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January 29, 2013

Should status as sitting state justice be an aggravating sentencing factor under 3553(a)?

The question in the title of this post is prompted by this local report on a federal plea deal put together in a high-profile federal prosecution in Michigan. The article is headlined "Former Michigan Supreme Court Justice Diane Hathaway pleads guilty to felony bank fraud," and here is the backstory:

Retired Michigan Supreme Court Justice Diane Hathaway pleaded guilty to felony bank fraud today and is expected to be sentenced on May 28. Hathaway stood quietly at a podium in U.S District Court in Ann Arbor this morning, acknowledging she intentionally defrauded a federally insured financial institution with the short sale of her Grosse Pointe Park home.

According to an agreement negotiated with the U.S. Attorney’s Office, her punishment is limited to up to 18 months behind bars or could be as little as 4-10 months if a pre-sentence report determines there was no actual financial loss. Hathaway also could receive a sentece of 3-5 years of supervised release, be fined up to $30,000 and pay restitution of up to $90,000, according to the agreement. She waived her right to appeal the case after sentencing....

Hathaway’s only “no” response came when O’Meara asked her about using her position as a Michigan Supreme Court judge as part of the scheme. “Did you use your status as a public employee in your attempt to defraud?” O’Meara asked her. “No,” she responded.

Hathaway was charged Jan. 18 with one count of bank fraud after investigators said she moved ownership of property in Florida to relatives so she could qualify for the short sale. Hathaway allegedly told financial institution ING Direct she could no longer afford the house payments on the Michigan home. In a civil filing in November, the U.S. Justice Department accused Hathaway and her husband, attorney Michael Kingsley, of fraudulently concealing their net worth.

The short sale in Michigan allowed the couple to erase nearly $600,000 in mortgage debt on the $1.5-million Grosse Pointe Park home on Lakeview Court, which eventually sold for $850,000. The debt-free Windermere, Fla., home then went back into their names. Hathaway’s attorney, Steve Fishman, said outside the courthouse that ING Direct is claiming they lost far less than the mortgage debt erased by the short sale.

"It's important for people to know that now we're down to the actual loss as calculated by ING ... and they're saying it's between $40,000 and $90,000," Fishman said, pointing out Hathaway could have just walked away from the home altogether. "I say the loss is nothing ... because the bank netted probably in the vicinity of $150,000 more from the fact that there was a short sale than if it had been a foreclosure and a sheriff's sale. And that will be part of the discussion when we come back for sentencing."

Hathaway left the bench after announcing the decision to retire Jan. 7 after the Judicial Tenure Commission filed a complaint and sought her immediate suspension. The commission alleged she committed "blatant and brazen" misconduct violations in connection with private real estate transactions.

As federal sentencing practitioners know well, the key federal sentencing statute requires a sentencing judge to consider "the nature and circumstances of the offense and the history and characteristics of the defendant." Though it appears there may be some dispute over the details of the offense here, there is no dispute that the defendant was a sitting Michigan Supreme Court Justice at the time of her offense.

If the defendant here had used her official position to facilitate the offense, there is little doubt that her status would be an aggravating factor (and the guidelines themselves include an upward adjustment on this basis). But the question prompted by this story and the title of this post is whether her status ought to be considered an aggravating sentencing factor even though it apparently played no role in her crime.

January 29, 2013 at 07:09 PM | Permalink

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Comments

The crime is not quite spelled out here. If the bank lost less money for her actions than if she let the house go through foreclosure then what is the crime?

Posted by: OldFart | Jan 29, 2013 8:35:38 PM

If she did not use her judicial position , then it should be ignored .

Posted by: Anon. #2.71828 | Jan 29, 2013 11:27:28 PM

She is totally getting off easy. The feds agreed to drop a forfeiture case. The family, which participated in this scheme, gets to walk. The IRS isn't being made whole.

The DOJ couldn't ignore this, but it's going pretty easy on a fellow Dem. Surprise, surprise.

Posted by: federalist | Jan 30, 2013 12:20:48 AM

Feminist. Member of lawyer hierarchy. A crypto-Commie Democrat. Totally detestable pro-evil, disgusting person. Needs arrest and trial for treason, the lash, then the death penalty.

