Saturday, August 30, 2014
"The criminalisation of American business"
The title of this post is the headline of this notable new Economist cover story, which carries the subheadline "Companies must be punished when they do wrong, but the legal system has become an extortion racket." Here are excerpts:
Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.
The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.
In many cases, the companies deserved some form of punishment: BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism (see [companion] article)....
The drawbacks of America’s civil tort system are well known. What is new is the way that regulators and prosecutors are in effect conducting closed-door trials. For all the talk of public-spiritedness, the agencies that pocket the fines have become profit centres: Rhode Island’s bureaucrats have been on a spending spree courtesy of a $500m payout by Google, while New York’s governor and attorney-general have squabbled over a $613m settlement from JPMorgan. And their power far exceeds that of trial lawyers. Not only are regulators in effect judge and jury as well as plaintiff in the cases they bring; they can also use the threat of the criminal law.
Financial firms rarely survive being indicted on criminal charges. Few want to go the way of Drexel Burnham Lambert or E.F. Hutton. For their managers, the threat of personal criminal charges is career-ending ruin. Unsurprisingly, it is easier to empty their shareholders’ wallets. To anyone who asks, “Surely these big firms wouldn’t pay out if they knew they were innocent?”, the answer is: oddly enough, they might.
Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs. Nor is it clear how the regulatory booty is being carved up. Andrew Cuomo, the governor of New York, who is up for re-election, reportedly intervened to increase the state coffers’ share of BNP’s settlement by $1 billion, threatening to wield his powers to withdraw the French bank’s licence to operate on Wall Street. Why a state government should get any share at all of a French firm’s fine for defying the federal government’s foreign policy is not clear....
In the longer term, two changes are needed to the legal system. The first is a much clearer division between the civil and criminal law when it comes to companies. Most cases of corporate malfeasance are to do with money and belong in civil courts. If in the course of those cases it emerges that individual managers have broken the criminal law, they can be charged.
The second is a severe pruning of the legal system. When America was founded, there were only three specified federal crimes — treason, counterfeiting and piracy. Now there are too many to count. In the most recent estimate, in the early 1990s, a law professor reckoned there were perhaps 300,000 regulatory statutes carrying criminal penalties—a number that can only have grown since then. For financial firms especially, there are now so many laws, and they are so complex (witness the thousands of pages of new rules resulting from the Dodd-Frank reforms), that enforcing them is becoming discretionary.
This undermines the predictability and clarity that serve as the foundations for the rule of law, and risks the prospect of a selective — and potentially corrupt — system of justice in which everybody is guilty of something and punishment is determined by political deals. America can hardly tut-tut at the way China’s justice system applies the law to companies in such an arbitrary manner when at times it seems almost as bad itself.
Thursday, August 21, 2014
Pennsylvania Superior Court upholds (most of) sentence requiring former state Supreme Court Justice to write apology
As reported in this local Pittsburgh Post-Gazette article, an intermediate state appellate court upheld most (but not quite all) of the notable sentencing terms imposed on former Pennsylvania Supreme Court Justice Joan Orie Melvin. Here are the basic details of a lengthy and interesting sentencing ruling:
The state Superior Court today affirmed the criminal conviction of former state Supreme Court Justice Joan Orie Melvin, as well as that of her sister, Janine Orie. The panel also affirmed the part of Melvin's sentence requiring her to send apology notes to her former staff and fellow judges in Pennsylvania, but it eliminated the requirement that she do so on a picture taken of her following sentencing in handcuffs.
"The trial court unquestionably staged the photograph for maximum effect," wrote Judge Christine Donohue. "At the time it was taken (immediately after sentencing), Orie Melvin was no longer in police custody and was otherwise free to go home to begin house arrest. She was not in restraints at that time, and the trial court directed that she be placed in handcuffs only to take the photograph.
"The trial court’s use of the handcuffs as a prop is emblematic of the intent to humiliate Orie Melvin in the eyes of her former judicial colleagues."
The Superior Court panel said it would enforce the idea of writing apology letters because, it "adresses the trial court’s intent to rehabilitate her by requiring her to acknowledge her wrongdoing."
As part of its 114-page opinion, the court also reversed the order of Common Pleas Judge Lester Nauhaus, who in November stayed Justice Melvin's criminal sentence in its entirety pending appeal.
Justice Melvin was found guilty of six of seven counts against her, including theft of services, conspiracy and misapplication of entrusted property. Judge Nauhaus ordered her to serve three years of house arrest, pay a fine, work in a soup kitchen and write the letters of apology.
Saturday, August 16, 2014
Texas Gov Rick Perry facing two felony charges carrying significant mandatory minimum prison terms
I know very little about Texas criminal laws and procedures, and I know even less about the political and legal in-fighting that appears to have resulted in yesterday's remarkable indictment of Texas Gov Rick Perry on two state felony charges. But I know enough about mandatory minimum sentencing provisions to know Gov Perry might be looking a significant prison time if he is convicted on either of these charges. This lengthy Dallas Morning News article, headlined "Gov. Rick Perry indicted on charges of abuse of power, coercion," provides some of the political and legal backstory (as well as a link to a copy of the two-page indictment):
Republican Rick Perry, becoming the first Texas governor indicted in almost a century, must spend the final five months of his historically long tenure fighting against felony charges and for his political future. A Travis County grand jury on Friday charged Perry with two felony counts, abuse of official capacity and coercion of a public servant, after he vetoed funding for a county office that investigates public corruption.
Special prosecutor Michael McCrum of San Antonio said he felt confident in the case against Perry and was “ready to go forward.” Perry made no statement, but his general counsel, Mary Anne Wiley, said he was exercising his rights and power as governor. She predicted he would beat the charges. “The veto in question was made in accordance with the veto authority afforded to every governor under the Texas Constitution. We will continue to aggressively defend the governor’s lawful and constitutional action, and believe we will ultimately prevail,” she said.
The charges set off a political earthquake in the capital city. Democrats said the indictment underscores Perry’s insider dealing and he should step down. Republicans called it a partisan ploy to derail him, especially aimed at his second presidential run that had been gathering momentum.
The case stems from Perry's erasing $7.5 million in state funding last year for the Travis County Public Integrity Unit. He did so after District Attorney Rosemary Lehmberg, a Democrat, rejected his calls to resign after her drunken driving conviction.
Perry could appear as early as next week to face arraignment on the charges. Abuse of official capacity is a first-degree felony with punishment ranging from five to 99 years in prison, and coercion of a public servant is a third-degree felony with a penalty of two to 10 years.
In announcing the indictment, McCrum said he recognized the importance of the issues at stake. “I took into account the fact that we’re talking about the governor of a state and the governor of the state of Texas, which we all love,” he said. “Obviously, that carries a level of importance. But when it gets down to it, the law is the law.”...
The allegations of criminal wrongdoing were first filed by Craig McDonald, director of the nonprofit campaign watchdog group Texans for Public Justice. McDonald has maintained that using veto threats to try to make another elected official leave was gross abuse of office. “The grand jury decided that Perry’s bullying crossed the line into lawbreaking,” he said Friday. “Any governor under felony indictment ought to consider stepping aside.”
State Republican Party chairman Steve Munisteri decried the prosecution as politically motivated. “Most people scratch their heads and wonder why we’re spending taxpayer dollars to try to put somebody in jail for saying that they didn’t feel it was appropriate to fund a unit where the person in charge was acting in a despicable way,” Munisteri said....
A judge from conservative Williamson County, a suburban area north of Austin, appointed McCrum to look into the case. The current grand jury has been studying the charges since April. McCrum worked for 10 years as a federal prosecutor, starting during President George H.W. Bush’s administration. He’s now in private practice, specializing in white-collar crimes....
