Monday, September 19, 2011
You make the (sentencing) call: does insider trading merit decades in prison?
This latest insider-trading installment of "You make the (sentencing) call" is prompted by this lengthy new piece from the New York Times, which is headlined "In Galleon Case, Prison Term Is Seen as Test." Here are excerpts:
Federal prosecutors want to send the convicted hedge fund chief Raj Rajaratnam to prison for as long as 24 years, which would be the longest insider trading sentence in history. How a judge rules next week on Mr. Rajaratnam’s punishment is being seen in legal circles as a litmus test of whether the crime of insider trading justifies such a long prison term.
In May, a jury convicted Mr. Rajaratnam, the head of the hedge fund the Galleon Group, of 14 counts of securities fraud and conspiracy. Prosecutors, calling him “the modern face of illegal insider trading,” placed him at the center of a vast insider trading ring, accusing him of using a global network of tipsters to gain about $64 million from illegal stock trading.
The question is whether such a sentence — longer than the average federal prison term for murder — is appropriate. “Given the magnitude of the crimes, it’s hard to feel any pity for him,” said Harlan J. Protass, a defense lawyer who teaches a sentencing class at the Benjamin N. Cardozo School of Law. “Still, there is a real question whether such a lengthy sentence is warranted for an insider trading offender.”...
Today, prison terms measured in decades are common for white-collar criminals. In 2005, Bernard J. Ebbers, the former chief executive of WorldCom, was sentenced to 25 years in prison for a huge accounting fraud. Earlier this year, Lee B. Farkas, a former mortgage company executive, received a 30-year term for his role in a fraud that the government says caused $2.9 billion in losses. On Monday, a federal judge in Miami sentenced Marianella Valera, a former mental health company executive, to 35 years in prison for her role in a $205 million fraud at American Therapeutic; a 50-year sentence was earlier imposed on her co-defendant, Lawrence Duran.
For Mr. Rajaratnam, the government has requested a sentence from 19 years and seven months to 24 years and five months, based on federal sentencing guidelines. The government said he did not deserve leniency because he was a “fundamentally deceptive and dishonest person” who had lied under oath in a deposition and had tried to cover up his crimes.
If Judge Richard J. Holwell of the Federal District Court in Manhattan issues such a sentence on Sept. 27, it will be the longest prison term ever for an insider trading crime. A recent study by Bloomberg News of 43 defendants sentenced in federal court in Manhattan for insider trading in the last eight years found that the longest sentence was 10 years, to a Credit Suisse banker convicted in 2008 of leading a $7.8 million scheme.
Mr. Rajaratnam’s lawyers call the proposed sentence “grotesquely severe” and argue that “the advisory guidelines severely overstate the seriousness of the instant offenses, and would expose Mr. Rajaratnam to a sentence grossly out of proportion to the sentences imposed on other insider trading defendants.”
They point out that the sentence is not only disproportionate to the sentences imposed in other insider trading cases, but also greater than the average federal sentence for murder (23 years), kidnapping (14 years) or sexual abuse (nine years), according to the United States Sentencing Commission.
His lawyers also criticize prosecutors for comparing Mr. Rajaratnam’s crimes to the accounting fraud committed by Mr. Ebbers of WorldCom and the Ponzi scheme run by Bernard L. Madoff. Those crimes “ruined the lives and livelihoods of scores of victims,” while Mr. Rajaratnam’s insider trading offenses victimized no one, his lawyers said.
Insider trading does not cause “the kinds of measurable losses to identifiable victims that conventional fraud causes,” Mr. Rajaratnam’s lawyers wrote in a court filing.
The government has countered that insider trading is not a victimless crime. “Rajaratnam betrayed Galleon’s investors, its employees, the counterparties to its trades, and the capital markets system upon which he built his wealth and success,” federal prosecutors said. The government also urged Judge Holwell to impose a long sentence on Mr. Rajaratnam “to send a strong and clear message that the time for illegal insider trading to end is now.”
In July, Judge Holwell sentenced Danielle Chiesi, a co-conspirator of Mr. Rajaratnam, to two and a half years in prison, which was less than the minimum three-year sentence requested by the government. Yet Ms. Chiesi pleaded guilty, whereas Mr. Rajaratnam fought the government’s charges and took his case to trial, a possible negative factor at sentencing.
Stuart P. Slotnick, a lawyer at Buchanan Ingersoll & Rooney in New York, predicts that Judge Holwell will impose a prison term of 12 to 15 years, which, while less than the government’s request, would still be a record insider trading sentence. That sentence, Mr. Slotnick said, in part reflects attitudes since the financial crisis. “There is a ‘Wall Street is bad’ mentality that permeates the culture,” he said. “It’s now in the social ether that financial crimes of whatever kind cause widespread damage and hurt everybody.”
Recent related posts:
- What insider trading sentence for Raj Rajaratnam would avoid "unwarranted" disparity?
- Brother of Raj Rajaratnam asks friends to write letters to judge urging leniency
- Sentencing debate joined for Raj Rajaratnam in high-profile insider trading case
- Lawyers spar in briefing before Rajaratnam's sentencing for insider trading
"Judge sends therapist to prison for 35 years in massive Medicare-fraud case"
The title of this post is the headline of this new piece in the Miami Herald reporting on the "other shoe" dropping in a record-setting white-collar federal sentencing. Here are the basics from the article:
A federal judge Monday issued another astonishing prison sentence in the nation’s biggest mental-health fraud case, sending a Miami therapist to prison for 35 years. Marianella Valera, 40, a naturalized U.S. citizen from Peru who ran Miami-based American Therapeutic Corp. with her boyfriend, received less time in prison than he did.
On Friday, Lawrence Duran, 49, a New York transplant, got 50 years as the mastermind of the massive Medicare-fraud scheme — accounting for more than $200 million in bogus billing to the taxpayer-funded program. [Previous blog coverage here.]
But in both instances, U.S. District Judge James Lawrence King gave out the longest prison sentences ever for a Medicare-fraud offender. Previously, the longest sentence was a 30-year term imposed in 2008 on a Miami physician convicted in an HIV-therapy scam. This year, Duran and Valera pleaded guilty to a variety of conspiracy, fraud and money-laundering charges after they failed to reach plea deals with the Justice Department.
