Tuesday, November 18, 2008

A birthday update for a high-profile federal defendant

As detailed in this CNN political post, today "may not be the happiest of birthday's for Ted Stevens. As the longtime Republican Senator from Alaska marks his 85th birthday, he's fighting for his political life."  Here's more from this new AP articleabout Stevens' current status and his trials and tribulations:

Convicted Sen. Ted Stevens clung Tuesday to the hope that a climactic vote count in Alaska would buttress his argument to remain in Congress and fellow Republicans accommodated him by putting off a decision on his expulsion.

It was just another in a series of topsy-turvy days for the 84-year-old, six-term senator who has been straddling coast-to-coast challenges to his power. Notwithstanding all that turmoil, Stevens revealed that he will not ask President Bush to give him a pardon for his seven felony convictions....

"I wouldn't wish what I'm going through on anyone, my worst enemy," he lamented to reporters at one point. "I haven't had a night's sleep for almost four months, all right."

It was possible he'd know a lot more about the electoral fight back home in Alaska before the day was done. Election officials there resumed counting some 24,000 absentee and contested votes....

Many of Stevens GOP colleagues have called on him to resign, but Stevens plans to appeal his convictions.

Some recent related Stevens posts:

UPDATE:  CNN provides this update election report: "Alaska Sen. Ted Stevens, the Republican lawmaker convicted on felony corruption charges in October, was defeated in his bid for re-election by Democrat Mark Begich, according to a release from Begich's campaign and unofficial results from state officials."

November 18, 2008 in White-collar sentencing | Permalink | Comments (0) | TrackBack

Monday, November 03, 2008

Insider trading leads to former UBS executive being inside prison for 78 months

As detailed in this Reuters story, a former UBS executive is going to have to deal with a whole different kind of insider trading for more than six years in federal prison:

A U.S. judge sentenced a former UBS AG executive to 6-1/2 years in prison on Monday for his role in what prosecutors called the most pervasive insider trading ring since the 1980s. Mitchel Guttenberg, a former institutional client manager in UBS' equity research department, admitted in a guilty plea in February to selling nonpublic information about the bank's stock recommendations.

In handing down the sentence, which includes three years of supervision after his release, Judge Deborah Batts of U.S. District Court in Manhattan said, "from the moment he joined the (UBS) investment review committee he planned to give that information to others to use illegally."

Batts did not fine Guttenberg, who expressed his remorse to his family, the court and his former employer. His lawyer Sean O'Shea described Guttenberg as "a broken man" whose wife had left him, and he was living in his sister's apartment.

Guttenberg was among 13 people, including former employees of Wall Street firms such as Bank of America Corp, Morgan Stanley and Bear Stearns Co Inc, who were criminally charged last year in an insider trading ring....

Guttenberg had pleaded guilty to two counts of conspiracy and four counts of securities fraud. He had faced 78 months to 97 months in prison under sentencing guidelines.

Ah... remember the '80s?  Perhaps the decade is making a comeback...

November 3, 2008 in White-collar sentencing | Permalink | Comments (2) | TrackBack

Notable rulings on loss and other sentencing issues in AIG/Gen Re case

Thanks to a helpful reporter, I now have a copy of a notable sentencing ruling in a notable white-collar case out of Connecticut.  This AP story provides the background:

A federal judge has ruled that shareholders of American International Group Inc. lost more than $500 million as a result of a scheme to manipulate the financial statements of the world's largest insurance company.  The ruling Friday by Judge Christopher Droney means five former insurance executives convicted of the scheme could face up to life in prison under advisory sentencing guidelines.

Four former executives of General Re Corp. and a former executive of AIG were convicted in February of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission. Prosecutors filed court papers citing a study by its expert, concluding the fraud-related losses to AIG shareholders totaled $1.2 billion to $1.4 billion.  They cited another methodology by the expert that put the losses at $544 million to $597 million, but said either method is reasonable.

Droney rejected the higher estimate, but said the lower range was reasonable.  That finding and a determination that the fraud affected more than 250 victims will increase the advisory guideline sentence range. The guideline range and a sentencing date have not been set yet.