McCrum, a former federal prosecutor, said he interviewed up to 40 people as part of his investigation, reviewed hundreds of documents and read dozens of applicable law cases. He dismissed the notion that politics played any part. “That did not go into my consideration whatsoever,” he said. Asked why he never called Perry before the grand jury, McCrum said, “That’s prosecutorial discretion that I had.”
Of course, what makes this story so very notable from a criminal justice perspective is the extraordinary power and discretion that the special prosecutor had in developing these charges and the extraordinary impact that mere an indictment seems likely to have on Gov Perry professional and personal life.
Regular readers know that former commentor Bill Otis and I often went back-and-forth in the comments concerning my concerns about (and his support for) federal prosecutors have very broad, unchecked, hidden and essentially unreviewable charging and bargaining powers. For this reason, I was especially interested to see that Bill now already has these two new posts up over at Crime and Consequences assailing the charging decision by the (former federal) prosecutor in the Perry case: The World's Most Absurd Indictment and Politics & Prosecution, a Toxic Brew. I am hopeful (though not really optimistic) that the Perry indictment might help Bill better appreciate why I have such deep concerns about prosecutorial discretion as exercised by federal prosecutors (especially when their powers are functionally increased by severe mandatory minimum sentencing provisions).
Thursday, August 14, 2014
US Sentencing Commission finalizes its policy priorities for coming year
As detailed in this official press release, the "United States Sentencing Commission today unanimously approved its list of priorities for the coming year, including consideration of federal sentences for economic crimes and continued work on addressing concerns with mandatory minimum penalties." Here is more from the release:
The Commission once again set as its top priority continuing to work with Congress to implement the recommendations in its 2011 report on federal mandatory minimum penalties, which included recommendations that Congress reduce the severity and scope of some mandatory minimum penalties and consider expanding the “safety valve” statute which exempts certain low-level non-violent offenders from mandatory minimum penalties....
The Commission also set out its intention to consider potential changes to the guidelines resulting from its multi-year review of federal sentences for economic crimes. “For the past several years, we have been reviewing data and listening to key stakeholders to try to determine whether changes are needed in the way fraud offenses are sentenced in the federal system, particularly in fraud on the market cases,” Saris said. “We look forward to hearing more this year from judges, experts, victims, and other stakeholders on these issues and deciding whether there are ways the economic crime guidelines could work better.”
The Commission will continue to work on multi-year projects to study recidivism comprehensively, including an examination of the use of risk assessment tools in the criminal justice system. The Commission will also consider whether any amendments to the guidelines or statutory changes are appropriate to facilitate consistent and appropriate use of key sentencing terms including “crime of violence” and “drug trafficking offense.”
The Commission is undertaking new efforts this year to study whether changes are needed in the guidelines applicable to immigration offenses and whether structural changes to make the guidelines simpler are appropriate, as well as reviewing the availability of alternatives to incarceration, among other issues.
The official list of USSC priorities is available at this link, and I found these items especially noteworthy (in addition to the ones noted above):
(4) Implementation of the directive to the Commission in section 10 of the Fair Sentencing Act of 2010, Pub. L. 111–220 (enacted August 3, 2010) (requiring the Commission, not later than 5 years after enactment, to “study and submit to Congress a report regarding the 3 impact of the changes in Federal sentencing law under this Act and the amendments made by this Act”)....
(10) Beginning a multi-year effort to simplify the operation of the guidelines, including an examination of (A) the overall structure of the guidelines post-Booker, (B) cross references in the Guidelines Manual, (C) the use of relevant conduct in offenses involving multiple participants, (D) the use of acquitted conduct in applying the guidelines, and (E) the use of departures.
Wednesday, August 13, 2014
Noting the push for reforming the fraud federal sentencing guidelines
This lengthy new AP article, headlined "Sentencing Changes Sought for Business Crimes," discusses the on-going push to reform the federal sentencing guidelines for fraud offenses. Here are excerpts:
The federal panel that sets sentencing policy eased penalties this year for potentially tens of thousands of drug dealers. Now, defense lawyers and prisoner advocates are pushing for similar treatment for an arguably less-sympathetic category of defendants: swindlers, embezzlers, insider traders and other white-collar criminals.
Lawyers who have long sought the changes say a window to act opened once the U.S. Sentencing Commission cleared a major priority from its agenda by cutting sentencing ranges for nonviolent drug dealers. The commission, which meets Thursday to vote on priorities for the coming year, already has expressed interest in examining punishments for white-collar crime. And the Justice Department, though not advocating wholesale changes, has said it welcomes a review.
It's unclear what action the commission will take, especially given the public outrage at fraudsters who stole their clients' life savings and lingering anger over the damage inflicted by the 2008 financial crisis.
Sentencing guidelines are advisory rather than mandatory, but judges still rely heavily on them for consistency's sake. The discussion about revamping white-collar sentences comes as some federal judges have chosen to ignore the existing guidelines as too stiff for some cases and as the Justice Department looks for ways to cut costs in an overpopulated federal prison system....
The commission's action to soften drug-crime guidelines is a signal that the time is ripe, defense lawyers say. Just as drug sentences have historically been determined by the amount of drugs involved, white-collar punishments have been defined by the total financial loss caused by the crime. Advocates hope the commission's decision to lower sentencing guideline ranges for drug crimes, effectively de-emphasizing the significance of drug quantity, paves the way for a new sentencing scheme that removes some of the weight attached to economic loss.
A 2013 proposal from an American Bar Association task force would do exactly that, encouraging judges to place less emphasis on how much money was lost and more on a defendant's culpability. Under the proposal, judges would more scrupulously weigh less-quantifiable factors, including motive, the scheme's duration and sophistication, and whether the defendant actually stole money or merely intended to. The current structure, lawyers say, means bit players in a large fraud risk getting socked with harsh sentences despite playing a minimal role....
No one is seeking leniency for imprisoned financier Bernie Madoff, who's serving a 150-year sentence for bilking thousands of people of nearly $20 billion, or fallen corporate titans whose greed drove their companies into the ground. But defense lawyers are calling for a sentencing structure that considers the broad continuum of economic crime and that better differentiates between, for example, thieves who steal a dollar each from a million people versus $1 million from one person.
Any ambitious proposal will encounter obstacles. It's virtually impossible to muster the same public sympathy for white-collar criminals as for crack-cocaine defendants sentenced under old guidelines now seen as excessively harsh, which took a disproportionate toll on racial minorities. The drug-sentencing overhaul also was promoted as fiscally prudent, because drug offenders account for roughly half the federal prison population. Tea Party conservatives and liberal groups united behind the change.
In comparison, the clamor for changing white-collar guidelines has been muted. The Justice Department, already criticized for its paucity of criminal prosecutions arising from the financial crisis, has said it's open to a review but has not championed dramatic change. "I don't think there's a political will for really cutting back or retooling the guidelines," said Columbia University law professor Daniel Richman.
Tuesday, August 12, 2014
Eleventh Circuit finds probation sentence for public corruption substantively unreasonable
All federal sentencing fans and white-collar practitioners will want to be sure to check out a lengthy opinion today from the Eleventh Circuit in US v. Hayes, No. 11-13678 (11th Cir. Aug 12, 2014) (available here). This start to the majority opinion in Hayes highlights why the substance of the ruling is noteworthy:
“Corruption,” Edward Gibbon wrote more than two centuries ago, is “the most infallible symptom of constitutional liberty.” EDWARD GIBBON, THE HISTORY OF THE DECLINE AND FALL OF THE ROMAN EMPIRE, Vol. II, Ch. XXI, at 805 (David Womersley ed., Penguin Classics 1995) . And so, although unfortunate, it is perhaps not surprising that, even today, people continue to pay bribes to government officials with the expectation that they will make decisions based on how much their palms have been greased, and not what they think is best for the constituents they serve.