Prosecutors had pushed for a 40-year sentencing, but Valera’s lawyer, Arthur Tifford, sought considerably less time. Justice Department lawyer Jennifer Saulino argued that Valera abused her “position of trust” as the licensed owner of American Therapeutic. Duran had registered the company in her name to disguise his past ownership of a similar mental-health company, which had carried a $2 million debt....
The couple’s company, with clinics stretching from Miami to Fort Lauderdale to Orlando, collected $87 million in Medicare payments after submitting $205 million in false claims. The couple paid kickbacks to recruiters to supply patients suffering from dementia, Alzheimer’s and addictions, but they could not have benefited from the company’s purported group therapy sessions....
A total of 34 people, including American Therapeutic employees, doctors, therapists, nurses and recruiters, have been charged in the ongoing fraud case, which is being investigated by the FBI and Health and Human Services-Office of Inspector General. This year, about a dozen defendants have pleaded guilty.
The underlying offense facts certainly suggest that American Therapeutic was involved in record-sized frauds. Still given that the loss amounts involved here are far below the losses in cases of mass financial fraud in which defendants have often received sentences of 25 years or far less — I am thinking of some of the usual suspects here (e.g., Bernie Ebbers, Jeff Skilling, Marc Dreier) — I find both notable and remarkable that these defendants (who pleaded guilty, unlike say Ebbers and Skilling) are now to due to spend decades more in prison for their offenses.
Especially in light of the Eleventh Circuit's apparent willingness to sometimes find sentences substantively unreasonable as too short (as evidenced by today's Padilla ruling), I wonder if there might still be some hope for these defendants if they appeal their sentences as unreasonably long.
Recent related post:
Saturday, September 17, 2011
Record-long 50-year prison sentence for Medicare fraud imposed in Florida
As detailed in this Miami Herald article, late yesterday a "federal judge socked a convicted Miami healthcare executive with a 50-year prison sentence, the longest term ever imposed on a Medicare fraud offender." Here are the notable details:
New York transplant Lawrence Duran once ran a multimillion-dollar mental health company in Miami, lobbied Congress for his industry and tooled around town in a Maserati. His next stop: federal prison — likely for the rest of his life.
On Friday, a federal judge slammed Duran, 49, with a 50-year prison sentence for orchestrating a staggering $205 million scam at his Miami-based chain of mental health clinics. The sentence may end up being the longest prison term ever imposed on someone convicted of Medicare fraud.
Duran’s lawyer, Lawrence Metsch, had urged the judge to be realistic and give him a sentence between 20 and 25 years, arguing that 50 years means a “death sentence because he would die in prison.” But the judge, after a three-day sentencing hearing, sided with the government’s push for the extraordinarily high sentence, saying there is a “critical need for deterrence against healthcare fraud” in South Florida, the nation’s capital of Medicare corruption.
Previously, the highest Medicare fraud sentence was 30 years — given in 2008 to a Miami physician, Ana Alvarez-Jacinto, convicted in an HIV-therapy scheme.
After the sentencing, Duran shook his lawyer’s hand and then smiled to tearful relatives, as he shuffled in shackles out of the courtroom escorted by U.S. marshals. His ex-wife, Carmen Duran, and his only sibling, Kenia Duran Ramirez, said the judge’s sentence was not a “fair assessment” of the former executive’s life, saying his work for the mentally ill was “not all bad.”
This year, Duran and his girlfriend, Marinella Valera, co-owners of American Therapeutic Corp., pleaded guilty to a variety of conspiracy, fraud and money-laundering charges after they failed to reach plea deals with the Justice Department.
Duran, in custody since his arrest last October, was probably his own worst enemy during the sentencing hearing. Although he showed remorse for running American Therapeutic as a criminal enterprise for eight years, he also admitted he tried to steal as much money as he could from the taxpayer-funded Medicare program.
His company collected $87 million in Medicare payments after submitting $205 million in bogus bills, which he generated by paying kickbacks to recruiters to supply patients suffering from dementia, Alzheimer’s and addictions. He admitted they could not have benefited from his company’s purported group therapy sessions. Justice Department attorney Jennifer Saulino called Duran a “cold, calculating man” who exploited both vulnerable patients and the government’s healthcare program for the elderly and disabled....
Duran’s girlfriend, Valera, 40, a therapist, is scheduled to be sentenced Monday. Prosecutors plan to urge the judge to give her a 40-year prison sentence. A total of 34 people, including American Therapeutic employees, doctors, therapists, nurses and recruiters, have been charged in the massive fraud case, which is being investigated by the FBI and Health and Human Services-Office of Inspector General.
September 17, 2011 in Booker in district courts, Federal Sentencing Guidelines, Purposes of Punishment and Sentencing, Scope of Imprisonment, White-collar sentencing | Permalink | Comments (2) | TrackBack
Friday, September 16, 2011
Eighth Circuit panel unanimously affirms Rubashkin federal convictions and lengthy prison sentence
The Eighth Circuit has handed down an opinion today in US v. Rubashkin, No. 10-2487 (8th Cir. Sept. 16, 2011) (available here), a high-profile white-collar case out of the heartland involving financial frauds at a kosher meat-packing plant. The panel has unanimously affirmed the Sholom Rubashkin's conviction and sentence; I have followed this case closely, in part because I helped file an amicus brief complaining about what I considered to be an unreasonable of 27-year (within-guideline) federal prison sentence for the defendant's offense conduct.
Though disappointed with the ruling here, I am not especially surprised given the Eighth Circuit's history in sentencing appeals. (That history, along with the frequency with which the Supreme Court has reviewed and reversed the Eighth Circuit's work since Booker, might well mean this case will get more appellate attention in the future). Here is an excerpt of the Rubashkin panel's sentencing discussion:
Rubashkin argues that his 324 month sentence was substantively unreasonable given his age, nonviolence, lack of criminal history, unlikelihood of recidivism, family obligations, and the principal motives for his acts,. We review the imposition of a sentence under "a deferential abuse-of-discretion standard." United States v. Hayes, 518 F.3d 989, 995 (8th Cir. 2008) (quoting Gall, 552 U.S. at 41). Sentences within the guideline range are presumed to be substantively reasonable. United States v. Robinson, 516 F.3d 716, 717 (8th Cir. 2008).