The defendants challenged the estimate, saying there was no loss to investors....

A report by the probation department recommended sentences of 14 years to more than 17 years for each defendant.

The 21-page ruling in US v. Ferguson et al., No. 3:06CR137 (CFD) (D. Conn. Oct. 31, 2008), can be downloaded below:

Download Gen_Re_ruling.pdf

November 3, 2008 in White-collar sentencing | Permalink | Comments (3) | TrackBack

Sunday, October 19, 2008

One criminal justice echo in the midst of the economic crisis

Various bloggers focused on crime and justice have been pondering how the recent economic crisis could impact criminal justice issues. Today's New York Times looks into some of these realities in this article, headlined "F.B.I. Struggles to Handle Financial Fraud Cases." Here is the lead:

The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties.  Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

Some recent related posts:

October 19, 2008 in White-collar sentencing | Permalink | Comments (1) | TrackBack

Friday, October 10, 2008

A first sentencing echo from the economic meltdown?

This new article from Corporate Counsel may reveal a first sentencing echo from some of the ugly doings on Wall Street.  The piece is headlined, "Former Gen Re Lawyer Could Face Life in Prison: Federal prosecutors want Robert Graham to be sentenced to 230 years in jail for his role in a sham insurance deal with AIG," and here are excerpts:

Robert Graham, a former senior lawyer at General Re Corp., faces life in prison for doing what his defense attorney calls a "few hours work" on a fraudulent deal.  Prosecutors want to sentence Graham to a "substantial" term -- up to 230 years behind bars -- for his role in a sham insurance deal with American International Group Inc.  The government also wants Graham, who is 60, to pay millions of dollars in fines and restitution.

In February a U.S. district court jury in Hartford convicted Graham -- Gen Re's former assistant general counsel -- and four other executives of multiple counts of securities fraud.  At a Sept. 25 sentencing hearing before Judge Christopher Droney, prosecutors argued that Graham should face a stiff penalty because he abused a position of trust and used his special skills and knowledge as a lawyer to further the fraud. The government is also asking for similarly harsh prison terms for three of Graham's co-defendants -- Ronald Ferguson, Gen Re's former CEO; Elizabeth Monrad, the company's ex-CFO; and Christian Milton, the former vice president of reinsurance at AIG.

The government arrived at the severe prison terms by using a formula in the federal sentencing guidelines which provides for steeper penalties as the amount of loss and number of victims rises. Prosecutors argue that the defendants deserve heavy sentences because more than 250 AIG investors lost at least $544 million from the fake deal with Gen Re.  The defendants have countered with an expert who maintains that there was zero loss and no victims....

Graham's attorney, Alan Vinegrad, a New York-based partner with Covington & Burling, wouldn't comment for this story.  But in a September court filing, Vinegrad argued that his client is the "least culpable" of the defendants, and that prosecutors are overstating the seriousness of his misconduct. Graham didn't initiate the scheme, didn't have control over the amount of loss, and didn't personally benefit from it, according to Vinegrad.  Even without jail, the conviction will "wreak havoc with the remainder of Graham's professional and economic life," Vinegrad says in his 71-page reply....

White-collar defense attorney Michael Cornacchia, who is not involved in the case, says harsh sentences are due to "post-Enron hysteria," which led to sentencing guidelines based on factors like the amount of loss and number of victims. The proposed sentence for Graham "sounds draconian to me," says Cornacchia, a former Assistant U.S. Attorney and senior litigation counsel in the business and securities fraud section of the U.S. Department of Justice. If you take a life, Cornacchia adds, a life sentence is appropriate. "This is serious conduct, but it's not taking a life. This is stealing money," he says of Graham's conviction....

Given AIG's recent collapse, Graham's timing is nothing if not lousy.  Because of the sham deal, AIG's longtime CEO Hank Greenberg was forced to resign in 2005.  Prosecutors said in court that Greenberg initiated the deal, though he was never charged. After AIG agreed to pay $1.6 billion to settle state and federal investigations into the fake deal, the company's stock plummeted. Now, amid the financial crisis, U.S. taxpayers have had to bail out AIG with $122.8 billion in loans while AIG execs are being grilled in congressional hearings.