In this criminal appeal involving corruption in Alabama’s higher education system, we consider whether the district court abused its discretion by imposing a sentence of three years of probation (with a special condition of six to twelve months of home confinement) on a 67-year-old business owner who — over a period of four years — doled out over $600,000 in bribes to a state official in order to ensure that his company would continue to receive government contracts, and whose company reaped over $5 million in profits as a result of the corrupt payments. For the reasons which follow, we hold that such a sentence was indeed unreasonable.
Adding to the fun and intrigue of the ruling, Judge Tjoflat has a dissent that runs almost twice as long as the extended majority opinion. Here is how it gets started (with footnotes omitted):
I fully agree with the court that the sentence of probation Hayes received in this case of massive public corruption is shockingly low and should not have been imposed. In appealing the sentence, the Government treats the District Court as the scapegoat, as if placing Hayes on probation was all the court’s doing. The truth is that it was the Government’s doing. To ensure that Hayes was given adequate credit for cooperating in its investigation, the Government deliberately led the District Court to abandon the Sentencing Guidelines, which called for a prison sentence of 135 to 168 months, and then to ignore the Supreme Court’s explicit instructions, in Gall v. United States, 552 U.S. 38, 128 S. Ct. 586, 169 L. Ed. 2d 445 (2007), on the procedure to use in fashioning an appropriate sentence. This set the stage for the court’s adoption of a fictitious Guideline range of 41 to 51 months and its creation of a downward variance to a sentence of probation.
In appealing Hayes’s sentence to this court, the Government deliberately avoids any discussion of the District Court’s procedural error. To the contrary, it accepts the fictitious Guideline range the court adopted. All it complains of is the variance from that fictitious range to a sentence of probation, arguing that it is substantively unreasonable. Because it invited the procedural error, which, in turn, led to the complained-of substantive error, the “invited error doctrine” precludes the Government from prevailing in this appeal. Yet the court fails to acknowledge that a procedural error has occurred. Instead, it assesses the substantive reasonableness of Hayes’s procedurally flawed sentence — something the Supreme Court prohibits — and thereby avoids the need to grapple with the Government’s invited error. I dissent from the court’s failure to invoke the doctrine and to send the Government hence without day.
In part I of this opinion, I briefly recount the facts giving rise to Hayes’s conviction and sentencing. In part II, I describe how the Guidelines are supposed to operate and will show how the Government and the District Court misapplied the Guidelines and set the stage for the sentence at issue. Part III outlines the role the courts of appeals play in reviewing a defendant’s sentence, pinpoints the procedural errors in this case, and explains why the invited error doctrine precludes the Government from capitalizing on its induced error and obtaining relief. Part IV concludes.
August 12, 2014 in Federal Sentencing Guidelines, Offender Characteristics, Offense Characteristics, Procedure and Proof at Sentencing, Sentences Reconsidered, White-collar sentencing, Who Sentences? | Permalink | Comments (3) | TrackBack
Sunday, August 10, 2014
Can wine fraudster reasonably whine that his sentence was not reduced given wealth of victims?
The question in the title of this post is prompted by this intriguing AP sentencing story about a guy who tried to get rich by selling very expensive (and sometimes fake) wine before its time to some very rich folks:
A collector was sentenced to 10 years in prison in New York Thursday for making bogus vintage wine in his California kitchen, and selling it for millions of dollars. In sentencing Rudy Kurniawan, 37, Manhattan U.S. District Judge Richard M. Berman said he wanted to send a message to others who might tamper with what people eat and drink. “The public at large needs to know our food and drinks are safe — and not some potentially unsafe homemade witch’s brew,” Berman said as he announced the prison term for Kurniawan. He also ordered him to forfeit $20 million and pay $28.4 million in restitution.
Kurniawan, an Indonesian citizen of Chinese descent, lowered his head as the judge explained the sentence and described Kurniawan’s quest as a “bold, grandiose, unscrupulous but destined-to-fail con.” Assistant U.S. Attorney Stanley Okula described Kurniawan as the “kingpin of counterfeiters,” a man who turned his Arcadia home into a laboratory where he poured wine into what appeared to be vintage bottles before attaching elegant fake labels and selling them for tens of millions of dollars.
“He did it to line his own pockets,” Okula told Berman, who concluded that Kurniawan had caused losses close to $30 million, primarily to seven victims. One of them was William Koch, a billionaire yachtsman, entrepreneur and wine investor. Koch testified at Kurniawan’s December trial, when Kurniawan was convicted of mail and wire fraud.
Before he was sentenced, Kurniawan twice apologized, saying “I’m really sorry” and expressing a desire to take care of his mother, who lives in California after receiving asylum....
His lawyer, Jerome H. Mooney, asked for leniency, saying his client got swept up in the thrill of mixing with California’s wealthiest people. “He was insecure, very insecure,” Mooney said. “He wanted to be them. He wanted to be part of it.”
Mooney said Kurniawan used some of his family’s fortune to buy $40 million of wine, eventually selling $36 million of it before he realized he could develop a business in which he created mixtures that tasted like the world’s greatest wines. He said Kurniawan’s victims were wealthy and aware that counterfeit wines were a frequent occurrence in the marketplace. “Nobody died. Nobody lost their savings. Nobody lost their job,” he said. The lawyer said the 2 1/2 years Kurniawan has served in prison was enough penalty, since he had lost everything and been branded a cheat.
Okula called the defense lawyer’s comments “quite shocking,” especially when he suggested that Kurniawan should get lenient treatment because he ripped off rich people rather than the poor. “Fraud is fraud,” he said.
Kurniawan was a connoisseur of counterfeiting who mastered label making, cork stamping, bottle waxing and recorking to create fake bottles of wine. Federal prosecutors said Kurniawan turned his California home into a wine factory. Restaurants sent him empty wine bottles, then he mixed together cheap wine and rebottled it as vintage wine. He also borrowed money against his collection of fake wines and owes a New York bank several million dollars....
For example, Kurniawan phonied up two bottles of 1934 Romanee-Conti and sold them for $24,000. A fake double-magnum of 1947 Chateau Petrus was auctioned for $30,000. “He made blends,” Downey said. “He was like a mad scientist.” But he made mistakes that raised eyebrows in the world of fine wine. Kurniawan put up for auction bottles of Clos Saint-Denis from the 1940s and 1950s even though the winery didn’t start producing that appellation until the 1980s.
Thursday, July 31, 2014
Sixth Circuit panel finds one-day prison sentence unreasonable for white-collar defendant
The Sixth Circuit today has reinforced its reputation as one of the circuits most likely to declare a below-guideline sentence unreasonable with a unanimous panel ruling in US v. Musgrave, No. 13-3872 (6th Cir. July 31, 2014) (available here). Because post-Booker appellate sentence reversals are rare, this relatively short opinion is a must read for everyone who following federal sentencing law and policy closely. In addition, at a time when debates over white-collar sentencing rules and practices remain hot, all those who follow white-collar crime and punishment will want to be sure to check out this opinion as well.
Here is how the Musgrave opinion starts and finishes:
A jury found Paul Musgrave guilty of one count of conspiracy to commit wire and bank fraud and to make false statements to a financial institution; two counts of wire fraud; and one count of bank fraud. The district court sentenced him to one day of imprisonment with credit for the day of processing — a downward variance from his Guidelines range of 57 to 71 months’ imprisonment and below the government’s recommendation of 30 months’ imprisonment. On appeal, the government asserts that Musgrave’s one-day sentence is substantively unreasonable. For the following reasons, we vacate the district court’s sentence and remand for resentencing....
