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.