White-collar crime sentencing goes overboard? (Are the sentences too stiff for the crime?)

Forbes.com ^ | April 21, 2004 | Neil Weinberg Mary Ellen Egan

[fight_truth_decay]

White-collar crooks deserve tough treatment. But 24 years for Dynegy's Jamie Olis? Politics has turned financial fraud into a worse crime than running drugs or killing someone.

Former Tyco chief executive Dennis Kozlowski is a lucky guy. Not because a stubborn juror landed him a mistrial. He's lucky because even if New York prosecutors retry him, as they've vowed to do, the flamboyant former exec is looking at 15 to 30 years, no more. Were Kozlowski in federal court instead, he could easily be facing what amounts to a life sentence--with no chance of parole--under rigid new sentencing guidelines.

While most of the country wasn't paying attention, Congress cranked up the penalties for white-collar crimes. This is Washington's way of dealing with the terrible losses in your 401(k) plan. Next time a stock goes into the tank, prosecutors will be looking to see if they can get the chief executive behind bars and throw away the key.

Sentencing guidelines--despite their name, they give judges little discretion--have been around since 1987. But they were stiffened in 2002 as part of "emergency" measures in the wake of the Sarbanes-Oxley corporate reform movement. The maximum punishment for wire and mail fraud, the most common white-collar infractions, was increased from 5 to 20 years. A chief executive who makes a material misstatement that causes a 50-cent drop in his company's billion-share float now faces 11 years in jail.

If he is instead caught trafficking 40 grams of heroin, he'll be back on the street in three years. If he kills someone intentionally, but not murderously, and is convicted of voluntary manslaughter, the maximum federal punishment is ten years.

"These sentences are outrageous for nonviolent, nondrug cases," says Preston Burton, a former federal prosecutor who, as a criminal defense attorney, serves on the U.S. Sentencing Commission's practitioners' advisory group.

Okay, Enron's ex-finance chief Andrew Fastow should do hard time for a fraud that cost employees and investors billions of dollars. But the irrationality of the white-collar sentencing system became painfully apparent in March, when Jamie Olis, a 38-year-old former midlevel Dynegy executive, was given 24 years for booking a loan as revenue. Olis is no Snow White, but neither is he a thief on a grand scale. His take from the misdeed reportedly was $272,000 in salary and bonus in 2001, plus $200,000 in stock sales. "I take no pleasure in sentencing you ... but my job is to follow the law," U.S. District Judge Sim Lake said in meting out punishment from a formulaic federal sentencing grid. Nearby, Olis' wife held a baby daughter who could be out of college before her dad gets out of prison.

Olis' sentence was based on his total of 40 "offense level" points: 6 for fraud, 26 for causing $100 million in investor losses, 4 for harming 50 or more people, 2 for being a "sophisticated" executive and 2 for being a certified public accountant.

Bubble-era white-collar crooks, beware: Even crimes committed before the new guidelines took effect can be "pulled forward" for sentencing purposes if prosecutors prove a perp obstructed justice or committed another related offense later on. It's not just the Bernie Ebbers of the world who need fret either. Anyone nailed for causing more than $1 million in losses to investors faces a decade or more in prison.

There's a lot of imagination in calculating losses from a misdeed. Dynegy was a sick company in any event, as lenders fled energy traders and suits started flying over the California power scandal. But under the guidelines, an accountant who puffs up earnings can be blamed for the whole collapse.

As the law now stands, someone who artificially pumps up a stock with 100 million shares outstanding, and whose price subsequently falls $8 below where it was when the scam started, is treated as if he personally stole $800 million.

A judge can depart from the sentencing guidelines if he's willing to send a report on the matter to Capitol Hill. Judge Lake declined to take this step.

It's scary stuff, enough to coerce folks under suspicion to cop a plea. That's exactly what Olis' colleagues did, including his boss, and they're getting no more than five years. Demand a day in court, or just be a chief executive with no one higher up to snitch on, and you risk rotting away.

[Wheee The People]

What a pantload article. If they can't do the time, don't do the crime.

[dirtboy]

The flip side is, a lot of white-collar crime has the ability to impact thousands of people economically. If someone steals my car, it affects only me and I have insurance for it. But if a crooked CEO tanks a stock that I own, me and thousands of others are out millions of total dollars with little recourse for recovering that money.

[Rutles4Ever]

I think these prison terms are out of step with the crimes. A far more effective punishment would be twenty-four years of wage garnishment into a general fund for restitution purposes...... Talk about hitting them where it hurts... Subsidized housing... gub'ment cheese...

[Archangelsk]

Good point. The reason we sentence spies, such a Ronald Pelton to life in prison or death, is because of the untold billions of dollars that are wasted as a result of the compromise of our intel systems.

[Rutles4Ever]

I just think their needs to be some sort of financial angle to the punishment as well.... Maybe half the time, plus wage garnishments, etc...

[Thoro]

It's scary stuff, enough to coerce folks under suspicion to cop a plea. That's exactly what Olis' colleagues did, including his boss, and they're getting no more than five years. Demand a day in court, or just be a chief executive with no one higher up to snitch on, and you risk rotting away.