October 10, 2008 in White-collar sentencing | Permalink | Comments (3) | TrackBack

Thursday, October 09, 2008

One area in which bad times are good for business

Last week I asked in this post, "When will the latest economic crisis become a criminal justice story?".  Today, the New York Law Journal is on this story with this new piece, headlined "Criminal Prosecutions Predicted to Surge Over Financial Crisis."  Here is how the effective piece begins:

With public anger reaching a boiling point over plunging stock prices and Wall Street "greed," white-collar defense attorneys are preparing for an inevitable surge in criminal prosecutions.

Stanley S. Arkin, for one, said he expects that the anger, hysteria and economic dislocation fueled by "imprudent credit policies" will "inspire" indictments that would not have been brought in a "calmer and more dispassionate time." There is "an underlying popular sensibility in this country that someone has to pay for all the jobs lost and the savings extinguished," said Arkin, a partner at Arkin Kaplan Rice.  "There's a lynching quality that arises in circumstances of extreme dislocation like this."

As I said before, this all suggests it may be an especially good time to "buy stock" in any law firm specializing in white-collar defense, and law students might want to sign-up ASAP for courses in White-Collar Crime and/or Federal Criminal Law and Sentencing. 

In addition, all corporate attorneys with old business clients now fearing different kinds of legal problems ought to quickly study up on federal sentencing realities.  As regular readers know well, the first executives to run to prosecutors and offer up information are likely the ones (and perhaps the only ones) who will escape severe consequences when indictments start rolling in.

October 9, 2008 in White-collar sentencing | Permalink | Comments (3) | TrackBack

Tuesday, September 30, 2008

When will the latest economic crisis become a criminal justice story?

Traditional economic markets rarely play a direct role in the criminal justice arena (though I believe punishment systems would be much improved if subject to rigorous cost/benefit analysis).  But dramatic economic realities always become a criminal justice story in some indirect way, sometimes through crime-and-justice budget cuts in tough times (or excessive spending in good times), sometimes through increases in certain types of crimes because of market realities. 

Consequently, I have little doubt that the current credit crunch will become a criminal justice story at some point; the real question is just when and how.  On this basic topic, David Zaring over at the Conglomerate asks a fitting question in this new post, "Who Is Going to Jail for All of This?".  Here is a snippet:

One of the rules of financial crises is that some business executives end up doing time after they happen. You can ask yourself if the punished executives are chosen through a fair process, whether other executives avoid prosecution for essentially the same conduct, and so on, but... but ex-post white collar tends to be part of the bureaucratic response....

Who is going to be the villain of this crisis, and who should lawyer up? It's pure speculation, but I think AIG is more likely to get Enronized than Lehman, and I suspect that Congress, quite hypocritically, will be baying for a little blood from Fannie and Freddie.

Put another way, this is probably a good time to "buy stock" in any law firm specializing in white-collar defense.  Indeed, law students concerned about what the economic crisis could mean for large firm employment might want to sign-up ASAP for any courses offered in White-Collar Crime and/or Federal Criminal Law and Sentencing.

September 30, 2008 in White-collar sentencing | Permalink | Comments (0) | TrackBack

Tuesday, September 09, 2008

District judge rejects plea deal calling for only probation for billionaire

As detailed in this Los Angeles Times article, headlined "Judge rejects plea deal for Broadcom co-founder Henry Samueli," a federal district judge yesterday refused to accept the government's suggestion that a term of probation was sufficient in a high-profile white-collar case.  Here are details from the LATimes article:

Suggesting that Broadcom Corp. co-founder Henry Samueli deserves to go to prison, a federal judge Monday rejected a deal with prosecutors that would have given the Orange County billionaire probation for lying to regulators about his role in an alleged $2.2-billion stock-option scam.

The government's allegations against Samueli, "if true, warrant a significant prison sentence," U.S. District Judge Cormac J. Carney wrote in an order delivered to Samueli, his attorneys and prosecutors at a hearing in Carney's Santa Ana courtroom. Under the terms of the plea agreement, Carney could only accept or reject the recommended sentence, not modify it.

