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Wednesday, September 21, 2005

White Collar Criminal Sentences: How Long Is Too Much?

Whitecollar1 An article in the New York Times discusses the debate over the increasingly long sentences for those convicted of white collar crimes:

Bernard J. Ebbers, the former chairman of WorldCom who was convicted of masterminding an $11 billion accounting fraud that bankrupted the company, was sentenced to 25 years in prison.

Because Mr. Ebbers is 63, some have contended that the sentence amounts to a life term. Likewise, John J. Rigas, the 80-year-old founder of Adelphia Communications, was sentenced to 15 years.

"You have to ask yourself whether the proof in these cases warrants such a sentence," said Otto G. Obermaier, a former United States attorney in Manhattan, who had been an aggressive prosecutor of white-collar crimes when he ran the office from 1989 to 1993. "Ebbers's sentence moved the goal posts pretty far back. You can describe it as a pendulum switch, but it is an overreaction." . . .

No lawyer is suggesting that white-collar criminals not serve time. Rather, lawyers and jurists are asking what the appropriate sentence is for white-collar crimes relative to punishments for other crimes in a post-Enron world.

The article continues with some quotes from Jonathan Simon (law, Boalt) who compares the punishments of white collar crimes to drug crimes and notes that "both represent increasingly irrational and inhumane levels of punishment." 

Quite frankly, I have a hard time feeling upset about the lengthy sentences being doled out to white collar criminals these days. For decades, those convicted of drug crimes have been sentenced to prison for extremely long periods of time, even for amounts of drugs with not a very high monetary value.   In contrast, white collar crimes have often been punished lightly, in prisons that resemble boarding school.   

Often the discussion over sentencing white collar criminals focuses on deterrence, noting that merely being convicted is extremely shameful for white collar criminals, that shame can be a very strong deterrent, and that consequently, there is little need for a lengthy period of incarceration.  But another goal of punishment is retribution.  While the retributive urge should be tighly controlled in penal sanctions, I believe that it should remain an important component in sentencing.  Many white collar criminals are much worse than drug dealers in my opinion. White collar crime can have a tremendous impact on society and a profound reach.  It can result in the loss of people's investments and pensions.  It hurts the economy.  It can result in losses of billions of dollars.  It can lead to thousands of lost jobs.  The monetary loss to society caused by white collar criminals is immense.  From a retributive standpoint, perhaps the sentences for white collar criminals should be much higher than those of drug offenses considering the damage that they cause to society.   

Ellen Podgor (law, Georgia St.) at White Collar Crime Prof Blog urges that white collar criminals be sentenced harshly but reasonably.   I am not condoning the very long sentences being given out, but until we rethink our drug sentences, the sentences of these white collar criminals do not strike me as outrageous in comparison.  Given how steep drug crime sentences are these days, I wonder whether the white collar criminal sentences are even long enough considering white collar crime's often greater economic impact and damage to society. 

Hat tip: CrimProf Blog

See also Dave Hoffman's post here are PrawfsBlawg about corporate criminals doing time in maximum security prisons.

Posted by Daniel Solove on September 21, 2005 at 01:51 PM in Criminal Law, Daniel Solove | Permalink

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» the delinquent discipline of lawyer Hausmann from f/k/a (formerly ethicalEsq)
Sixty days of "soft time" for lawyer Hausman isn't really very much, is it? . . . I shall leave the topic to the experts, [Read More]

Tracked on Sep 22, 2005 10:16:05 AM

» the delinquent discipline of lawyer Hausmann from f/k/a (formerly ethicalEsq)
Sixty days of "soft time" for lawyer Hausman isn't really very much, is it? . . . I shall leave the topic to the experts, [Read More]

Tracked on Sep 22, 2005 10:17:07 AM

» Why Are White Collar Sentences So Long? from Crime
The MSM and blogosphere are buzzing over Kozlowski's and other white collar defendant's sentences. They are arguing that these sentences are too harsh. In making these arguments, they're missing the most important reason for stiff sentences. The senten... [Read More]

Tracked on Sep 22, 2005 2:18:57 PM

Comments

All of these discussions miss the most important purpose of incarceration: removal. As mentioned in the provocative "Roe v Wade is a leading factor in the lower crime rate" essay in Freakonomics, the main cause for lower crime rates (at least per the studies cited by Leavitt/Dubner) is the fact that criminals are going away for longer. As for recidivism of white collar defendants, I'd be interested to see some studies on this as opposed to just hearing about everyone's gut instinct. True, Dennis Kozlowski and Bernie Ebbers may be unlikely to commit their crimes again, but that's largely because they are so well-known that no one would be suckered by them a second time; it's hard to imagine Wall Street relying on an Ebbers-authenticated P&L statement again. But these are the high profile tip of the iceberg. What about the credit card fraud artist who gets caught. Why is he/she any less likely to be a recidivist than a drug dealer? Most white collar crimes don't involve famous people. They involve ordinary people who want to get money without having to work very hard for it (unlike drug dealers, who often have to work very hard for the money that they make, see Freakonomics' essay on the economics of a drug gang). I don't see why they are less likely to revert to that behavior following a prison term.