Or if you stick to the ethics of good business, you wouldn't have found yourself in the position of worrying about needing someone higher up to snitch on.

I'm sorry, I just feel no sympathy for this crowd. They knew what they were doing, they knew it was unethical, and they knew the long-term effects on the market/shareholders.

[thoughtomator]

If they were treated like drug traffickers, they'd have all their assets confiscated before the trial, so they can consider themselves lucky in the modern USA that ignores the 4th/5th/8th Amendments. For the gravity of the crimes committed, the sentences seem appropriate.

We need to clear all the pot smokers out of jail and put child molestors there in their place. That's the current problem with sentencing, not any grief that the white-collar crowd might experience. For them, a fear of getting caught and suffering a major punishment is healthy.

[drypowder]

The death penalty for premeditated murder is in place as a deterrent. Property confiscation of drug dealers is in place as a deterrent. This is a good thing. 25 to 30 year prison sentences for white collar crime may also be a deterrent but in conjunction, the convicted white collar criminals should also lose all of their ill conceived wealth.

[Mr. Bird]

How much of the financial chicanery is a result of complicated tax laws and regulations? It seems that a lot of the incidents of mischief revolve around misreporting or misrepresenting basic economic facts. Booking a loan as revenue? That's just a flat out lie.

But there are all sorts of "standard" practices involving depreciation, carryover, etc. that are strictly inventions of the tax code. Seems to me that a company should be able to report out its income and expenditures pretty easily. Would that make cheating more difficult?

I'm not a lawyer or accountant. It just seems like corporate finance has turned into something it need not be.

[Smogger]

Prison should be for dangerous people. BS sentencing laws like these are why we have to let murderers, rapist, and other violent criminals out of prison early to make room for people that, while no means choir boys, do not pose the same threat to society.

Draconian sentences are no deterrent to crime since criminals do not believe that they will be caught. They should be reserved for people to dangerous to be on the street.

[chris1]

Exactly. Much of the fraud stems of tax laws and codes that beg for interpretation and creativity. The tax law has created this problem.

[jonascord]

We're talking about Hahvahd men, MBAs that were taught that laws are for the little guys, and even if they were caught, it would be 3 months in Club Fed. The THOUGHT of 15 years in Leavenworth will scare the snot out of them.

[Southern62]

Modern Day robber-barons...

[Atlas Sneezed]

A far more effective punishment would be twenty-four years of wage garnishment into a general fund for restitution purposes...

---

Good idea, imagine if we took about 40% of everything they earn in the future, and more than half of all the assets they manage to accumulate!

[drypowder]

Just the snot?

[Old North State]

Take the word "collar" out of the title and it will help you recognize what is going on. Every big city prosecutor's dream, the great white defendant.

[longtermmemmory]

You have to be VEeeeery careful with white collar crime. Anybody can be caught up by accident.

Remeber the alternative minimum tax was only supposed to snare millionares. Now it is catching the middle class. (there is also the BS of anyone who makes $250000 a year is a millionare because four years of this income equals a million)

We must always beware of the law of unitended consequences.

[proxy_user]

Awww, the heck with it!

Paging Mr. Draco, are you there? Where are the tough guys when we need them?

OK:

"State Legislature Authorizes Execution for All over 18"

There we go....

[KeyLargo]

"...1) The US Chamber of Commerce says that losses from employee embezzlement may be as high as $20 billion to $40 billion annually. These figures place employee theft at a larger amount than burglary, car theft, robbery, and larceny combined. This estimate is slightly higher than the estimate of employee theft by the Bureau of National Affairs, which places the total at between $15 billion and $25 billion annually.

2) The FBI and other federal agencies have estimated total US fraud losses are between $60 billion and $200 billion annually.

3) In the aftermath of the savings and loan failures, studies found that criminal fraud had been perpetrated in 60 percent of all S @ Ls seized by the government.

4) The Federal Trade Commission and the Health Insurance Association of America estimate that fraud comprises 10 percent of the nation’s health care bill. By 1989, this translated to $60 billion, in 1990 to about $67 billion; by the end of the 1990’s, fraudulent charges may cost the nation over $160 billion a year…. 20 percent of all medical procedures are unnecessary. The total cost of such waste is estimated at $132 billion per year.

5) Thirty percent of all business failures are caused by white-collar crime. Crime against small companies accounts for 80 percent of all crimes against business.

6) Studies have shown that 3 out of 10 workers look for ways to steal, another 3 out of 10 will steal if given the opportunity, and 4 out of 10 will usually be honest.

7) Forty-five of the nation’s 100 largest defense contractors have been investigated for overbilling the federal government. Companies such as General Electric, Boeing, Rockwell International, Sperry Corporations, and McDonnel Douglas have allegedly submitted false work time cards, altered time cards without employees’ knowledge, charged labor costs to wrong contracts, and billed the government for perks for corporate executives, including country club memberships and even tickets to the Metropolitan Opera...."

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