The judge took aim in particular at an unusual provision in the plea accord calling for Samueli to pay $12 million to the government.  The maximum fine under the charge to which Samueli agreed to plead guilty is only $250,000. "The court cannot accept a plea agreement that gives the impression that justice is for sale," Carney wrote.  Accepting the agreement, he added, would "erode the public's trust in the fundamental fairness of our justice system."

Judge Carney wrote a thoughtful and detailed 22-page opinion explaining his decision, which can be accessed at this link.  Fascinating stuff.

September 9, 2008 in White-collar sentencing | Permalink | Comments (7) | TrackBack

Wednesday, August 20, 2008

Tenth Circuit discusses loss, restitution and other white-collar issues of note

In a long opinion (108 pages!) covering lots of ground, the Tenth Circuit today in US v. Gallant, No. 07-1344 (10th Cir. Aug. 20, 2008) (available here), discusses a host of notable and important white-collar crime and sentencing issues.  The sentencing discussion starts on page 58 of the slip opinion, and here is the court's summary of issues covered:

The government and all four defendants appeal aspects of the district court’s sentencing procedures and conclusions. The government’s primary argument is that the district court erred in calculating the amount of loss attributable to the defendants’ conduct for purposes of imposing an enhancement under § 2F1.1 of the Sentencing Guidelines. The defendants and the government also argue that the district court erred in imposing various other enhancements under the Guidelines. In addition, the government challenges the sentencing procedures employed by the district court and argues that the district court erred in failing to order restitution.

August 20, 2008 in White-collar sentencing | Permalink | Comments (1) | TrackBack

Friday, August 15, 2008

Important new white-collar opinion justifying below-guideline sentence

As effectively covered in posts from at New York Federal Criminal Practice and White Collar Crime Prof Blog, District Judge Frederic Block issued an important new sentencing opinion in the white-collar case of US v. Parris, No. 05-CR-636 (EDNY Aug. 14, 2008) (available for downloading below).  The opinion is a must-read defies easy summarization, but this starting paragraph provides the basics:

I have sentenced Lennox and Lester Parris today to a term of incarceration of 60 months in the face of an advisory guidelines range of 360 to life. This case represents another example where the guidelines in a securities-fraud prosecution “have so run amok that they are patently absurd on their face,” United States v. Adelson, 441 F. Supp. 2d 506, 515 (S.D.N.Y. 2006), due to the “kind of ‘piling-on’ of points for which the guidelines have frequently been criticized.”  Id. at 510.

Download Parris.pdf

August 15, 2008 in White-collar sentencing | Permalink | Comments (9) | TrackBack

Monday, July 21, 2008

A telling consequence of severe white-collar sentencing guidelines and the trial penalty

This intriguing new article available from law.com, headlined "Federal Judge Refuses to Accept Guilty Plea in Health Care Fraud Case," spotlights one of the many pernicious effects of severe white-collar sentencing guidelines and the extreme trial penalty that white-collar offenders routinely face if they contest their guilt.  As the article explains, a white-collar defendant was prepared to plead guilty to an offense he many not have committed, surely because federal prosecutors told him he could face decades in prison if he went to trial and lost.  Here are highlights from the start of the article:

After months of negotiations, Chi Yang agreed to plead guilty in connection with fraudulent sales made by his Dublin, Calif.-based biotech company.  Even though he would admit to making a false statement, not fraud, Yang would still have to do prison time.  He would also owe hundreds of thousands of dollars in fines and restitution.

Then the deal reached Oakland, Calif., federal Judge Saundra Armstrong.  In what observers call a highly unusual move, Armstrong refused to accept Yang's plea. She raised questions last month about whether Yang actually committed all of the elements of the crime to which he agreed to plead. "It is not my practice to accept guilty pleas from people who are not guilty," Armstrong said, according to a transcript of the June 10 hearing.

Some recent related posts:

July 21, 2008 in White-collar sentencing | Permalink | Comments (10) | TrackBack

Should all "true" first offenders now get a sentencing discount in light of Gall and Kimbrough?