Not only was Rubashkin's sentence of 324 months within the guideline range, it was at the low end of it. Rubashkin argues that because of his past charitable acts and his family obligations he should have been granted a downward departure. These are the very characteristics that the district court properly took into account when considering the § 3353(a) factors. The court weighed Rubashkin's past charitable acts, nonviolence, and the needs of his family against his involvement in multiple fraudulent schemes and the millions of dollars in damage they caused. The cases Rubashkin cites in favor of his unreasonableness argument illustrate instances where downward departures based on charity or family needs have been affirmed. Nothing requires a sentencing court to depart on such grounds. Under all the circumstances the district court did not abuse its considerable discretion in imposing a 324 month sentence.
Related posts on the Rubashkin case:
- "More Former AGs Question Sentence Sought in Bank Fraud Case"
- Can and should religious considerations influence bail decisions?
- Federal sentencing hearing starting in high-profile Rubashkin white-collar case
- Federal prosecutors now seeking 25-year prison term for Rubashkin
- Kosher plant chief Sholom Rubashkin sentenced to 27 years imprisonment
- An appellate amicus brief in the Rubashkin case on sentencing issues
Wednesday, September 14, 2011
Early buzz that feds think Rod Blagojevich's guideline range is 30 years to life in prison
I am a bit skeptical of, though still quite intrigued by, this new story from the Chicago Sun-Times headlined "Feds say Rod Blagojevich could get 30 years to life in prison." Here are the basics:
Federal prosecutors argue Rod Blagojevich could serve 30 years to life in prison, sources say — a sentencing range that will be bitterly disputed by the former governor’s defense lawyers.
Blagojevich attorney Sheldon Sorosky called the government’s numbers “harsh and cruel,” Wednesday but said he wouldn’t discuss them. The prosecution’s calculation was submitted in private. Sorosky said the defense would put forth its own version that is a far cry from the government’s.
“We are preparing a submission to Judge Zagel, which is far, far, far under those draconian and harsh and cruel numbers,” Sorosky said. “We are making our own guideline calculation which is fair and based on facts and the evidence at trial.”
Blagojevich, 54, who is now scheduled to be sentenced Oct. 6, was convicted in June on 17 of 20 counts of corruption, including charges that he schemed to sell President Obama’s vacant U.S. Senate seat. Blagojevich was also convicted last year of one count of making false statements to the FBI....
U.S. District Judge James Zagel will have wide discretion over the former governor’s prison term, as sentencing guidelines for federal judges are advisory. Judges typically listen to all sides and then decide, based on a number of factors that make up the sentencing range....
“While that may be the government’s calculation, it’s good to keep in mind that Judge Zagel has ultimate discretion,” said Patrick Collins, a former prosecutor in the Ryan case. “I would be shocked if he would consider a sentence anywhere near that.”
In the prosecution’s calculations, the government says Blagojevich faces more time because he took the witness stand and allegedly obstructed justice, sources said. As governor, he was also leader of an enterprise, they will argue. The U.S. Attorney’s office had no comment.
Court filings involving Blagojevich’s sentencing are expected on Friday. Though his sentencing is set to begin Oct. 6, Sorosky has previously questioned whether it would begin on time since the same judge is set to begin the corruption trial of Springfield power broker William Cellini three days earlier.
It is not unusual for federal guideline sentencing ranges to go crazy high in white-collar cases in which a lot of money was lost or gained. But I cannot recall any political corruption cases in which the government ran the numbers to get such a high range. This press report may reflect the fact that the government's filing with the probation office suggested the potential applicability of lots of guidelines enhancements even if the PSR is unlikely to find all the enhancements applicable. Whatever the particulars, it seems we can and should expec the feds to be seeking some serious prison time for Blago.
Some related posts following Blago's convictions in June:
- "Jury Convicts Blagojevich"
- You make the sentencing call: What sentence should Blago get?
- Bold (and misguided?) prediction of 20-25 years in the federal pen for Blago
- Do would-be white-collar offenders actually "get the message" from long sentences?
Monday, September 12, 2011
Lawyers spar in briefing before Rajaratnam's sentencing for insider trading
This New York Times piece, headlined "Rajaratnam Lawyers Call Sentence Request ‘Grotesquely Severe’," reports on the last round of briefing before the scheduled sentencing of convicted trader Raj Rajaratnam. Here are some details:
Federal prosecutors and lawyers for Raj Rajaratnam filed their second round of sentencing briefs on Friday, setting the stage for later this month when a federal judge will announce the former hedge fund manager’s prison term.
Mr. Rajaratnam is set to appear before Judge Richard J. Holwell in Federal District Court in Manhattan on Sept. 27. The government has requested a term of 19 and a half to 24 and a half years. “Rajaratnam is arguably the most egregious offender of the insider trading laws prosecuted to date,” federal prosecutors said in their court filing.
Defense lawyers said the government is overreaching by requesting a “grotesquely severe” sentence. “The government asks the court to ignore Raj Rajaratnam the human being and to sentence a caricature instead,” Mr. Rajaratnam’s lawyers said. “This court’s role is not to validate a prosecutorial public relations effort, nor is it to single out one man to serve as the whipping boy for Wall Street misdeeds.”
In May, a jury convicted Mr. Rajaratnam, the co-founder of the Galleon Group hedge fund. He was found guilty of generating illegal gains of $64 million by trading on confidential information about publicly traded companies including Intel and Goldman Sachs.
Mr. Rajaratnam’s lawyers at Akin Gump Strauss Hauer & Feld made several arguments in asking Judge Holwell for leniency. They said that the illegal trades in question accounted for only 1 percent of his trading activity. They argue that the sentence is disproportionate to the sentences imposed in other insider trading cases, and greater than the average sentence for violent crimes, including kidnapping and sexual abuse. They also insist that the government’s requested sentence “would guarantee Mr. Rajaratnam’s death in prison” because of the 54-year-old’s medical issues.
The government urged Judge Holwell to reject the arguments presented by Mr. Rajaratnam’s lawyers. On the issue of the Mr. Rajaratnam’s health, the government challenged the defense to disclose exactly what medical issues would justify a lenient sentence.