A defendant’s sentence must reflect the seriousness of the offense, promote respect for the law, and provide just punishment. 18 U.S.C. § 3553(a)(2). In imposing a sentence, the district court must explain, based on permissible considerations, how its sentence “‘meshe[s] with Congress’s own view of the crimes’ seriousness.’” United States v. Peppel, 707 F.3d 627, 635 (6th Cir. 2013) (quoting United States v. Davis, 537 F.3d 611, 617 (6th Cir. 2008)). The collateral consequences of the defendant’s prosecution and conviction are “impermissible factors” when fashioning a sentence that complies with this directive. Peppel, 707 F.3d at 636. A district court’s reliance on these factors “does nothing to show that [the defendant’s] sentence reflects the seriousness of his offense. Were it otherwise, these sorts of consequences— particularly ones related to a defendant’s humiliation before his community, neighbors, and friends—would tend to support shorter sentences in cases with defendants from privileged backgrounds, who might have more to lose along these lines.” United States v. Bistline, 665 F.3d 758, 765–66 (6th Cir. 2012). Thus, when a district court varies downward on the basis of the collateral consequences of the defendant’s prosecution and conviction, the defendant’s sentence will not reflect the seriousness of the offense, nor will it provide just punishment. See Peppel, 707 F.3d at 636; Bistline, 665 F.3d at 765–66.
Impermissible considerations permeated the district court’s justification for Musgrave’s sentence. In imposing a sentence of one day with credit for the day of processing, the district court relied heavily on the fact that Musgrave had already “been punished extraordinarily” by four years of legal proceedings, legal fees, the likely loss of his CPA license, and felony convictions that would follow him for the rest of his life. “[N]one of these things are [his] sentence. Nor are they consequences of his sentence”; a diminished sentence based on considerations does not reflect the seriousness of his offense or effect just punishment. Bistline, 665 F.3d at 765. On remand, the district court must sentence Musgrave without considering these factors....
In the context of white-collar crime, we have emphasized that “it is hard to see how a one-day sentence” would “serve the goals of societal deterrence.” Davis, 537 F.3d at 617. “‘Because economic and fraud-based crimes are more rational, cool, and calculated than sudden crimes of passion or opportunity, these crimes are prime candidates for general deterrence.’” Peppel, 707 F.3d at 637 (quoting United States v. Martin, 455 F.3d 1227, 1240 (11th Cir. 2006)); see also Davis, 537 F.3d at 617.
Consideration of general deterrence is particularly important where the district court varies substantially from the Guidelines. See, e.g., Aleo, 681 F.3d at 300 (explaining that the greater the variance, the more compelling the justification based on the § 3553(a) factors must be). This is even truer here, given that the crimes of which Musgrave was convicted are especially susceptible to general deterrence and the fact that there is a general policy favoring incarceration for these crimes. Indeed, “[o]ne of the central reasons for creating the sentencing guidelines was to ensure stiffer penalties for white-collar crimes and to eliminate disparities between white-collar sentences and sentences for other crimes.” Davis, 537 F.3d at 617. More importantly, Congress understood white-collar criminals to be deserving of some period of incarceration, as evidenced by its prohibition on probationary sentences in this context. Id. Where a district court’s view of a particular crime’s seriousness appears at odds with that of Congress and the Sentencing Commission, we expect that it will explain how its sentence nevertheless affords adequate general deterrence. Id.; Camiscione, 591 F.3d at 834. The district court failed to do so here.
Musgrave must be resentenced. The district court relied on impermissible considerations and failed to address adequately how what amounted to a non-custodial sentence afforded adequate general deterrence in this context. Nevertheless, it bears repeating that “[w]hile appellate courts retain responsibility for identifying proper and improper sentencing considerations after Booker, it is not our task to impose sentences in the first instance or to second guess the individualized sentencing discretion of the district court when it appropriately relies on the § 3553(a) factors.” Davis, 537 F.3d at 618 (citing United States v. Vonner, 516 F.3d 382, 392 (6th Cir. 2008) (en banc)). The district court’s sentence is vacated, and the case is remanded for the district court, in its discretion, to impose a sentence sufficient but not greater than necessary to serve the § 3553(a) factors.
I view the main message of this Musgrave case, along with other cited cases in which the Sixth Circuit has reversed similar one-day sentences on appeal, that the Sixth Circuit generally believe that at least a short period of incarceration is nearly essential for any serious crime for which the guidelines recommend years of incarceration even if the defendant is a relatively sympathetic first offender not likely to re-offend.
July 31, 2014 in Booker in district courts, Booker in the Circuits, Offender Characteristics, Offense Characteristics, Procedure and Proof at Sentencing, Purposes of Punishment and Sentencing, Sentences Reconsidered, White-collar sentencing | Permalink | Comments (0) | TrackBack
Friday, July 11, 2014
Second Circuit finds unreasonable probation sentence based on "cost of incarceration"
A helpful reader made sure I did not miss while on the road an interesting Second Circuit opinion in US v. Park, No. 13‐4142 (2d Cir. July 9, 2014) (available here), concerning reasonableness review and a sentenced reduced based on the cost of imprisonment. Here is the heart of one part of the per curiam panel decision:
After a review of the record, we conclude that the District Court committed procedural error in imposing a term of probation in lieu of imprisonment for two reasons. First, the only sentencing factor the District Court deemed relevant was the cost of incarceration to the government and the economic problems allegedly caused by the government shut‐down. As the Court clearly announced, “I am not going to put him in jail only because of the economic plight that we are facing today.” After emphasizing that its sentencing decision was based solely upon this consideration, the Court then rebuffed defense counsel’s suggestion to “supplement the record,” asserting, “[i]f we have to resentence him, we will later.” The Court also stated that if the Court of Appeals were to reverse, it would “consider all of these factors” at resentencing, clearly indicating that it did not consider the relevant factors in the first instance. The Court therefore committed procedural error by refusing to consider the § 3553(a) factors in deciding what is an appropriate sentence.
Second, and equally problematic, is that the cost of incarceration to the government—the Court’s sole justification for imposing a term of probation rather than incarceration — is not a relevant sentencing factor under the applicable statutes. We agree with the Eighth Circuit that, based on the plain language of § 3553(a), no sentencing factor can reasonably be read to encompass the cost of incarceration. Nor does the statute permit the sentencing court to balance the cost of incarceration against the sentencing goals enumerated in § 3553(a).
Park is a must-read for post-Booker sentencing fans because it includes lots of important phrases about both procedural and substantive reasonableness review. The Park opinion also talks up the importance of deterrence in one white-collar sentencing, noting "general deterrence occupies an especially important role in criminal tax offenses, as criminal tax prosecutions are relatively rare."
Wednesday, July 09, 2014
Former NOLA mayor Ray Nagin gets 10-year federal prison sentence for corruption
As reported in this New York Times article, "Ray Nagin, the former mayor of New Orleans, was sentenced to 10 years in prison on Wednesday on federal corruption charges, ending a case that began with the rebuilding of the city after Hurricane Katrina." Here are a few more more details of this high-profile federal sentencing:
The sentence was less than the recommended 15 years, but Judge Ginger Berrigan of United States District Court for the Eastern District of Louisiana told the court that the evidence failed to show that Mr. Nagin had organized or had been a leader of a corruption scheme....