In the olden days when the federal sentencing guidelines were mandatory, the Supreme Court in Koon indicated that a district court departing downward from Criminal History Category I would "abuse[] its discretion by considering [a first offender's] low likelihood of recidivism [because the Sentencing] Commission took that factor into account in formulating the criminal history category."  But now, of course, the guidelines are merely advisory.  And Kimbrough strongly suggests that courts can and should look to research reports by the Sentencing Commission when deciding whether and when and how to vary from the guidelines.  And in May 2004, in this interesting report titled "Recidivism and the 'First Offender'," the Commission highlights empirical data showing very low recidivism rates for what I would call "true" first offenders:

The analysis [of empirical data on re-offending] delineates recidivism risk for offenders with minimal prior criminal history and shows that the risk is lowest for offenders with the least experience in the criminal justice system. Offenders with zero criminal history points have lower recidivism rates than offenders with one or more criminal history points.  Even among offenders with zero criminal history points, offenders who have never been arrested have the lowest recidivism risk of all.

These issues came to mind as I read closely the Sixth Circuit thoughtful work last week in US v. Duane, No. 06-6536 (6th Cir. July 17, 2008) (available here).  At the very end of Duane, the panel had this nuanced discussion of these issues in a post-Booker world:

[T]he district court did not respond to Duane’s first argument — that he deserved a more lenient sentence because he had zero criminal history points.  This was not a particularly strong argument given that Duane’s criminal history category was taken into account in determining his Guidelines range.  But the argument was not completely frivolous.  Because Duane had zero points at age 57, he might plausibly argue that even category I — which applies when a defendant has zero or one criminal history point(s) — overstated his criminal history to some degree. Although the district court would have ideally addressed this argument, we can hardly say that this failure alone constituted error in this case. Given that the district court imposed a within-Guidelines sentence, addressed the factors it found relevant, and addressed the majority of Duane’s arguments, we conclude that the district court did not err.

Though the Duane court does not reverse a within-guideline sentence for failure to consider low likelihood of recidivism for a "true" first offender, the panel's carefully discussion of this issue suggests district courts now have an obligation to address expressly these issues whenever a true first offender defendant urges a below-guideline sentence by saying he is very unlikely to even commit a crime again. 

Indeed, defendants and defense attorneys can (and perhaps should) stress the USSC's own research to assert that proper application of 3553(a) in the case of a "true" first offender now virtually demands a below-guideline sentence.  The argument would be that the considerations set forth in 3553(a)(2)(C) and in 3553(a)(6) are only properly acknowledged if and when a "true" first offender gets a lower sentence than the advisory range suggested for all the other persons with some criminal past that are lumped into Criminal History Category I.

July 21, 2008 in Booker in district courts, Offender Characteristics, White-collar sentencing | Permalink | Comments (5) | TrackBack

Friday, June 27, 2008

Lawyer Scruggs gets smoked with five-year max prison term

As detailed in this local report, "Dickie Scruggs received the maximum 5 years in prison in $250,000 in fines for a crime Judge Neal D. Biggers Jr. called 'reprehensible'."  Here are more details:

Scruggs faced a maximum sentence of five years but argued that he should be sentenced to 30 months. He pleaded guilty in March to conspiring in 2007 to bribe Circuit Court Judge Henry L. Lackey, who cooperated with federal investigators.

Biggers entered the courtroom at 10 a.m. sharp and it was soon obvious from what he said about the findings in the pre-sentencing report, that the judge would hand down a stiff sentence. He said, "There is no question in the court's mind that Mr. Scruggs, Mr. Richard Scruggs, was a leader and a planner (in the conspiracy). He has said he came into the scheme late. Regardless, he was the leader, he was the money man."

In fact, Biggers said Scruggs had entered into the scheme so easily that it made him wonder whether Scruggs had done such a thing before and indeed evidence indicates that he may have....

Biggers also questioned why Scruggs would be paying legal settlement fees to non-lawyers.  He did not mention any names, but it was clear that he was referring to the elusive Delta businessman P.L. Blake, who expected, over the course of a settlement Scruggs reached with tobacco companies, to receive $50 million in fees.

