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April 21, 2005

Are the federal guidelines too tough on white-collar offenders?

UPDATE at 1:30pm:  The Houston Chronicle reports in this article that this morning former Merrill Lynch executive Daniel Bayly received a sentence of 30-months imprisonment for his role in the Enron Nigerian barge fiasco.  Here are some very interesting snippets from that article:

U.S. District Judge Ewing Werlein told Bayley he had never sentenced such a defendant with such a sterling reputation.... Werlein said he found the loss caused by Bayly's crimes to be $1.4 million. [N.B. This judicial loss determination is much less than the jury's loss determination in November].

During this morning's hearing, Werlein said Bayly deserved a less harsh sentence than the 4 to 5 years in prison sentencing guidelines would suggest.  The judge said many letters submitted to the court in support of Bayly convinced him of Bayly's good character and reputation. He also said lighter sentences can deter white collar defendants more than other criminals.

In sentencing Bayly, Werlein said he considered the sentences the government has given in plea deals with other Enron defendants. The judge also characterized the barge fraud as relatively benign in the big Enron picture.

ANOTHER UPDATE:  I have also posted, in a separate entry, More news on the Enron Nigerian Barge sentencing.


A few weeks ago, I queried in this post whether we are seeing a pattern of leniency in white collar cases post-Booker.  Professor Weinstein in the comments and others suggested that such a pattern (if it exists) might reflect the fact that, under the federal guidelines, "sentences, keyed to illusory loss numbers, had grown too harsh."

Today sentencing is scheduled for the defendants in the Enron Nigerian barge case (which I discussed at length pre-Booker because the district judge had convened a sentencing jury, details here and here).   This AP story provides background on the sentencing and notes that the PSRs in the case have recommended prison terms of 14 years for one defendant and 33 years for another. 

Interestingly, as detailed in this Wall Street Journal article, the Chamber of Commerce has filed an amicus brief in this case to challenge the way losses are calculated under the guidelines.  Here are a few excerpts from the WSJ article:

The Chamber's brief is an example, observers say, of a feeling within the business community that the government's crackdown on corporate behavior may have gone too far in the wake of the scandals at Enron and other big companies.  With the passage of time, "perhaps the business community feels the climate is a bit better for them to push back" against some of those initiatives, says Robert Litt, a former senior Justice Department official and now a partner at the Washington law firm Arnold & Porter....

In the Nigerian barge case, the Chamber is attacking the Justice Department's method for calculating the financial damage of the fraud.... Under federal sentencing guidelines, which have long been used to determine prison sentences, an important factor in a fraud case is the size of the financial loss that investors suffered as a result of the deceit.  A prison sentence can be altered by years, depending on the results of that calculation.

In the barge case, the math is trickier because questions about the transaction didn't surface publicly until after Enron had collapsed into bankruptcy court in December 2001 and its stock price had fallen to near zero.  The government argues that the bogus profits produced by the 1999 barge transaction artificially inflated Enron's stock price at the time by at least $43.8 million and that this amount should be considered the loss to investors.  In their court filings, the defendants argue that the calculated loss to Enron shareholders should be zero, based partly on the fact that the alleged barge fraud wasn't revealed until after the company's stock price had already crashed.

The Chamber of Commerce's brief supporting the defendants' position argues that the "artificial inflation" of a stock price shouldn't be used to determine loss. A "loss" comes only when disclosure of the alleged fraud causes a drop in the price of the company's stock, the brief says -- adding that the government embraced this definition in a civil securities case that was decided this week by the Supreme Court.  In that opinion, the High Court agreed that investors need to show a link between the alleged fraud and a decline in the company's stock price to proceed with civil suits.

April 21, 2005 at 11:18 AM | Permalink


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» Ebbers sentence from PointOfLaw Forum
Bernie Ebbers was sentenced to 25 years in prison on the grounds that, as prosecutors posited, his crimes caused $2.2 billion in losses. But prosecutors' methodology for calculating that loss is questionable. As Tom Kirkendall points out, it contradict... [Read More]

Tracked on Jul 16, 2005 12:24:45 AM

» Ebbers sentence from PointOfLaw Forum
Bernie Ebbers was sentenced to 25 years in prison on the grounds that, as prosecutors posited, his crimes caused $2.2 billion in losses. But prosecutors' methodology for calculating that loss is questionable. As Tom Kirkendall points out, it contradict... [Read More]

Tracked on Feb 22, 2007 11:57:35 AM


The restitutionary civil/criminal divide issue is again raising its head in these types of white collar crimes

Brian Kleinhaus
Fordham '06

Posted by: Brian Kleinhaus | Apr 21, 2005 11:48:40 AM

This kind of "fraud" is patently ridiculous since stocks go up and down daily due to whatever "rumor of the day" is going around and/or "rumor of the hour". True loss is calculated by how much investors actually LOST (i.e. purchase price of the stock vs. sold price during the exact period of the "fraud"). Impossible? Correct. When a "crime" is calculated by pure imagination, then it is right to say these types of crimes (and probably many others) are crimes of the imagination.