I found the defense reply sentencing memo, which runs more than 50 pages, available at this link. I cannot yet find a link to the Government's filing.
A Fifth Circuit reminder that not all federal defendants like the guidelines being merely advisory
One (of many) under-discussed aspects of the post-Booker system is that, in percentage terms, the number of above-guideline sentences have gone up more than the number of below-guideline sentences since the guidelines became adviosry. Roughly speaking, though the number of below-guideline sentences have increased about 50% post-Booker, the number of above-guideline sentences have increased nearly 100% post-Booker.
Though the absolute number of above-guideline sentences remain relatively small, the decision late last week from the Fifth Circuit in US v. Pizzolato, No. 10-30729 (5th Cir. Sept. 9, 2011) (available here), provides a useful reminder that not all federal defendants benefit from the guidelines now being merely advisory. Here is how the Pizzolato opinion starts:
Defendant-Appellant Matthew B. Pizzolato pleaded guilty to multiple crimes related to his conduct in running a fraudulent “Ponzi” scheme. The plea agreement recommended an applicable sentencing range of 151 to 188 months under the Federal Sentencing Guidelines (the “Guidelines”). The district court disregarded the plea agreement’s recommendation and imposed the statutory maximum sentence of 360 months. Appellant argues that the Government breached the plea agreement by providing the district court with facts and arguments supporting a longer sentence than the parties agreed upon. We find no merit to defendant’s arguments and affirm.
September 12, 2011 in Booker in district courts, Booker in the Circuits, Federal Sentencing Guidelines, Procedure and Proof at Sentencing, Scope of Imprisonment, White-collar sentencing | Permalink | Comments (2) | TrackBack
Saturday, September 10, 2011
Record-long (but way below guideline) prison sentence for crooked Mass politician
As detailed in this Boston Globe article, headlined "Disgraced DiMasi is given 8 years; Judge calls former speaker’s fall from grace a ‘dream corrupted’," a high-profile defendants got a lengthy (but way below guideline) prison term in federal court yesterday. Here are the details:
Former Massachusetts House speaker Salvatore F. DiMasi was sentenced yesterday to eight years in federal prison for his conviction on political corruption charges, the longest federal sentence handed out to an elected official in Massachusetts history, climaxing a years-long scandal that had captivated the state’s political establishment.
DiMasi’s codefendant, Richard McDonough, a well-known State House lobbyist, was sentenced to seven years in prison for taking part in the conspiracy to help a software company win state contracts in exchange for kickbacks.
US District Court Chief Judge Mark L. Wolf called the sentence appropriate, saying he balanced the ages of both men, 66, and consideration for their families, against the fact that they had betrayed the public’s trust by orchestrating the criminal scheme....
Wolf asked that the Federal Bureau of Prisons send DiMasi to Fort Devens, allowing him to remain close to his wife, who is fighting breast cancer. DiMasi must serve two years of probation upon his release from prison and forfeit $65,000, the amount of money he directly received in the scheme. McDonough must also serve two years of probation, forfeit the $250,000 he received, and pay a $50,000 fine.
Both men must report to prison by noon Nov. 16, although the judge is still considering whether they should be allowed to remain free pending an appeal.
Wolf’s sentence fell far below the sentencing guidelines he had calculated on Thursday, which allowed for DiMasi to be sentenced to 19 to 24 years and McDonough to 15 years. But the judge -- indicating from the beginning that he would not go as far as the guidelines allowed -- also said he believes the sentence, which is longer than many issued in comparable cases, could serve as a deterrent to those seeking to sell their public office.
"Corruption has very real victims, generally, and in this case," the judge said. "I find the [sentence] is sufficient, but no longer than necessary, to send the message" against corruption.
Prosecutors had asked that DiMasi serve 12 to 15 years in prison and McDonough 10 years, while defense lawyers say both men should have to serve no more than three years in prison.
I always find notable in cases like this how one might "spin" the sentence imposed. I suspect the defense could complain that this 8-year-term is essentially life sentence for both DiMasi and his ill wife; the prosecution could complain that a sentence so far below the guideline range fails to send a strong enough message against political corruption. (Perhaps valuably, I do not think either spin would make a strong basis for a reasonableness appeal of this sentence to the First Circuit.)
Tuesday, September 06, 2011
"OSU book thief sentenced to probation and restitution"
Because this new piece from the Columbus Dispatch, which has the same headline as this post, strikes very "close to home," I am not going to comment on the substance of this notable story of crime and punishment. But, especially because I am pretty sure I never met the now-sentenced former-OSU-law student, I am interested in reader reactions:
A former Ohio State University student avoided prison today but likely has forfeited his future as a lawyer for stealing books from the Moritz College of Law.
In a deal that allowed him to escape jail time, Christopher B. Valdes, 24, formerly of the University District but now living with his mother in Florida, was placed on five years of probation and ordered to pay $34,619.88 in restitution for books he sold online. As of this morning, Valdes has paid back $19,450.
Valdes also agreed that he “will not have or pursue employment or education in the field of law,” according to the details of his guilty plea in Franklin County Common Pleas Court.
Assistant Prosecutor John Litle said the ban on law school and practice is in place only for the five years of probation. But Valdes would have to pass character and fitness requirements to become a lawyer. “As a practical matter ... it’s unlikely that he can do that” because of the felony conviction, Litle said.
Valdes had been indicted on a fourth-degree felony count of theft that could have landed him in prison for up to 18 months. He pleaded guilty in June to a lesser fifth-degree felony punishable by up to a year in prison.
Valdes, who is no longer a student at Ohio State, was accused by campus police of stealing more than 200 books between November 2009 and last October after advertising them for sale online. Officers learned of the thefts in August 2010, when the university received an e-mail from a Brazilian lawyer who had bought a volume online and found a crossed-out OSU ink stamp on its inside front cover, according to court documents.
A check confirmed that the title had vanished from the shelves. Valdes was arrested after police set up a sting involving a hidden camera and a marked book.