Prosecutors objected to the sentence, a move that could set up an appeal. MOReaction was swift, and mixed. “I think that he got off lightly considering the violations of the public trust,” said Edward E. Chervenak, a political science professor at the University of New Orleans and a critic of Mr. Nagin during his eight years as mayor.
“I think he should have gotten more time,” says Michelle Alford, 37, a native of New Orleans and a hotel employee. “He did nothing to benefit the city. I think he should have gotten 20 years at least. I think it’s ridiculous. It’s ridiculous.”
Sunday, July 06, 2014
Interesting account of guidelines accounting facing former NOLA mayor at upcoming federal sentencing
This lengthy local article, headlined "Emotions aside, Nagin sentence likely to come down to math," effectively reviews some of the guideline (and other) factors likely to impact the federal sentencing of former New Orleans mayor Ray Nagin this coming week. Here are excerpts:
Under the rules, Nagin starts with a base “offense level” of 20 because he was an elected official who took multiple bribes but otherwise has no criminal history — facts that, with the jury verdict, are now undisputed.
The other major factors that will add points to his offense level include the financial “loss” the court assigns to his actions, the court’s judgment as to whether he was an “organizer or leader” in “criminal activity” that involved at least five people, and whether Nagin is found to have obstructed justice by lying to investigators and to the court.
There is some gray area in all of these questions. For instance, the monetary loss can be calculated to include not only bribes paid and received, but also the proceeds of any contracts that resulted from bribes. At a minimum, however, Berrigan will almost certainly find that the loss was greater than $200,000, as the jury convicted Nagin of taking more than that amount in bribes. That would bring his offense level to 32, but it could go significantly higher depending on whether Berrigan decides to include the profits of some or all of the contracts Nagin signed....
Experts say the question of financial loss is among the thorniest in calculating guidelines. The amount of bribes paid is an imperfect measure, for contracts awarded on the basis of bribes are presumed to be inflated to cover the cost of the payoffs. At the same time, the contractor usually completes the work outlined in the contract, making it unfair to count the entire value of the contract as a loss. In Nagin’s trial, the government did not present evidence to show that those who bribed Nagin failed to perform....
Other questions are similarly nuanced. If Berrigan finds Nagin obstructed justice by lying to investigators and to the jury, as prosecutors say he did on more than 25 occasions, the offense level would jump another two points. And if she finds he took a leadership role in a scheme involving five or more people, that would add as many as four more points. Though it’s clear that Nagin’s criminal conduct involved more than five people, experts say there may be wiggle room in that question, too....
Depending on how the judge rules on those questions, Nagin’s final offense level could be as low as 32, or as high as 40 or more. Based on those numbers, the guidelines would call for a sentence ranging from 10 years at the low end to as much as 30 years or even life. A filing by Nagin’s lawyer, Robert Jenkins, suggests that probation officers came up with an offense level of 38, which translates to a range of 20 to 24 years.
Jenkins asked Berrigan to consider a downward departure from that figure based on Nagin’s lack of a criminal history and an argument that the crimes of which he was convicted constituted “aberrant” behavior for an otherwise upstanding citizen. But prosecutor Matt Coman argued in an opposing motion that the guidelines already take into account the mayor’s unblemished past, which they do. Meanwhile, Coman said it was laughable to consider Nagin’s criminal conduct as an aberration, considering that he was convicted of multiple bribery and fraud schemes that unfolded over a period of years....
Apart from applying her own analysis of the guidelines, Berrigan also has some ability to go outside the recommended range, experts said. She could grant a “downward variance” on some basis she deems appropriate, provided that she explains it and the variance is not too great. Federal law spells out a number of factors a judge may consider, from the need to protect the public from further crimes to the deterrent effect of the sentence.
Saturday, July 05, 2014
High-profile ex-con (who is also an ex-Gov) eager to keep pushing for death penalty abolition
As reported in this AP article, headlined "Ex-Illinois governor Ryan wants to continue anti-death penalty work," the death penalty abolitionist community now has another high-profile advocate newly free to preach the gospel. Here are some excerpts from an interesting article:
George Ryan, an ex-Illinois governor and now an ex-convict, says he’d like to re-engage with the cause he left behind when he went to prison in 2007 — campaigning for the end of the death penalty in the U.S. “Americans should come to their senses,” Ryan said this week, in an hourlong interview at his kitchen table.
Newly free to speak after a year of federal supervision that followed his more than five years in prison for corruption, Ryan appeared to have recovered some of his old voice and feistiness, in contrast to the subdued figure that emerged a year ago from the federal penitentiary in Terre Haute, Ind., and ducked briefly into a Chicago halfway house.
At his home in Kankakee, south of Chicago, the Republican, 80, held forth on capital punishment, the state of American politics and the criminal justice system — though not the difficult details of his own corruption case.
He said he’d like to spend some time on the national circuit to encourage other states to follow Illinois’ lead in abolishing capital punishment. That move came in 2011 and stemmed from Ryan’s decision to clear death row in 2003. While he was treated as a champion by death penalty opponents at the time, he acknowledged some public figures now may have trouble openly associating with him. “I’m an ex-convict,” he said. “People tend to frown on that.”
Ryan, who was governor from 1999 to 2003, was indicted in 2003 and convicted in 2006 on multiple corruption counts, including racketeering and tax fraud. He said he does not plan to discuss the details of the criminal case — to which he always maintained his innocence — though he might in an autobiography he is writing....
He also lashed out at the U.S. justice system, calling it “corrupt” and bluntly contending that the fervor with which he was prosecuted was due in part to his nationally prominent campaign to end the death penalty. “It put a target on my back when I did what I did,” he said, adding that even prison guards derided and mocked him. “It certainly didn’t win me any favor with the federal authorities.”
It’s unclear whether Ryan’s re-emergence on the public scene will be welcomed. But at least one former federal prosecutor balked at Ryan’s contention that he may have been singled out because of his death penalty stance. “It’s absurd,” said Jeff Cramer, a former U.S. attorney in Chicago, noting that four of Illinois’ last seven governors have gone to prison. “It wasn’t his political stand that made him a target. It is what he did. ... He’s trying to rewrite history.”...
[Ryan] also expressed some sympathy for his Democratic successor, Rod Blagojevich, saying the 14-year prison sentence the former governor is serving in Colorado for trying to sell President Barack Obama’s old Senate seat and other pay-to-play schemes was excessive. The sentence is under appeal. “I wasn’t a fan” of Blagojevich, he said. “Irrespective, his sentence was out of line.”
But Ryan displayed the most passion while discussing capital punishment. Once a fervent advocate of the death penalty, he said he agonized about approving the last execution in Illinois before he issued a ban in 2000. “I killed the guy,” he said of the man who had raped, kidnapped and murdered a 21-year-old Elmhurst woman. “You can’t feel good about that.”
As he contemplated commuting all death sentences in 2003, he said he felt increasing pressure not to do it, including from one influential politician whom he remembers asking him directly not to spare one man convicted of murdering a friend’s daughter. After the commutations, Ryan said the politician never spoke to him again.
Sunday, June 29, 2014
Two new examinations of white-collar prosecutions and punishment schemes
Lucian Dervan has recently posted two notable new articles on white-collar crime and punishment on SSRN. Here are links to both articles and their abstracts:
Abstract: In this symposium article, Professor Dervan examines the issue of finality and sentencing. In considering this issue, he argues that prosecutors, defendants, and society as a whole are drawn to the concept of finality in various ways during criminal adjudications. Further, far from an aspirational summit, he argues that some outgrowths of this quest for finality could be destructive and, in fact, obstructive to some of the larger goals of our criminal justice system, including the pursuit of truth and the protection of the innocent.
