $3.6 million of it.

Peppel, 44, avoided trial in August 2010 by pleading guilty to willful false certification of a financial report by a corporate officer; money laundering, and conspiracy to commit securities fraud. He could have faced up to 50 years in prison. The government said his crimes helped sink MCSi, a Kettering-based computer and audiovisual equipment company. Its failure cost 1,300 employees their jobs, benefits and retirement income and left investors holding worthless stock.

Beckwith initially determined that, under federal sentencing guidelines, a prison term for Peppel of eight to 10 years would be appropriate.   But after the defense presented 113 letters of support from Peppel’s family and friends, and argued that he had already been publicly humiliated and agreed to a lifetime ban on his ever serving again as a corporate chief executive, the judge imposed the seven-day jail term. Beckwith said she does not believe Peppel is likely to repeat his crimes and does not represent a threat to the public.

For a variety of reasons, in cases like this in which there appears to be no threat to public safety, I see as quite reasonable a judge's decision to impose a huge fine (which makes a defendant essentially an indentured servant to federal taxpayers for life) rather than requiring a lengthy prison term (which requires federal taxpayers to pay for a defendant's room-and-board while he catches up on reading at Club Fed).  But, obviously, federal prosecutors have a different view and I will be very interested to see how this appeal ends up playing out in the Sixth Circuit.

March 30, 2012 at 10:38 AM | Permalink


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$3K / month is pretty stiff considering he maybe won't land a paying job like he had...
The 7 days in jail, seems rather a joke to me... His range was 8-10 yrs...They gave him the max fine, doesn't mean he gets the minimum jail term...I would think 18-36 months, would be a very long time for a softy like this guy...

Posted by: Midwest Guy | Mar 30, 2012 2:28:20 PM

"Club Fed" doesn't exist. Many cop shows perpetuate this myth about golf courses inside of prisons along with omelet days, broadband internet in the cells, etc. That is unfortunate, because in my opinion, part of the reason of the escalation of prison time is based upon that myth.

Now, obviously many of these offenders will serve in less-restrictive atmospheres, but that is because the inmates are NOT prone to violence. But the reality is they DON'T have amenities that most prisoners in Supermax don't get. They do NOT work in prison jobs related to their profession that got them in trouble in the first place.

Douglas, please make sure you don't pass on this myth, even inadvertently, unless used in an obviously humorous manner.

Here is a link to an article: http://www.sptimes.com/2005/05/07/Hillsborough/_Club_Fed__or_real_ha.shtml

Posted by: Eric Knight | Mar 30, 2012 2:47:21 PM

Eric, you are spot on...I think when Egland Air Force base (Florioda) was converted to a
a fed facility, it was "the club Fed"...Golf coarse, pool, long leisurely walks etc.

I think curb side consults with their wives, as long as kept 1 foot was on the curb..

Time served for federal sentences is roughly 2-5 times longer than state sentences of a similar nature...Federal is highly structured and offers very little for higher training.
They have abandoned it...In favor of serving 87.2% of their sentence...Many serve more
with the unrulely drudgery type day they have...Most come back from failing supervised release...Its government what can I say...We need to vote all of Congress out of Office say, 3-4 election yrs.. Maybe by then they will wake up that we want out country back.
Those dummies can't even come up with a budget, much less handle changes to the guidelines.

Posted by: Midwest Guy | Mar 30, 2012 3:48:46 PM

My earlier point about my comment regarding "Club Fed" is because I believe that sentencing has been compromised because of the public's continuing belief that white collar criminals are essentially living like kings. It's one thing to base incarceration on the crime, but to base it upon public perception is quite another. Indeed, there are stories about how with collar criminals were EXPECTING those luxuries; once they were interred, they realized that even they were fooled.

Posted by: Eric Knight | Mar 30, 2012 6:29:15 PM

Doug, a "huge fine"? It's $3,000 a month until he dies, not really $5 million. $36,000 times 34 years [44 until life expectancy of 78] = $1,224,000.
Even if he's not a threat to the public that's not what he deserves for willful false certification of a financial report by a corporate officer, money laundering, conspiracy to commit securities fraud, bankrupting a company, costing 1,300 employees their jobs, benefits and retirement income and left investors holding worthless stock.
I'm fine with my tax $ being spent to keep in prison.

Posted by: Paul | Mar 30, 2012 8:29:50 PM

Sentence makes a mockery of federal guideline sentencing factors that are the foundation for the harsh federal sentences imposed by the federal courts. Paying a fine is addition, not a replacement, to the sentencing guidelines for incarceration "punishment" under the federal system.

There is no "club fed"; I know becasue I served time at Lompoc federal prison camp where Barhara Walters first coined the phrase 'club fed' after Watergate. FPC is prison with no fences. Privelges are taken and given on the same grounds as at all prisons -- by the Warden and the guards.

Social security benefits are suspended so indigent inmates famalies are deprived of any support while in federal prison. There is no education provided and the libraries are a joke and the medical care is a joke. Believe me, prison is 'punishment' whether it is a camp or medium facility.

Posted by: Charles J. Sigerseth | Mar 31, 2012 11:35:54 AM

From reviewing the Government's 6CCA brief, Peppel during the run-up to a public offering of his company's stock engaged in accounting fraud to conceal the true financial condition of his company. According to the Brief, the company was able to sell four plus million
shares of its stock, and Peppel was able to sell 300,000 shares of his personally owned stock. The company received $107 million from the sale of its stock, and Peppel, after deductions for underwriter’s fees, received approximately $6.5 million from the sale of his 300,000 shares of stock, allowing him to clear approximately $3.2 million after paying off a loan he had taken out to purchase those 300,000 shares.

This fraud resulted in a loss of $18.0 million to the general investing public. Additionally the investors who bought Peppel's stock for $6.5m found their stock to be worth only $150,000.00.

Seven days is not enough.

In addition to these specific losses and the ones referenced in the article, this fraud and the token sentence harmed the financial markets. Investors, before they will invest, must have confidence that the markets are robustly supervised to ferret out cheats and that any cheats found will be aggressively prosecuted and punished. Otherwise why would anyone be foolish enough to invest? Is 7 days enough to inspire confidence?

Much has been made by some here about the decline in generic street crime over the last 30 years. I have agreed that there has been a decline, but have pointed out the crime rates 30 years ago were very low to start with.

But what has happened during the same period of time has been a systematic decline in the regulation and supervision of the financial markets with a distinct decline in criminal prosecutions of accounting frauds since the S&L frauds. This has been driven by ideological and bogus economic arguments that completely ignore how cheats defraud the investing public, their employees, their trade creditors, their lenders, and the taxing authorities.

Posted by: Fred | Apr 1, 2012 2:36:06 PM

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