September 6, 2011 in Collateral consequences, Criminal Sentences Alternatives, New USSC crack guidelines and report, Offender Characteristics, Offense Characteristics, White-collar sentencing | Permalink | Comments (2) | TrackBack
Wednesday, August 31, 2011
News and notes on the sentencing of Galleon insider traders
The new Bloomberg article, which is headlined "Ex-Galleon Trader Drimal Sentenced to 5 ½ Year Term for Insider Trading," reports not only on today's high-profile white-collar federal sentencing but also on related sentencings past and future. Here are the highlights:
Former Galleon Group LLC hedge fund trader Craig Drimal, who admitted taking part in an insider-trading scheme that stretched from technology firms to pharmaceutical companies, was sentenced to 5-1/2 years in prison.
Drimal, 55, pleaded guilty in April to six counts of conspiracy and securities fraud, admitting that he and others at Galleon traded on inside information obtained from lawyers working on transactions involving 3Com Corp. and Axcan Pharma Inc. Drimal said the tips came from Arthur Cutillo and Brien Santarlas, lawyers at Boston-based Ropes & Gray LLP....
Prosecutors had asked Sullivan, who handed down the 66-month term today in Manhattan, to sentence Drimal within federal guidelines, which Sullivan said call for a sentence of 57 to 71 months. Drimal asked for a sentence below the guideline range. In addition to the prison sentence, Sullivan ordered Drimal to forfeit $11 million and to serve three years of supervised release.
Cutillo, who pleaded guilty in January, was sentenced to 30 months in prison in June. Santarlas, who pleaded guilty and testified at the Goffer trial, hasn’t been sentenced....
Drimal met with government representatives after Federal Bureau of Investigation agents approached him before his arrest in November 2009 and sought his cooperation, the government said. Drimal then contacted former Galleon Group trader Zvi Goffer and told him about the probe, against instructions, prosecutors said. Drimal also lied to SEC personnel in July 2008 when they interviewed him about the reason why he bought Axcan stock, prosecutors said.
Goffer was convicted of all 14 counts against him in June, in the second trial of defendants charged in a nationwide investigation of insider trading at hedge funds. In a sentencing memorandum filed today, Goffer told a judge he’s a changed man and asked to be sentenced to less than the 10 years in prison called for under U.S. sentencing guidelines....
Goffer’s former boss, Galleon Group co-founder Raj Rajaratnam, was convicted of insider trading in May. Prosecutors are seeking a sentence of more than 24 years when Rajaratnam is sentenced Sept. 27.
Friday, August 26, 2011
Feds seeking (within-guideline) sentence of 70-80 months for high-profile insider trader
As detailed in this Bloomberg piece, "Craig Drimal, the former Galleon Group LLC trader who pleaded guilty to insider-trading charges, should get a prison term of 70 to 80 months, which is within federal sentencing guidelines, the U.S. said in a court filing." Here is more about this high-profile white-collar case, which is scheduled for sentencing next week:
Drimal, 55, pleaded guilty in April in federal court in New York charges of conspiracy and securities fraud. Drimal admitted that he and others at Galleon traded on inside information obtained from lawyers working on transactions involving 3Com Corp. and Axcan Pharma Inc. in 2007. Drimal said the information was obtained from Arthur Cutillo and Brien Santarlas, lawyers at Boston-based Ropes & Gray LLP.
Drimal has suggested that the court impose community service or home confinement in lieu of a “substantial” prison term, prosecutors said. The request should be denied in order to send a “strong message of deterrence to others in the hedge fund community” and because the “nature and extent of his criminal conduct doesn’t warrant community service,” prosecutors said.
“Drimal has no excuse for his illegal conduct,” prosecutors said in the sentencing memo, which was filed yesterday. “He grew up in a stable, loving family with no financial difficulties. He is a college graduate. He has a loving and supportive family. He fully understood that insider trading was illegal and yet repeatedly disregarded the law to make a lot of money.”...
Drimal’s attorney, Jane Anne Murray, said she filed a memorandum last week asking the judge impose a sentence below the federal guidelines. “We’re not surprised by their position; it’s been consistent,” Murray said in a phone interview. “We disagree with the government on a number of issues including the applicable guidelines. And we’re seeking a sentence that is substantially lower than the one the government is seeking.”
Thursday, August 25, 2011
Sixth Circuit affirms 30-year sentence for CEO responsible for losses of over $2 billion
A notable white-collar appeal was resolved by the Sixth Circuit today via a lengthy opinion in US v. Poulsen, No. 08-4218 (6th Cir. Aug. 25, 2011) (available here). Most of the 30-page opinion is about trial issues, though there is some notable discussion of loss calculations toward the end of the opinion. In addition, this sharp paragraph at the very end of the opinion explains the panel's rejection of the defendant's substantive unreasonableness claim concerning his 30-year prison term:
Finally, Poulsen argues that his sentence was substantively unreasonable because the district court failed to properly consider unwarranted sentencing disparities. Poulsen submits that he should not have been compared to the CEOs of infamous companies such as WorldCom and Enron. He asserts that every defendant should receive an individualized assessment based upon the specific facts of his particular case. Conversely, Poulsen cites a number of sentences given to those whom he refers to as “the most notorious financial fraudsters in corporate America.” These defendants received shorter sentences for similar crimes. Poulsen inconsistently argues that he deserved individualized treatment and then compares himself to other corporate offenders. Poulsen presents no coherent argument as to why his sentence is substantively unreasonable. We affirm the district court’s sentence in all respects.
Monday, August 22, 2011
Former drug chain CEO gets 3-year (way-below-guideline) prison term
This Bloomberg news report, headlined "Ex-Duane Reade CEO Cuti Gets Three Years in Prison for Inflating Earnings," can be spun lots of different ways because the white-collar defendant received a significant, but way-below-guideline, prison term for corporate fraud. Here are the interesting details:
Former Duane Reade Inc. Chief Executive Officer Anthony Cuti was sentenced to three years in prison for falsely inflating income and misleading investors. Cuti, 65, of Saddle River, New Jersey, was convicted in June 2010 of conspiracy and securities fraud after a federal jury trial in Manhattan. U.S. District Judge Deborah Batts also ordered Cuti today to pay a $5 million fine.
Batts called Cuti “a gifted, arrogant, driven, entitled individual” who “bullied people into committing fraudulent acts to make the company look better than it actually was” to increase his pay.