Given the potential abstraction of these issues, Professor Dervan decided to discuss the possible consequences of our quest for finality through examination of specific cases. Therefore, the article examines five stories of white collar criminal prosecution. The five stories are ones in which the players sought to achieve finality in different ways and in which finality came in different forms. Despite their differences, however, the stories do share important commonalities.
First, the stories demonstrate that we must be careful not to value finality over accuracy. As an example, though plea bargaining offers both the prosecution and the defense a mechanism by which to reach sentencing finality, it must not be used to mask unfounded criminal cases or offer overpowering incentives to innocent defendants to falsely confess in return for a promise of leniency. Second, the stories remind us that the government must be careful not to confuse achieving a victorious sentencing finality with achieving a just one. Too often today, the government proceeds after indictment as though winning a sentence at any cost is worth any price. Third, the stories reveal that, in many ways, the quest for true finality in criminal cases is fleeting. While we have long been aware of the lingering collateral consequences present even after a sentence is concluded, we now must also recognize that even those who are acquitted face significant collateral consequences from indictment itself.
Abstract: Overcriminalization takes many forms and impacts the American criminal justice system in varying ways. This article focuses on a select portion of this phenomenon by examining two types of overcriminalization prevalent in white collar criminal law. The first type of over criminalization discussed in this article is Congress’s propensity for increasing the maximum criminal penalties for white collar offenses in an effort to punish financial criminals more harshly while simultaneously deterring others. The second type of overcriminalization addressed is Congress’s tendency to create vague and overlapping criminal provisions in areas already criminalized in an effort to expand the tools available to prosecutors, increase the number of financial criminals prosecuted each year, and deter potential offenders. While these new provisions are not the most egregious examples of the overcriminalization phenomenon, they are important to consider due to their impact on significant statutes. In fact, they typically represent some of the most commonly charged offenses in the federal system.
Through examination of the Sarbanes-Oxley Act of 2002 and examples of these two types of over criminalization within that law, this article seeks to understand whether new crimes and punishments really achieve their intended goals and, if not, what this tells us about and means for the over criminalization debate and the criminal justice system as a whole.
Thursday, June 26, 2014
Effective review of debate over federal fraud guidelines in preview of another high-profile insider trading sentencing
Newsweek has this lengthy and effective new article on federal fraud sentencing, headlined "Nonsensical Sentences for White Collar Criminals," which seems prompted in part by the upcoming sentencing of hedge fund trader Mathew Martoma of SAC Capital Advisors LP following his conviction of insider trading. Here are a few excerpts:
[A]s the government’s probation department recommends a sentence [for Martoma] that would be the longest ever for insider trading — anywhere from 15 to 20 years — U.S. judges, federal public defenders, the U.S. Sentencing Commission, the U.S. Department of Justice and the American Bar Association are increasingly calling into question the nation’s sentencing guidelines, which, in the words of one federal judge, “are just too goddamn severe.”...
The biggest quibble judges have with white-collar sentencing guidelines is the fact that prison terms are heavily weighted toward how much money is made or lost on a financial crime, regardless of the circumstances of the offense, whether it is insider trading, embezzlement, a Ponzi scheme or some other type of financial fraud....
The problem, says federal Judge John Gleeson, who represents the Eastern District of New York City, has built up over time, as congressional directives and statutes—often pushed by public pressure to treat offenders more aggressively and rigorously—have acted as what he calls a “one-way ratchet,” boosting the austerity and length of sentences ever higher....
The concerns come at a time when insider-trading cases — a subsection of the U.S. Sentencing Commission’s broader financial fraud category — have nearly tripled over the past three years (2011 to 2013), compared with the prior three years (2008 to 2010), according to commission data.
In sum, insider-trading cases are on the rise, with the money involved and the prison sentences growing even as judges continue to abandon federal sentencing guidelines to minimize sentences they believe to be too punitive. Sentences are “diverging, that’s for sure, and, to some extent, that reflects an absence of respect for the guidelines,” Gleeson says.
Tuesday, June 24, 2014
How SCOTUS Halliburton ruling could have white-collar sentencing echoes
Experienced lawyer and federal sentencing guru Mark Allenbaugh (firm website here) sent me an intriguing set of insights about how yesterday's Supreme Court ruling yesterday in Halliburton v. Erica P. John Fund (available here) could possibly impact some white-collar sentencing arguments. Mark kindly allowed me to reprint his analysis here:
White collar defense practitioners should be aware of today’s ruling in in Halliburton v. Erica P. John Fund. While a civil class action case, Halliburton may have some helpful applicability at sentencing.
The Court in Halliburton has expanded the application of Basic Inc. v. Levinson, 485 U. S. 224 (1988) regarding WHEN plaintiffs can prove damages in “fraud on the market cases” from a defendant’s misrepresentation. In Basic the Court, held that a class of plaintiffs could prove reliance of a defendant’s misrepresentation by “invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misrepresentations.” The presumption effectively allows plaintiffs to side-step proof of actual reliance on any misrepresentations for purposes of establishing damages. Without class certification, however, individual plaintiffs cannot invoke the presumption thereby making proof of damages far more difficult. The Court held that, contrary to the Fifth Circuit, Defendant/Petitioner Halliburton could introduce evidence that any misrepresentation lacked “price impact” to prevent certification of the class.
Halliburton could be helpful in securities fraud sentencing cases inasmuch as the government usually lumps all the victims together to determine a collective “loss” for sentencing purposes without introducing any evidence that any particular victim (save for those few who may have testified at any trial) relied on any misrepresentations of the defendant. Such a collectivization of victim losses, therefore, implicitly invokes the Basic efficient market presumption allowing the government to side-step having to prove reliance by any particular victim. But just as the Commission’s (relatively new and untested) modified recissory method for calculating loss in securities fraud case is subject to rebuttal, so too is the Basic presumption. In light of today’s ruling in Halliburton, counsel should consider providing the Court evidence that any misrepresentation by the defendant lacked “price impact” on the victims sufficient to overcome the de facto Basic presumption with respect to collective victim losses. In this way, the Government would be required to provide evidence how individual victims relied on any misrepresentations.
To be sure, unlike in sophisticated civil class actions that require precision, since determining loss at sentencing need only be a reasonable estimate, only those victims that would materially affect the loss amount should not be granted the Basic presumption; in those cases the Government would be required to prove reliance. But this is as it should be inasmuch as years if not decades of your client’s life could be at stake.
Monday, June 23, 2014
SCOTUS rules against defendant concerning required bank fraud intent in Loughrin
The Supreme Court this morning handed down a quasi-unanimous ruling in a federal bank fraud case this morning in Loughrin v. US, No. 13-316 (S. Ct. June 23, 2014) (available here). I call the ruling only quasi-unanimous because a few Justices only concurred in part with the opinion for the Court. Here is the vote break-down:
KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, GINSBURG, BREYER, and SOTOMAYOR, JJ., joined, and in which SCALIA and THOMAS, JJ., joined as to Parts I and II, Part III–A except the last paragraph, and the last footnote of Part III–B. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, in which THOMAS, J., joined. ALITO, J., filed an opinion concurring in part and concurring in the judgment.
And here is how Justice Kagan's opinion for the Court in Loughrin gets started:
A provision of the federal bank fraud statute, 18 U. S. C. §1344(2), makes criminal a knowing scheme to obtain property owned by, or in the custody of, a bank “by means of false or fraudulent pretenses, representations, or promises.” The question presented is whether the Government must prove that a defendant charged with violating that provision intended to defraud a bank. We hold that the Government need not make that showing.
