"Madoff Mercy: How long should the Ponzi schemer go to prison for?"

The title of this post is the title of this Slate commentary by Harlan Protass, who uses all the ugly Wall Street news to spotlight the the over-emphasis of loss in how the federal sentencing guidelines deal with white-collar fraud.  Here are lengthy excerpts from an effective piece:

[W]hen it comes to large-scale frauds involving public companies and their millions of shares, the guidelines' grounding in mathematics sometimes results in sentences that are, quite literally, off the chart.  They fall within the realm of prison terms usually reserved for mafia bosses, major international drug lords, cop killers, child molesters, and terrorists.

Remember Jeffrey Skilling — losses to Enron shareholders of more than $1 billion largely determined his 24-year-plus sentence.  Or consider WorldCom's former chief, Bernie Ebbers.  He got 25 years based principally on the $2.2 billion loss suffered by his company's shareholders. Sure, these men destroyed enormous shareholder value, just as the targets of today's criminal cases allegedly did.  But it's hard to contend that they deserved prison terms longer than the average sentence for murder (22 years), kidnapping (14), and sexual abuse (eight).

Tying jail terms to the amount of money lost also puts way too much power in the hands of prosecutors. It gives them the muscle to threaten long prison stretches in order to coerce guilty pleas. If it weren't for the risk of lengthy sentences if convicted, many defendants might opt to test the government's evidence before a jury.

Linking jail time to dollars lost also severs many of the ties to factors courts are supposed to consider when determining and imposing sentences.  For example, a relatively short prison term — years, not decades — can be enough to deter prospective financial fraudsters. And economic offenders pose little future threat because they're generally stripped of powers that would permit continued criminal conduct.  Also, aren't there more fitting and useful ways to punish the titan fraudsters of Wall Street?  Strip them of their wealth.  Make them work to pay back those they ripped off or to serve the public good.

The Supreme Court's landmark decision in United States v. Bookerallowed judges to use good, old-fashioned common sense to reduce radically long sentences produced by the guidelines. And some judges have done that.  In 2006, Richard Adelson, former president of Impath Inc., a laboratory services company that collapsed as a result of an accounting fraud, was convicted of securities fraud and filing false documents. The guidelines recommended a life sentence. Instead, a judge sentenced Adelson to 42 months in prison. (A federal appeals court in New York approved that call last week.)  Lennox Parris and Lester Parris, co-directors of a New York-based water company, were convicted of securities fraud in connection with a scheme to boost the value of their company's stock with a series of press releases misrepresenting its success in scoring distribution contracts.  They were each sentenced earlier this year to five years imprisonment, even though they faced 30 years to life under the guidelines. And this week, the former CEO of reinsurer General Re, Ronald Ferguson, who faced life imprisonment for his role in a rotten deal to artificially inflate the balance sheet of insurance giant AIG, was sentenced to two years in jail.

But honestly, that kind of largesse is rare.  Most judges still stick close to the guidelines and the huge sentence recommendations they make for causing huge financial loss.  Given that hundreds of billions, if not trillions, were lost on Wall Street this year, we could be talking about a parade of defendants swapping cuff links for handcuffs and facing not years behind bars but decades.  That's more punishment than even Bernard Madoff deserves.

Regular readers know that I agree with a lot of what Harlan has to say, and his point about the power federal prosecutors wield in this context is especially important and often overlooked.  That all said, Madoff's alleged crimes seem, at least from the early press reports, to be of a different character and magnitude than some of the other cases noted by Harlan. 

For me the core problem with an obsessive concern with loss amounts is that, in many settings, the quantifiable amount of "loss" under the guidelines often has little or no connection to offenders' culpable mental states and subjective culpability.  There are suggestions, however, that Bernie Madoff was in fact very culpable (perhaps for a very long time), and that the high loss levels in his case may have a direct relationship to his subjective culpability.  Like all good law professors, I am troubled by severe punishments based on strict liability sentencing factor, but it is not clear this is a major concern in the Madoff case.

Moreover, Harlan's effective commentary still effectively ducks in the hardest question: exactly what punishment levels should be the norm in large-scale frauds involving public companies.  He suggests that years and not decades may be the right ballpark, but there is a huge gulf between say three and thirty years imprisonment.  These cases are so hard — and the current guidelines are so inadequate — because we do not have a ready metric or shared moral sense of how best to assess these kinds of crimes.  But, as suggested above, I do think subjective culpability should be more important and that "loss" concepts are too important in the current federal sentencing scheme.

Some recent related posts:

• White-collar fraud meets technocorrections for Bernie Madoff
• Another prominent white-collar defendant gets a big variance
• A thoughtful and theory-driven exploration of a parsimonious white-collar sentence
• Second Circuit affirms (in unpublished opinion) greatly reduced white-collar sentence
• Noting the Second Circuit's approval of big white-collar sentencing break
• The loss-culpability connection (or disconnect) in white-collar sentencing
• FSR issue focused on white-collar sentencing

UPDATE:  This postat ChattahBox provides something of a counter to Harlan's commentary.  It is titled "Bernard Madoff Deserves The Life Sentence He’s Likely To Get."