Batts said Cuti was also guilty of “the height of hubris” for re-writing his employee compensation plan that would allow him to double his compensation even if he was fired for cause, which later occurred, she said.
Cuti didn’t admit any wrongdoing when he spoke in court before the sentence was imposed. “I’ve always led my life with integrity,” Cuti said as his wife, adult daughter and brother sat in the courtroom.... “I always thought I acted for the shareholders first and foremost,” he said. “I’d like to say I’ve had a good career. It was a good run. The conviction is so at odds with what I’ve tried to be.”
Cuti’s lawyer, Reid Weingarten, today asked Batts to impose no jail time and allow his client to remain free to perform public service. “It will be devastating if he’s sent away,” he said. “He was not a guy motivated by greed and driven to line his pockets,” said Weingarten. Investors weren’t harmed, he argued, saying they’d profited from Cuti’s transformation of Duane Reade from “a sleepy nearly-bankrupt drug store on a Manhattan street corner to being a force to be reckoned with.”
Former Duane Reade Chief Financial Officer William Tennant, who was tried with Cuti and convicted of one count of securities fraud, is scheduled to be sentenced Aug. 29. The U.S. said both men engaged in a scheme to falsely increase revenue and lower expenses from 2000 to 2005.
U.S. Probation Department officials calculated that Cuti had faced a term from 17 1/2 years to as long as 21 years and eight months in prison. The agency recommended an unspecified lesser prison term be imposed, court records show....
“The offenses here were very serious, they went on for four and a half years and involved continuous, almost daily conduct by the defendant to inflate earnings of the company,” Assistant U.S. Attorney Jonathan Streeter said today. “It was ongoing, it was continuous, it was deliberate and it was calculated.”
Batts directed Cuti to surrender to U.S. Bureau of Prisons officials on Jan. 31. She denied a bid by Weingarten to allow him to remain free on bond pending his appeal....
Cuti received more than $50 million from Duane Reade and Oak Hill from 2000 through 2005, including $25 million from the 2004 acquisition by Oak Hill, prosecutors said. Cuti left the company in 2005.
The feds can now surely crow a bit about having "crime in the suites" result in serious prison time here, as they do in this press release. And yet, in light of the apparently severe guideline calculation, Cuti and his counsel have to be somewhat thankful he is looking at only about 31 months in club fed after time off for good behavior.
Wednesday, August 17, 2011
Latest data show health care fraud as federal criminal hot-spot
This new report from the Transactional Records Access Clearinghouse, which is headlined "Health Care Fraud Prosecutions for 2011," highlights that the federal court, especially in southern Florida, are seeing many more health care fraud cases these days. Here is the start of the TRAC report:
The latest available data from the Justice Department show that during the first eight months of FY 2011 the government reported 903 new health care fraud prosecutions. Already the activity this year exceeds the level for all of FY 2010.
Numbers were pushed higher by a series of investigations by the Federal Bureau of Investigations which led to prosecutions for health care fraud. In Puerto Rico alone, 420 defendants have been charged this year. Within the fifty states, the Southern District of Florida (Miami) led the nation in activity accounting for one out of every nine health care fraud prosecutions.
Across the nation if this activity continues at the same pace, the annual total of prosecutions will be 1,355 for this fiscal year. According to the case-by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC), this estimate is up 85.4% over the past fiscal year when the number of prosecutions totaled 731.
For criminal justice researchers, I think this growing pocket of cases might be especially interesting to try to track from indictment through sentencing. I sense that these health care fraud cases can often have lots of the most dynamic elements of case-processing discretion that can impact sentencing outcomes.
For example, I suspect: that most of these prosecutions result in pleas (and with some defendants cooperating with the feds), but a few defendants go to trial; that these defendants have diverse roles in the crime and diverse backgrounds; that the amount of loss for sentencing purposes can be varied and will often be disputed; that arguments for departures and variances get different receptions in different courthouses.
Wednesday, August 10, 2011
Sentencing debate joined for Raj Rajaratnam in high-profile insider trading case
As detailed in this Bloomberg news report, which is headlined "Rajaratnam Prison Sentence of More Than 24 Years Sought by Prosecutors," a high-profile insider trading case is getting closer to sentencing. The parties have apparently filed initial sentencing memos, and here is how this Bloomberg report describes the terms of the sentencing debate:
Galleon Group LLC co-founder Raj Rajaratnam, labeled by prosecutors as the “face of illegal insider trading,” should spend as long as 24 years and five months in prison, the U.S. told the judge who will sentence him.
Lawyers for Rajaratnam, in a separate court filing yesterday, asked U.S. District Judge Richard Holwell in Manhattan for a prison term “substantially below” what federal guidelines recommend. Rajaratnam’s attorneys, citing their client’s poor health, urged Holwell not to force him to die in prison.
Rajaratnam, 54, was convicted in May of all 14 criminal counts of conspiracy and securities fraud he was charged with. He’s scheduled to be sentenced Sept. 27.
Prosecutors said he should serve at least 19 years, seven months in prison. “Rajaratnam repeatedly leveraged the power of money and his position as the head of a $7 billion hedge fund to induce friends, employees and associates to participate in his criminal activities,” Justice Department lawyers said in their sentencing memorandum yesterday. “He is the modern face of illegal insider trading.”
Prosecutors called Rajaratnam the most “egregious violator” of insider-trading laws ever to be caught. He engaged in a seven-year conspiracy to trade on inside information from corporate executives, bankers, consultants, traders and directors of public companies including Goldman Sachs Group Inc. (GS), they said. He gained $63.8 million as a result of the scheme, according to the government....
Prosecutors called Rajaratnam a “fundamentally deceptive and dishonest person.” They said he lied under oath in a civil deposition and told others how to avoid detection. They also urged the judge to send a message of “deterrence” to combat the “rampant insider trading during the last several years.”
“Rajaratnam represents the worst of illegal insider trading,” prosecutors wrote. They compared him to Enron Corp.’s Jeffrey Skilling and WorldCom Inc.’s Bernard Ebbers, convicted in what prosecutors called “the worst of accounting frauds,” and Bernard Madoff, who they said represents “the worst of Ponzi schemes.” Skilling was sentenced to 24 years, Ebbers to 25 years, and Madoff to 150 years....