Tuesday, May 27, 2014
Fascinating research on federal mortgage fraud prosecutions and sentencing in Western PA
I am pleased and excited to have learned over the long weekend that the Pittsburgh Post-Gazette and the Duquesne University School of Law collaborated on an innovative Fact Investigations class, led by associate professor and Criminal Justice Program director Wesley Oliver, to study the modern work of Western Pennsylvania's federal prosecutors in response to modern mortage fraus. As explained in this first article of a series about this work, this group "identified 144 prosecutions alleging mortgage-related crimes in the Pittsburgh area ... [and then] analyzed 100 prosecutions in which sentence had been pronounced and for which the federal sentencing guidelines could be discerned." Before getting into the findings, I want to heap praise on everyone involved in this project because it shows what valuable work can be done when law schools and traditional media team up to examine intricate and dynamic issues concerning the federal criminal justice system.
Here, from the start of the first article in the series, are the basic findings of this terrific project:
In 2008, as the housing market dragged the world economy down, orders came from Washington, D.C., to federal prosecutors nationwide: Bust the people whose lies contributed to the mess.
Six years later, the effort by Pittsburgh's federal prosecutors to punish fraudulent mortgage brokers, appraisers, closing agents, property flippers and bank employees can claim 144 people charged, more than 100 sentenced and no acquittals.
That undefeated record, though, came at a price: Some of the worst offenders got extraordinary deals in return for their testimony against others.
A review by the Pittsburgh Post-Gazette and Duquesne University School of Law students of 100 completed cases showed that the sentences of mortgage-related criminals in the Pittsburgh area were driven more by their degree of cooperation with prosecutors than by the number of people they scammed, the dollars they reaped or the damage they did to the financial system. Some of the most prolific offenders used their central places in the fraud conspiracy to secure light sentences.
• Leniency for cooperation was doled out liberally. At least 30 of the 100 defendants were the beneficiaries of prosecutorial motions to reward "substantial assistance" to the investigation. That cooperation rate is nearly double that seen in fraud cases nationwide, suggesting that prosecutors here rewarded more defendants than normal.
• Most of the mortgage criminals who assisted prosecutors got no prison time, and the average amount of incarceration for those 30 defendants was a little more than three months. By contrast, defendants who pleaded guilty but didn't provide substantial assistance to prosecutors, got average sentences of three years in prison. Those few who went to trial faced an average of 6½ years behind bars.
• Several of the figures most central to the region's mortgage fraud problem cooperated with prosecutors, and got non-prison sentences. For instance, Kenneth C. Cowden, formerly of McKees Rocks and now of Florida, performed unlicensed appraisals that exaggerated real estate values in the region to the tune of hundreds of millions of dollars. He cooperated and got nine months in a halfway house. Jay Berger of Fox Chapel, who recruited Cowden and lived lavishly from fraudulent mortgages, was sentenced in 2012 to 15 months in prison, but died this month at age 49 without serving time.
Here are links to all the article in the series:
- Mortgage fraud assault a Pyrrhic victory
- Rewards uneven in mortgage fraud cases
- She fought charges, got 10-year term
- Pleading guilty could cut defendant's sentence
Regular readers will not be at all surprised to hear me say that I view this terrific bit of investigative journalism as further proof that those who are really concerned about suspect disparities in federal sentencing ought to be much more focused on the application of (hidden and unreviewable) prosecutorial sentencing discretion than about the exercise of (open and reviewable) judicial sentencing discretion.
May 27, 2014 in Data on sentencing, Detailed sentencing data, Federal Sentencing Guidelines, Offender Characteristics, Offense Characteristics, Procedure and Proof at Sentencing, White-collar sentencing, Who Sentences? | Permalink | Comments (4) | TrackBack
Sunday, May 18, 2014
Identifying better DOJ prosecutorial priorities than low-level drug crimes
Perhaps the main reason I am a supporter of the Smarter Sentencing Act is my desire to have Congress send an important message about federal criminal justice priorities to the US Justice Department and others through a relatively modest revision of existing mandatory minimum sentencing provisions. Notably, the preamble to the SSA makes express mention of this goal, describing the purpose of the Act as designed to "focus limited Federal resources on the most serious offenders." By reducing (though not eliminating) mandatory minimums for various drug crimes, Congress would be effectively saying that federal prosecutors ought not prioritize federal prosecutions of first offenders who may have been involved in dealing only a few ounces of crack or meth or heroin.
Critically, under current law and after the SSA were to become law, if and whenever a drug offender has even a single prior drug offense or just possesses a firearm or causes any significant bodily harm, additional heightened mandatory sentences kick in. Thus, the only drug dealers likely to benefit significantly from the SSA are true first-offenders who deal only a few ounces of crack or meth or heroin. I feel confident that major dealers, repeat dealers, and those who use or threaten violence will still be a priority for federal prosecutors after passage of the SSA, and that the feds will still have plenty of prosecutorial tools to take down serious drug traffickers. And by making sure that lengthy prison terms are mandated only for the most serious offenders, federal prosecutorial and corrections resources can and should be better focused on other crimes, especially crimes that only federal prosecutors can effectively and efficiently prosecute.
What kinds of other crimes, you might ask, would I want federal prosecutors to prioritize over going after first offenders involved in dealing only a few ounces of crack or meth or heroin? Helpfully, old pal (and forner federal prosecutor) Bill Otis in a pair of new posts over at Crime & Consequences identifies two classes of federal fraud and corruption that ought to be a signal concern for federal prosecutors. Here I will provide links and highlights from these two posts:
A New Prosecution Priority for DOJ: "The lead story in the Washington Post today reports that possibly a million applicants for Obamacare subsidies may have 'misstated' their income.... DOJ should not allow something like that to happen again. Whether one loves Obamacare or hates it, no one has the right to bilk it by cheating. A few hundred highly publicized false statement prosecutions would go a long way toward keeping applicants honest and, therefore, keeping the program as solvent as it's going to get."
Another Prosecution Priority for DOJ: "My last post suggested that the Justice Department prosecute at least some of the thousands of Obamacare applicants who have intentionally falsified statements of their income in order to bilk the taxpayers for even more than they're being bilked out of already. There is second priority I would suggest for DOJ examination -- a priority that, it seems, the Department may have taken up. As the New York Times reports: 'The Department of Veterans Affairs' inspector general is working with federal prosecutors who are trying to determine whether criminal violations occurred at a medical center in Phoenix accused of falsifying data or creating secret waiting lists intended to hide months long delays for veterans to see doctors, a top official told a Senate committee on Thursday.'"
I suspect Bill would be quick to assert that the federal government in general and DOJ in particular has plenty of resources to keep going after all drug offenders and to now start going after Obamacare cheats and federal executive branch liars. Though it is surely true that federal prosecutions are not a zero-sum game, the fact remains that the sentencing laws on the books necessarily serve to structure and greatly influence the exercise of prosecutorial discretion for this Administration and others. Plus, state prosecutors can (and still do) go after low-level (and high-level) drug dealers, whereas state prosecutors cannot go after after Obamacare cheats and federal executive branch liars.
In short, I heartily endorse Bill's suggestion that AG Holder and his prosecutorial agents start going after Obamacare cheats and federal executive branch liars. And that endorsement of DOJ prosecutorial priorities provides an additional reason for my support of the SSA and its effort to reorient federal prosecutorial priorities accordingly.
Some prior posts about the SSA and debates over federal sentencing reform:
- Smarter Sentencing Act passes Senate Judiciary Committee by 13-5 vote
- Are "hundreds of career prosecutors" (or mainly just Bill Otis) now in "open revolt" over AG Holder's support for the Smarter Sentencing Act?