Posted by: jewel | Apr 21, 2005 2:00:48 PM

It ought to be relevant whether the barge fraud contributed to the high end of Enron's stock price.
The higher, the greater the loss, whether somebody bought low and rode it up or bought at the top.
If the barge fraud's illusory profits could have been shown to be worth fifty cents to the share price, then the loss would be fifty cents times the number of outstanding shares.
If, on the other hand, there was little or no connection, then the loss was minimal and we're left with fractured laws, which require certain penalties but not necessarily graduated by loss.

Posted by: Richard Aubrey | Apr 21, 2005 3:25:17 PM

Bayly supposedly caused a loss of $1.4 million. Even if the true loss was just 10% of that, or $140,000, he's still getting off a lot easier than he would have if he'd openly stolen that money from a bank (as opposed to what he did, which was a lot like stealing a little bit from a large number of banks).

I'm not saying that it's not worth thinking about the difficulties of evaluating loss, but it seems to me that regardless of how the difficulties are resolved, the answer to "are the federal guidelines too tough on white-collar offenders?" is still "no."

Posted by: WW | Apr 21, 2005 4:14:11 PM

Appeals court sends back federal court sentence in embezzlement case
April 20, 2005
Associated Press

NEW YORK -- The 2nd U.S. Circuit Court of Appeals on Tuesday rejected a federal judge's sentence for a Connecticut woman who avoided a lengthy prison term after embezzling about $366,000 from a bank where she worked.

Federal prosecutors appealed the sentence handed down in May 2004 against Susan K. Godding of Norfolk, Conn., by U.S. District Judge Peter C. Dorsey in New Haven.

Godding pleaded guilty to embezzling over five years from the National Iron Bank in Norfolk. She faced up to 30 months in prison, but Dorsey sentenced her to one day in prison, six months of home confinement and five years' probation.

The 2nd U.S. Circuit Court of Appeals returned the sentence to the district court for additional review. The judges said they were "most troubled" by the lower court's mention of the bank's failure to detect and prevent the embezzlement, though Dorsey did not rely on that factor in sentencing.

"Godding embezzled a significant sum and we do not think a district court could properly discount Godding's responsibility for the amount by referring to the bank's failure to check the crime," the appeals court decision said.

In addition, the appeals court judges said they were "more broadly concerned" that the prison term "does not reflect the magnitude of the theft of nearly $366,000 over a five-year period."

U.S. Attorney Kevin O'Connor said in a statement that he was pleased with the decision, "which recognizes that Ms. Godding's sentence was inappropriate."

"The decision properly puts the blame where it belongs: squarely on Ms. Godding's shoulders," he said.

The ruling sends the case back to Dorsey to explain exactly why he handed down the sentence. The appeals court did not say what the sentence should be.

Posted by: Brian Flanagan | Apr 21, 2005 4:36:05 PM

Brian, the Godding case is discussed at this post:

Posted by: Doug B. | Apr 21, 2005 4:55:07 PM

I'm just a plain old citizen who likes to see just how much more "goofy" our judicial system can get. Some of the reasoning I see in all of the Appeal Courts and Judges makes me wonder where these people come from and just where are they going. If it were not so serious it would be a real "leg slapper".

Posted by: Rachel Alburtis | Jul 11, 2005 12:07:51 AM

in reference to the actual policies on prosecuting white-collar criminals, can anyone tell me what the laws actually are? and what the different political stances are on the commiting one of these corporate crimes are? thanks, Amanda.

Posted by: Amanda | May 2, 2006 2:45:31 PM

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Posted by: | Oct 14, 2008 9:11:06 AM

I guess the reason white collar workers receive longer sentences is that their actions affect far more people and they generally tend to be in a position of trust.

Posted by: legal advice | Nov 23, 2012 9:12:03 AM

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