“Mr. Rajaratnam is not a healthy man,” his lawyers wrote, citing “significant and challenging medical issues” that are known to the court’s probation department. “His death will be hastened by a term of imprisonment,” they said.
Rajaratnam’s lawyers submitted letters on his behalf from his family members, former business associates, ex-employees and even his apartment doorman. Some of the letters detail what the defense said is more than $45 million in charitable donations by Rajaratnam in the U.S. and abroad, including millions of dollars to help victims of a tsunami that devastated his native Sri Lanka....
The defense argued that Rajaratnam’s crimes are “not in the same league” as those committed by Enron or WorldCom executives “since those defendants betrayed their own shareholders and employees.” Rajaratnam did nothing to harm his investors, [his lawyers] wrote. [They] also said that Rajaratnam’s sentence should be consistent with those imposed on others convicted of insider trading, including former New Castle Funds Analyst LLC Danielle Chiesi, a co-defendant who was sentenced on July 20 to 2.5 years behind bars.
August 10, 2011 in Federal Sentencing Guidelines, Offender Characteristics, Offense Characteristics, Purposes of Punishment and Sentencing, White-collar sentencing | Permalink | Comments (4) | TrackBack
Wednesday, August 03, 2011
"Rod Blagojevich may get off easy while others rot in prison"
The title of this post is the headline of this provocative new commentary from the Washington Times. Here are excerpts:
Former Illinois governor and convicted felon Rod Blagojevich will have his sentencing hearing on Oct. 6. He faces up to 300 years in prison on various corruption charges. He will probably receive between 6-1/2 and 15 years. Raping, pillaging, and plundering the public trust is not treated the same as other heinous crimes.
The hirsute governor’s attorney claims Blagojevich will testify at his sentencing hearing. What is he going to say? He worked hard for the people of Illinois? He was the people’s governor? We’ve heard all that before.
There are indications that people will testify on his behalf. Who? There are no Friends of Blagojevich. Where were these people when he needed to pay his legal bills? The U.S. Government, us, the people, the tax payers, had to pay for his attorneys.
For some reason politicians do not have to sell their homes, other real estate, or empty their bank accounts and retirement funds to pay their legal bills. Unlike the rest of us, politicians don’t have to be bankrupted when accused of federal crimes. They are a protected class....
This slubberdegullion, and all political scoundrels, rapscallions, and scalawags, should get the maximum sentence for any crime they commit. They should be held to the highest standards of conduct and the highest levels of justice. If Blagojevich is facing 300 hundred years then 300 hundred years he should get. There should be no mitigating circcumstances for political corruption.
Bernie Madoff is in prison until the day he dies, and probably beyond, for violating the trust of people who should have known better. Bernie Madoff was held to a higher standard than pedophiles and serial killers. But, he did not violate the public trust. If Madoff could be sentenced to eternal life in prison why can’t politicians?
Why should they get a break? Why should there be mitigating circumstances? Who cares how many people he allegedly helped? Who cares if he loved his parents, is a good husband and father, helps elderly people cross the street, and goes to church on Sunday? Who cares about his record of achievements as an elected official? He was convicted of corruption. He should go down hard.
Rod Blagojevich, and any elected official, should get the maximum sentence if they are convicted of corruption. A violation of the public trust is a heinous crime. They should get these draconian sentences to set an an example for others. Others who may, just may, think twice before sticking our their grubby hands for the kachingos. There should be no pity, no mercy, and no humanity.
In addition to welcoming comments about what others hoep or believe Blago should get at his federal sentencing on October 6, I would love to hear what readers think about the basic proposition set forth in this commentary that every elected official "should get the maximum sentence if they are convicted of corruption."
Tuesday, August 02, 2011
Significant Tenth Circuit ruling on meaning and application of "intended loss"
The Tenth Circuit yesterday released a thoughtful new decision about the application of the important federal sentencing guidelines concept of "intended loss" in US v. Manatau, No. 10-4101 (10th Cir. Aug. 1, 2011) (available here). Though the stakes in the Manatau case itself are small, I suspect a lot of white-collar defense practitioners will find the ruling significant. Here is the start of the opinion and a few key excerpts (with emphasis in the original):
When calculating an advisory guidelines sentence for an economic crime a district court naturally must take account of the losses the defendant caused others. But the guidelines instruct that, when fashioning a sentence, a court should also account for the losses the defendant “intended” but was unable to realize. The question we face in this case is what counts as an “intended” loss? Unsurprisingly, we hold that the term means exactly what it says: to be included in an advisory guidelines calculation the intended loss must have been an object of the defendant’s purpose....
We hold that “intended loss” means a loss the defendant purposely sought to inflict. “Intended loss” does not mean a loss that the defendant merely knew would result from his scheme or a loss he might have possibly and potentially contemplated....
[T]he district court should examine what losses Mr. Manatau intended. Of course, in answering this question the court is free, as we have explained, to make reasonable inferences about the defendant’s mental state from the available facts. In the sentencing context, too, the government need only prove Mr. Manatau’s intent by a preponderance of the evidence, and the court need only make a “reasonable estimate” of the intended loss.... The available credit limits on the convenience checks in question and the defendant’s knowledge (or lack of knowledge) of them may well be relevant evidence bearing on what loss a defendant did (or didn’t) intend. But a court cannot simply calculate “intended loss” by toting up credit limits without any finding that the defendant intended to inflict a loss reasonably approaching those limits.
Monday, August 01, 2011
Two notable white-collar rulings from the Second Circuit
The Second Circuit gets August off to a note start with two big (and important?) opinions in white-collar cases. Here are the basics, with the summaries taken the the start of each opinion:
US v. Ferguson, No. 08-6211 (2d Cir. Aug 1, 2011) (available here): "The defendants, four executives of General Reinsurance Corporation (“Gen Re”) and one of American International Group, Inc. (“AIG”), appeal from judgments of the United States District Court for the District of Connecticut (Droney, J.), convicting them of conspiracy, mail fraud, securities fraud, and making false statements to the Securities and Exchange Commission. The charges arose from an allegedly fraudulent reinsurance transaction between AIG and Gen Re that was intended to cure AIG’s ailing stock price. We vacate the defendants’ convictions and remand for a new trial."