June 27, 2008 in White-collar sentencing | Permalink | Comments (2) | TrackBack

Friday, May 16, 2008

Latest FSR issue focused on white-collar sentencing

I am pleased to report that, just in time for the start of the summer sentencing season, the latest issue of the Federal Sentencing Reporter focused on white-collar cases is now in print and also available here on-line.  The issue is titled, simply enough, "White-Collar Sentencing."

FSR's publisher has kindly made the issue's terrific opening commentary by Mark Harris and Anna Kaminska, which is entitled "Defending the White-Collar Case at Sentencing," available for download for free here.  The full contents of this latest FSR issue are listed below and can be ordered on-line here.)




May 16, 2008 in Recommended reading, White-collar sentencing | Permalink | Comments (1) | TrackBack

Thursday, May 01, 2008

A (record-setting?) long white-collar sentence

This local report from Denver has me wondering whether a new record has been set for the longest white-collar federal sentence.  Here are the basics:

U.S. District Court Judge Robert Blackburn sentenced a man to 330 years in prison Tuesday for his role in a $56 million investment scam from which proceeds were used to buy the Redstone Castle.  At 72, it's unlikely Norman Schmidt, of Denver, will ever be released.

You gotta like the foresight of the reporter here, who thinks it "unlikely" that Schmidt will live until the year 2338 to get released.  (Then again, with 15% good-time credit, Schmidt may be able to get out as early as the year 2289.)  Silly numbers aside, here is what led to this extraordinary federal sentencing term:

Investigators believe Schmidt obtained tens of millions of dollars from hundreds of investors for his own personal gain. Schmidt was found guilty of conspiracy to commit mail fraud, wire fraud and securities fraud, plus other counts and a money laundering count.  He and his wife, Jannice Schmidt, plus five others were indicted in 2004.  Jannice Schmidt was recently sentenced to nine years in prison....

Schmidt worked with the others from 1999 to 2003 to defraud investors with a purportedly high-yield investment program. The group used "corporate alter-egos" named Reserve Foundation Trust, Smitty's Investments, Capital Holdings, Monarch Capital Holdings and Fast Track.  They promised investors returns of 2 to 400 percent per month and even sent out false monthly statements, authorities believe.

This AP story indicates that a sentencing appeal is planned: "Schmidt's attorney, Thomas Hammond, said Wednesday he planned to appeal the conviction and sentence. 'To say that it is excessive is an understatement,' Hammond said."

May 1, 2008 in White-collar sentencing | Permalink | Comments (15) | TrackBack

Wednesday, April 30, 2008

The loss-culpability connection (or disconnect) in white-collar sentencing

Especially in the federal sentencing system, where the (now advisory) guidelines place so much emphasis on the concept of "loss," the relationship in white-collar sentencing cases between loss amounts and criminal culpability is an extremely important and largely under-examined topic in much of the caselaw and commentary.  Fortunately, a soon-to-be-available new issue of the Federal Sentencing Reporter will be examining these issues at some length.  And, even before this FSR issue becomes available, a new decision from the First Circuit, US v. Innarelli, No. 06-2400 (1st Cir. Apr. 29, 2008) (available here), addresses these matters briefly.  As noted by AL&P, Innarelli covers lots of issues, but this passage struck me as especially notable:

[W]e focus our loss inquiry for purposes of determining a defendant's offense level on the objectively reasonable expectation of a person in his position at the time he perpetrated the fraud, not on his subjective intentions or hopes.  Moreover, as already noted, it is immaterial that many of the victims actually incurred no loss.  As the district court aptly stated, "[l]oss in a fraud case is a yardstick for moral culpability." Where, as here, the defendant reasonably should have expected that loss would result, he can and generally should be punished more severely to account for his greater level of moral culpability, even where the victim has managed to make money in spite of the fraud.

I have no quibble with enhancing a sentence because of a "greater level of moral culpability" reflected in the defendant's "objectively reasonable expectation" of what loss would result from a fraud.  The problem I have is that defendants rarely get the converse sentencing discount when they completely lack a "greater level of moral culpability" but there are large actual loss amounts that were never intended or even objectively reasonable to expect as a result of a questionable and perhaps fraudulent business decision.

April 30, 2008 in White-collar sentencing | Permalink | Comments (4) | TrackBack