Yet, this appears to be a trivial, collateral corruption. It should not even be prosecuted. If any damage can be shown, it should be pursued in torts. The bank appears to have benefited. One cannot have a crime resulting in a net benefit to the victim, except in the upside down,, Twilight Zone, Eye of the Beholder episode world of the lawyer traitor to our country. The prosecutor should be fired.

Her real crimes were contained in her decisions on the bench. She now has a deeper understanding the lawyer gotcha game of the Inquisition 2.0 that she conducted against the productive male and his corporations.

Posted by: Supremacy Claus | Jan 30, 2013 6:22:26 AM

The crime appears to be lying to the bank about her assets/financial situation in order to "get something" from the bank.
If the lie was on the application for the mortgage (lying about income/assets) it might be easier to see that it was wrong. The bank might be lending money to someone who they believed was qualified, but in truth, they were not.
But it is also correct that Hathaway could have just "walked away" from the mortgage and let it go through foreclosure. It is unknown if a foreclosure would have affected her position as a judge.
I used to do short sales on behalf of a private mortgage insurance company, and we would encourage borrowers to cooperate on short sales (they didn't have to)--because having the borrower sell the house for a reduced rate (below what they owe) would save us money in the long run over foreclosing on an underwater house and then having to sell it as a vacant, uncared for, property.

Posted by: folly | Jan 30, 2013 8:51:28 AM

folly --

Do you think it might be better if (1) people bought only houses they could afford, (2) paid the debts they incur, and (3) tell the truth on their mortgage application forms whether or not anyone later gets hurt by their lying?

Posted by: Bill Otis | Jan 30, 2013 12:56:53 PM

By transferrng property she lied about having fewer assets, no morre assetss on which to qualify for a biigger loan. Her abiliy to repay was greater than indicated on thee application. Her lie is a benefit to the victim.

One has to suspect her rigorous prosecution is from the desire for fame, or to retaliate for prior adverse decisions to the prosecution. Both aims would be improper motives subject to discovery by forensic analysis of government computers.

I want fairness credit from the feminists for this suggestion in defense of the feminist.

Posted by: Supremacy Claus | Jan 30, 2013 2:17:59 PM

To get back to the question, I would argue that a public official, especially a judge, who commits a crime should have their offical status treated as a potential reason for an upward departure.

When a person in position of trust commits a crime (especially someone in a position requiring them to make sure that the laws are follwed) that tends to send a message that they think that their position makes them above the law and further that those running the system are crooked. As such, it is appropriate to treat that position as a reason for a higher sentence to make it clear that the system is not protecting its own members when they get in trouble.

Posted by: tmm | Jan 30, 2013 3:52:42 PM

tmm nailed it...

Posted by: MidWestGuy | Jan 30, 2013 5:17:31 PM

I agree with tmm and MidWestGuy.

Posted by: Bill Otis | Jan 30, 2013 10:13:23 PM

In this case, a privileged Democrat is getting a slap on the wrist from Holder's corrupt DOJ.

Posted by: federalist | Jan 31, 2013 12:09:38 AM

To those who support an upward departure for the status of judge, please tell us how that enhances public safety, as opposed to lawyer gotcha in paper shuffling. Please include the benefit to the victim from the defendant's act.

Posted by: Supremacy Claus | Jan 31, 2013 6:59:55 AM

RE: question from Bill: you may be able to afford a house when you buy it--but circumstances change (loss of job, disability, etc.) You were truthful to the bank at the time of application.
RE: debt--certainly there is the understanding that you should pay a debt that is incurred---however, again circumstances can change---that is part of why we have bankruptcy relief. There is nothing wrong with trying to negotiate your debt with a creditor--however, there is also the impetus to be truthful about your situation. And finally, when applying for a loan from a federally insured bank, I'm certain there's language on the application that expects you to be truthful. When asking for Relief as Hathaway did, there may not have been specific language that expects truthfulness (at the time I did short sales, I accepted handwritten letters of explanation--but this was in the early 90's).