US v. Feldman, No. 10-2275 (2d Cir. Aug 1, 2011) (available here): "Appeal from a judgment of the United States District Court for the Northern District of New York, David N. Hurd, Judge, convicting Jerome H. Feldman of one count of health care fraud, see 18 U.S.C. § 1347; five counts of wire fraud, see 18 U.S.C. § 1343; and sentencing Feldman to 188 months in prison and three years of supervised release. Affirmed."
As the first sentence of this post hints, I cannot tell from a quick read whether either of these opinions are especially jurisprudentially important. But anytime the Second Circuit reverses a significant white-collar conviction (as in Ferguson) or affirms significant white-collar sentence (as in Feldman), the feds and/or the NY defense bar usually find ways to make the ruling consequential.
Saturday, July 23, 2011
Assailing "out-of-control" federal sentencing guidelines for fraud offenses
Federal sentencing superstars James Felman and Mary Price have this effective new opinion piece in The National Law Journal headlined "Out-of-control fraud guidelines: Four reforms would restore common sense to sentences that have become draconian, disproportionate to the crimes." Here are excerpts:
Not long ago, first-time perpetrators of economic crimes frequently received sentences of probation with special conditions for compensating their victims. Lengthy prison sentences for nonviolent financially motivated offenders were correctly deemed unnecessary. The purposes of sentencing could be accomplished without removing them from society for extended periods of time. These offenders suffer a multitude of unique collateral consequences, including the all-but-certain end to their careers, and the social stigma of a steep and public fall from grace....
Between 1987 and 2001 the Sentencing Commission repeatedly amended the guidelines, adding sentence-inflating enhancements. In 2001, it overhauled the guidelines and voted to increase sentences based on the amount of loss. The ink was barely dry when, just two years later, Congress reacted to public anger over corporate scandals, directing the commission to up them again. It did so with a slew of amendments that increased fraud sentences across the board and enhanced sanctions based on factors that are present in nearly every major fraud....
The result? According to Judge Frederic Block of the Eastern District of New York, "we now have an advisory guidelines regime where…any officer or director of virtually any public corporation who has committed securities fraud will be confronted with a guidelines calculation either calling for or approaching lifetime imprisonment." U.S. v. Parris, 573 F. Supp. 2d 744 (E.D.N.Y. 2008). Put another way, economic crime offenders today can easily face a prison term once reserved for murderers, terrorists and serial rapists.
Judges have made their distaste for such sentences clear by not imposing them. In response, the Sentencing Commission has announced a comprehensive review of the fraud guideline. We welcome the review and have put together a working group of former policymakers, legal experts and attorneys to promote four reforms to restore common sense to the fraud guideline.
First, reduce the current excessive emphasis on actual or intended monetary loss. Second, better account for whether and to what extent the defendant received a monetary gain from the offense. Third, ensure that greater weight is put on the defendant's personal responsibility for the offense conduct, intent and other individual circumstances that should bear on punishment. Finally, eliminate double-counting aspects of the offense by striking redundant enhancements.
These reforms will help ensure that fraud sentences are proportional to the severity of the offense and to individual culpability and circumstances. Greedy perpetrators of fraud should receive stiff sentences. Society, however, can avoid the costs of subjecting less blameworthy offenders to punishments that are excessive, inefficient and counterproductive.
July 23, 2011 in Federal Sentencing Guidelines, Offense Characteristics, Procedure and Proof at Sentencing, Purposes of Punishment and Sentencing, Scope of Imprisonment, White-collar sentencing | Permalink | Comments (5) | TrackBack
Thursday, July 21, 2011
Effective discussion of Apprendi's application to corporate fines
Thanks to this post at White Collar CrimProf Blog, I see that a District Court in California has issued an interesting and effective opinion in United States v. Au Optronics Corporation, No. C 09-00110 SI (N.D. Cal. July 18, 2011) (available here), concerning tha application of Apprendi to corporate fines. Here are snippets from the ruling:
In light of the fact that the maximum fine in this case will depend upon proof of the gain or loss caused by the conspiracy, the government seeks two related orders from the Court. First, claiming that evidence of the effects of the alleged antitrust conspiracy is irrelevant to the defendants’ guilt, the government requests that the Court bifurcate the trial into a guilt phase and a penalty phase. Second, claiming that criminal fines are exempt from the Supreme Court’s decision in Apprendi v. New Jersey, 530 U.S. 466 (2000), the government seeks an order that the evidence presented in the penalty phase need not be presented to a jury....
Until recently, there would have been little reason to doubt Apprendi’s applicability to fines. Two circuits had applied Apprendi’s holding to criminal fines....[But] last year the First Circuit held that criminal fines were exempt from Apprendi’s rule [based on dicta in the Supreme Court's Ice decision]....
The government argues that this Court should follow the First Circuit. Relying largely on the same reasoning as the First Circuit, it contends that under historical practices fines fell within the sole discretion of the trial judge.... The government argues that this historical practice renders Apprendi inapplicable to the fines in this case.
The Court is unconvinced. As an initial matter, the Supreme Court’s statement in Ice is dicta, made without the benefit of briefing or argument in a case whose facts do not remotely resemble the facts of this case. While, of course, Supreme Court dicta is compelling, losing sight of Apprendi’s mandate based upon one clause in Ice risks losing the forest for the trees.....
The fine in this case is the primary form of punishment the government seeks and could amount to as much as $1 billion, ten times more than the fine authorized by the Sherman Act. The magnitude and primacy of such punishment puts it in a separate class from an ordinary criminal fine imposed against a defendant who faces incarceration. In the Court’s view, this is reason enough to apply Apprendi’s mandate and require a jury to find the amount of gain or loss under the alternative fines statute.
The historical practices the government has cited simply do not seem well suited for the situation before the Court, where incarceration -- or whippings, for that matter -- is not a penalty the Court can impose. The Sherman Act authorizes a maximum fine of $100 million. Should the government wish to go beyond that act’s authorization and seek a significantly larger fine based upon the establishment of additional facts, it must do so by following Apprendi’s mandate, and by proving those facts to a jury beyond a reasonable doubt.