Moreover, everyone who is so up in arms about the Kozlowski sentence should check their figures. Under the federal sentencing system (I will admit to far less familiarity with the NY St system, which involves much more judicial discretion), Kozlowski's guidelines range would probably have meant a sentence of 135-168 months (wire/mail fraud: base off. level of 7, 20 pts for over $7m fraud, 2 pts for sophisticated means, 2 pts for abuse of a position of trust, 2 pts for leadership role in the offense = 33 points at criminal history category I = 135-168). So assuming that Kozlowski got a guidelines sentence (which, admittedly, is no longer mandatory under Booker) he would be looking at more than 11 years and as much as 14. That would be harsher than the 10 year mandatory minimum sentence which applies to the highest level of federal drug crimes (as found in 21 USC 841(b)(1)(A), which is typically what first time offenders who fall in that category receive (in fact, under the safety valve, they can often get less than the 10 year mandatory). So I'm not sure Kozlowski got off so easily. And I think if you asked criminal defense lawyers who practice regularly in federal court, they'd tell you that they don't think the white collar sentences are any bargain for the people who are sentenced under them.

But all of this discussion just circles back to the base question: if longer sentences are indeed the leading cause of a lower crime rate, aren't they a good thing? I would say that anyone who lived in NY pre- and post- federal sentencing guidelines can attest to the radical positive change in a city that comes with a huge reduction in crime.

Posted by: SG | Sep 21, 2005 2:53:43 PM

I think I have to disagree with Dan here. I am worried that many recent white-collar crime sentences are long, although not so worried about the Kozlowski sentence. He was convicted for plain old grand larceny, with some securities fraud thrown in. However, I do disagree with incarcerating white-collar defendants for second-order crimes without charging them with the underlying crime. Frank Quattrone was convicted for "obstructing justice" for reminding employees about the document retention policy, although he was never tried for the subject of the investigation -- spinning -- even though many emails were retrieved that proved the spinning. Why not? Because no one knew whether spinning was actually illegal or not. I have to believe that if the suspected drug dealers out there were being incarcerated for years for lying to the police about irrelevant matters that people would be up in arms.
I also don't know if you can say that white-collar crime causes more net economic damage "to society." Putting Kozlowski's stealing aside, the accounting abuses led to wealth transfers -- some sold at inflated prices while others bought at inflated prices and sold at the bottom. The losers complain, while the winners are strangely silent. Do, you can speak of losses to certain investors, but not to society as a whole, unless you are trying to measure "confidence in the markets," which seems to be fairly resilient.

Posted by: Christine Hurt | Sep 21, 2005 3:53:26 PM

Well, if there are no penalties for obstructing justice, what is to stop anyone from engaging in obstructionist behavior? Take Martha Stewart. The SEC and the US Attorney's Office were investigating whether she had sold her ImClone stock in a way that violated either criminal or civil regulatory law. (The end government conclusion was that she had sold her stock in a way that violated civil regulatory law but not federal criminal law.) She agrees to come talk to investigators (an AUSA, an FBI agent and an SEC investigator), something that she was certainly not obligated to do. During the meeting, with one of the highest priced lawyers in NY sitting next to her, she tells outright lies about the circumstances underlying her stock sale. In the end, the USAO and the SEC concluded that the sale wasn't criminal, though they believed that it violated civil regs (I'm not sure how the SEC civil enforcement suit has been resolved, if at all). Should she get a walk on coming into the USAO and lying? How could law enforcement or the SEC enforce the laws regulating the markets if whenever they conduct investigations people could lie to them without fear of retribution? People are free to tell the FBI/SEC that they don't want to talk to them, but once they answer questions, shouldn't they have to be truthful?

As for Quattrone, my impression is that the government was trying to decide whether giving pre-IPO shares to a favored few was illegal. If Quattrone directed people to destroy documents that would help the government determine whether the behavior was illegal, shouldn't that carry some consequences? Surely you would agree that there are circumstances under which "spinning" would be illegal, right? So if Quattrone orders people to destroy documents that would help the FBI determine whether those circumstance existed in his case, shouldn't that carry some consequences?

Obviously, obstruction charges without charges for underlying substantive conduct are problematic. But law enforcement can't tolerate people actively trying to subvert investigations, even if they are not themselves criminally liable for the subject of the investigation.

Posted by: SG | Sep 21, 2005 4:27:16 PM

Christine sez:

"I also don't know if you can say that white-collar crime causes more net economic damage "to society." Putting Kozlowski's stealing aside, the accounting abuses led to wealth transfers -- some sold at inflated prices while others bought at inflated prices and sold at the bottom. The losers complain, while the winners are strangely silent."