- Forecasting the uncertain present and future of federal legislative sentencing reform
- House Judiciary Chair suggests Smarter Sentencing Act still facing uphill battle on the Hill
- Effective Heritage analysis of federal MMs and statutory reform proposals
- Significant collection of significant former federal prosecutors write to Senators to oppose SSA
- Another notable letter expressing opposition to SSA ... on US Senate letterhead
- How do we reconcile Senator Jeff Sessions' vocal support for the FSA and strong opposition to the SSA?
Friday, May 16, 2014
Federal judge splits the difference in sentencing former SAC money manager to 3.5 years
As reported in this Wall Street Journal article, a federal district judge in a high-profile white-collar sentencing today imposed a prison term roughly half-way between what federal prosecutors and the defense sought. Here are the basics:
A federal judge sentenced former SAC Capital Advisors LP portfolio manager Michael Steinberg to three and a half years in prison Friday, saying he hoped Wall Street would learn from this case. The term was well below what prosecutors had sought.
U.S. District Judge Richard Sullivan called the former senior SAC employee "a basically good man," citing evidence of his character supplied in 68 letters sent by his family and friends. But he also pointed to the seriousness of Mr. Steinberg's insider trading. "They are crimes that go to the heart of living in an honest society and having a market system," he said during a hearing in Manhattan federal court. Wall Street, he hoped, would "derive lessons."
Mr. Steinberg, 42 years old, is SAC's most senior former employee to be convicted of insider trading. Prosecutors had asked for a sentence of 5¼ to 6½ years to send a strong deterrent message to the market. Mr. Steinberg's lawyers had requested less than half that amount.
Mr. Steinberg was convicted in December on four counts of securities fraud and one count of conspiracy for trading on confidential information, handing prosecutors the first verdict from a federal jury to back up their allegations that there was insider trading at SAC. There is a chance Friday's sentence won't stick. A pending appeal in a related insider-trading case could bolster Mr. Steinberg's chances to overturn his conviction.
Wednesday, May 14, 2014
"Federal Judges Are Cutting Rich Tax Cheats Big Sentencing Breaks"
The title of this post is the headline of this lengthy and interesting new piece at Forbes by Janet Novack. Here are excerpts:
Increasingly, federal judges are going easy on tax cheats, or at least easier than the U.S. Sentencing Commission’ s guidelines say they should. The trend has been quietly building since 2007, but was given a high profile Forbes 400 face in January when a Chicago federal judge let billionaire H. Ty Warner off with probation for hiding as much as $106 million in UBS AG and a smaller Swiss bank for more than a decade and evading at least $5.5 million in tax on his secret accounts. According to the sentencing guidelines, the 69-year-old Warner, who made his fortune by creating Beanie Babies, should have gotten 46 to 57 months in the federal pen. Prosecutors have appealed Warner’s sentence, asserting, among other things, that the judge was unreasonably impressed by his “not so extraordinary” charity and by gushing letters from employees, and business associates....
[I]n 2005, the Supreme Court ruled in U.S. v Booker that the guidelines were merely advisory. Subsequent Supreme Court and appellate decisions have made it clear that trial judges have broad discretion to depart from the guidelines and will only be overturned if they’ve failed to properly consider the guidelines or their decision is clearly unreasonable. “Once they make the noises about calculating the guidelines, they can come up with their own numbers, and they can base it on anything they want,” says Scott A. Schumacher, a professor at University of Washington Law School who has written a new paper on tax-sentencing post-Booker that is being published in the Villanova Law Review. While the percentage of all sentences that fall within the guidelines has steadily declined since Booker, the change in tax sentences has been particularly dramatic, he adds.
For example, in fiscal 2013, judges gave below guideline sentences, without buy-in from prosecutors, to 45% of those sentenced for tax crimes, but just 28% of those sentenced for embezzlement; 26% of those sentenced for fraud; and 22% of those sentenced for forgery or counterfeiting. (Another 20% of tax offenders got sentence reductions which prosecutors sponsored, usually as a reward for providing “substantial assistance” to the government.)
While the light sentencing of some offshore cheats has gotten attention, the larger leniency-for-tax crimes trend has been mostly obscured by Internal Revenue Service reports, which show the average prison term for “tax and tax related crimes” rising from 21 months in 2004 to 31 months in 2013. The IRS numbers, however, are skewed by the long prison sentences (some more than 10 years) being meted out to those convicted in the recent epidemic of identity theft refund fraud — a crime Kathryn Keneally, U.S. Assistant Attorney General for the Tax Division described at an American Bar Association Tax Section meeting last week as “more like street crime.”
The Sentencing Commission’s statistics, by contrast, count only pure tax crimes and not those in which identity theft, public corruption, drug dealing or some other charge is considered the primary offense and tax evasion is thrown in. By the USSC’s figuring, the average sentence for a tax convict last year was just 14 months, with a median of 12 months. In those cases where sentencing judges handed out a downward departure citing the Booker decision, the commission’s data shows, the median sentence was cut by 78.5%; in such cases the most lenient within-guideline sentence would have been a median of 16 months and the lucky convicts got a median sentence of just four months. (A side benefit: such short sentences can be served in community facilities, instead of the federal pen.)
Surprisingly, the average sentence for tax crimes hasn’t changed much, even as the percentage of tax cheats getting a sentencing break has risen. The likely explanation is found in the way the sentencing guidelines work, ratcheting up prison terms as the amount of tax the government was cheated out of rises. As prosecutors have focused more on wealthier tax cheats and bigger dollar cases involving both onshore and offshore evasion, the sentences tax offenders are supposed to get have risen too. Last Friday, for example, a federal judge sentenced Patricia Hough, a 67-year-old Fort Myers, Fla. psychiatrist, to 24 months in jail. That might sound like a lot, except her guideline sentence was 80 to 100 months....
These days, sentencing judges routinely give lip service to that need for general deterrence, but still seem sympathetic to the argument that by being prosecuted, individual defendants have already suffered more than their chiseling peers. In offshore cases, defendants’ lawyers never fail to point out that tens of thousands of people (the last count released by the IRS was, 43,000) with undeclared foreign accounts have escaped prosecution through the Offshore Voluntary Disclosure Program....
Sentencing judges also tend to be sympathetic to other arguments typically made by wealthy and successful convicts: that they have given a lot to charity; have already been publicly humiliated; have paid heavy fines (in Warner’s case a $53 million penalty for failing to file required reports of Foreign Bank and Financial Accounts ); and even that they are simply too valuable as either job creators or community volunteers to be sitting in jail. Chicago Federal District Court Judge Charles P. Kocoras, before giving Warner probation, cited all those considerations....
[S]ince the Supreme Court’s Booker decision, only one tax sentence has been reversed on appeal. In that case a sentencing judge gave probation to Frederick L. Engle, who had evaded his taxes for 16 years using shell corporations. According to sentencing guidelines, he should have gotten 24 to 30 months. The sentencing judge’s stated reason for the leniency was that Engle, a high earning sales rep for shoemaker Nine West who had relationships with Wal-Mart, Target and J.C. Penny, would be able to earn good money to pay back the IRS if he was kept out of jail and allowed to travel abroad.
In overturning the sentence, a three judge panel of Fourth Circuit Court of Appeals wrote: “Reduced to its essence, the district court’s approach means that rich tax-evaders will avoid prison, but poor tax-evader will almost certainly go to jail. Such an approach, where prison or probation depends on the defendant’s economic status, is impermissible.”
After Engle failed to appear for his new sentencing hearing and continued to evade tax, he was sentenced in absentia to 60 months in jail. When U.S. Marshals caught up with him, he got an additional year for failure to appear. Now 73, Engle is serving his time at the Butner, N.C. federal correctional institution and is not scheduled for release until October 2015.