When looking at the language for bank fraud:
18 USC 1344
Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

It would seem that the actions of stating that you are in hardship in order to induce a short sale would arguably fit within the definition. We did often assist people (via the PMI) with selling a property, but would often take back a note for all or part of the difference if we could see that they had assets (such as the Florida house she hid) that would support taking a note. Again, having a truthful picture was important, just like at loan application.

But as far as enhancing the sentence--not so sure I would. The loss of the job, the public disgrace, etc. is already part of the punishment.

Posted by: folly | Jan 31, 2013 10:50:16 AM

folly --

Thanks for your answer. All I would say for now is that adults full well know that circumstances can change for the worse (life is chock full of such things) and therefore must, if responsible, take this uniform fact into account when asking for a loan.

My father taught me that if you borrow money, you pay it back. Once we start making and indulging exuses, they will spread like wildfire, and bankruptcy "relief" will become the endemic form of stiffing your creditors. This is exactly what happened in the housing crisis. People by the zillions bought fancy houses they knew or should have known they couldn't afford, many by lying about their assets and pre-existing debt, and many others by making the childish assumption that the housing market only goes up. Of course any adult knows that it goes up and down, just as with any other aspect of the busincss cycle.

Posted by: Bill Otis | Jan 31, 2013 1:20:38 PM

'People by the zillions bought fancy houses they knew or should have known they couldn't afford...'

and by your logic the financial institutions shouldn't have any responsiblity for doing due diligence to verify these fictitious assets before lending the money in the first place... you sound like an apoligist rooting for the very financial institutions who should have know better than the applicants to not let out those loans in the first place and betting on windfall profits over common sense

Posted by: Fred | Jan 31, 2013 6:39:27 PM

This is what I call a paperwork crime and I don't think too much of paperwork crimes. As Fred has pointed out, most paperwork crimes are designed to dissolve businesses from the trouble of doing their due diligence.

However, given that it is a crime, I do agree with tmm and others that her status as judge should count. The maxim I was raised with is that with great power comes great responsibility and the corollary is that those who abuse such power should take on greater punishments.

Posted by: Daniel | Jan 31, 2013 8:40:26 PM

Fred --

Pure nonsense. That I hold dishonest and foolhardy loan applicants responsible hardly commits me, as a matter of logic or anything else, to absolving the banks, which encouraged and abetted what the sleazy borrowers were doing. Do you think the banks' shoddy behavior excuses the titanic amount of lying done by the mortgage applicants?

Yes or no.

Posted by: Bill Otis | Feb 2, 2013 3:24:01 AM

"couldn't afford it"---the issue here is that Hathaway could afford it, but didn't want to make good on her loan.

But she'll have a bit of a soft landing. Holder's DOJ went pretty easy on that family.

Posted by: federalist | Feb 2, 2013 12:08:13 PM

As to the discussion up-thread about whether lenders or borrowers are more responsible for mortgage fraud, it needs to be understood that "mortgage fraud" is a generic term that covers a lot of factual territory. For instance, it can include the borrower who lies on his loan application but intends and often does make every mortgage payment.

Within the context of the Great Recession of 2008, the mortgage fraud was driven by structural changes in the business model of banks. Where before a bank would keep a loan on its balance sheet and make money by interest rate arbitrage, it now made money from fees from the origination of mortgages and then the sale of the mortgages into the securitization market. Because the mortgages did not remain on the originating bank's balance sheet, meaningful underwriting standards disappeared.

The top executives of the originating banks then took their profits in the form of bonuses based on the gross amount of mortgages originated rather than the quality of the mortgages. All that mattered was how many new mortgages could be originated.

So it's not one or the other as far as assessing blame. It took both corrupt borrowers and lenders.

But what is unacceptable is the complete lack of investigations and prosecutions of the lenders. There have always been corrupt borrowers. But before because the mortgages remained on the balance sheet of the originating lenders, the self-interest of the lenders and their use of rigorous underwriting standards keep corrupt borrowers under control. But with the change in the bank's business model, only robust supervision, regulation, and criminal investigation/prosecution can keep this from happening again.

Posted by: Fred 1 | Feb 4, 2013 11:20:21 AM

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