Isn't an unjust wealth transfer a loss to society? Consider the lowly bank robber...

Posted by: Paul Gowder | Sep 21, 2005 4:30:59 PM

SG,

In your first post, when you say that someone convicted of the "highest level of federal drug crime[]" would get a lighter sentence than Kozlowski, aren't you comparing apples and oranges? You predict the potential sentence that Kozlowski would get under the fed. sentencing guidelines (135-168 months) and note that he would get more than the 10-year statutory mandatory minimum under Title 21 for a first-time drug offender. But shouldn't you be comparing the Kozlowski guidelines sentence with a drug offender guidelines sentence rather than the statutory minimum?

Under the guidelines, a person convicted of the "highest level of federal drug crime[]" would start out with a base-level of 38. Absent an upward adjustment for leadership role, this would lead to a sentence of 235-293 month sentence. If, like Kozlowski, the criminal has a leadership role, the sentence would be 292-365 months. See United States Sentencing Commission, Guidelines Manual, sec. 2D1.1(a)(3).

Drew

Posted by: Malibu Drew | Sep 22, 2005 3:29:20 AM

Drew -- no, because Kozlowski would not have been convicted of the highest level of fraud offense (I don't think -- to be honest, I'm not sure what the total loss amount in the Tyco theft would be). I calculated Kozlowski's guidelines sentence using the $7m loss amount (which seemed a reasonable approximation based on my reading of the news stories about his wife's birthday parties, etc). If the loss was more than that, then there are guidelines provisions that would account for it, going all the way up to a 30 point bump (v. the 20 point bump that I applied). Using the 30 point bump, in combination with the other enhancements I hypothetically applied, Kozlowski would be at a whopping 43, resulting in a life sentence under guidelines.

Also, keep in mind that the statutory 10 year min for drug crimes under 21 USC s 841(b)(1)(A) starts at 1 kg of heroin/ 5 kg of cocaine. That's only a 32 under the guidelines. My theory in comparing the two was to take a very serious fraud offense and compare it with a very serious drug offense, not to compare the MOST serious fraud offense with the MOST serious drug offense. My understanding of the Kozlowski offense is that it was probably less serious than, for example, the Ebbers criminal activity.

Posted by: SG | Sep 22, 2005 10:15:17 AM

To be more precise, in my response to Drew, I should have said that Kozlowski would not have been SENTENCED using the highest level of fraud offense, not that he would not have been CONVICTED. His crime of conviction (presumably mail or wire fraud) would have been the same regardless of the amount stolen.

Posted by: SG | Sep 22, 2005 10:17:02 AM

You guys are missing a very important (indeed, controlling) issue. White collar sentences must be harsh so that white collar defendants who can afford lawyers like John Keker, don't exercise their trial rights. All cases carry a trial tax. If there weren't harsh sentences, white collar defendants would go to trial, since they'd have nothing to lose. Sentences like those in the Kozlowski trial remind defendants to think twice before going to trial.

Posted by: Mike | Sep 22, 2005 2:06:12 PM

Mike, that's a really really good point. We need to correct for the relative disparity in defense capacity between white[-collar] defendants and non-white[-collar] defendants.

Posted by: Paul Gowder | Sep 22, 2005 2:14:47 PM

Except that most white collar criminals, like most people, can't hire John Keker. Sure, Frank Quattrone can (though, of course, Keker lost that trial), but he's rare. Most white collar criminals have stolen money from their company, or tried to rip off the govt, or done some other mid-level scam. They're not going to turn around and pay Keker, Ted Wells, Brendan Sullivan or anyone else of that caliber the 7-figures it takes to get them on board. They're going to hire the same crew of defense lawyers that the non-white collar defendants hire (with the possible exception of the reasonably large drug dealers, for whom, in most large cities, there is a drug bar from which they will hire a lawyer). That's why generalizing about white collar criminals based on Kozlowski or Quattrone is as silly as generalizing about drug dealers based on the Noriega trial in Miami. They're unusual. There are thousands of run of the mill white collar criminals getting prosecuted every day in state and federal courts all over the country. Most of them are operating at a pretty low "credit card fraud"-type level, just like most drug dealers are selling ouces (or less), not kilos. And the white collar defendants are not getting any better representation than anyone else.

Posted by: SG | Sep 22, 2005 3:09:04 PM

The comments to this post suggest that I need to clarify that I shouldn't be referring to all white collar criminals collectively but those who engage in more major forms of misconduct that cause significant damage to companies, investments, etc. What I'm referring to are the Enron types, not the low level small fraudsters. My point is that for the Enron types, the effects of their fraud on others and on society are really dramatic, and it is appropriate for punishments to reflect this fact.

Posted by: Daniel Solove | Sep 22, 2005 3:34:06 PM

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