White Collar Defense and Compliance : New Jersey White Collar Defense Lawyer & Attorney : Fox Rothschild Law Firm : Criminal Defense, Insider Trading, RICO, Consumer Fraud : New Jersey, New York City

Jana C. Volante writes:

Criminal defendants facing onerous restitution obligations as part of their sentence might contemplate a bankruptcy filing, in the hope of staving off the restitution obligation. In a case of first impression, the Second Circuit recently considered whether the Bankruptcy Code’s automatic stay provision halts a defendant’s obligation to pay restitution and firmly closed the door on that potential gambit.

Defendant Philip Colasuonno was convicted in the S.D.N.Y. of conspiracy and substantive bank fraud charges, as well as tax offenses, stemming from a conviction at trial and a separate plea of guilty to an additional Information. Colasuonno faced an advisory Sentencing Guidelines range of 46 to 57 months’ imprisonment, but the sentencing judge departed downwards due to the defendant’s health problems; he was sentencing to one day in jail, followed by various terms of supervised release or probation on several charges. The court imposed as a special condition the payment of restitution to the IRS in the amount of $781,467, the amount by which Colasuonno had underpaid payroll taxes.

For a year after sentencing in 2007, Colasuonno ignored his restitution obligation. Hauled back to court on a violation of probation petition, he finally began to make small payments in 2009. Then, in July 2009, Colasuonno and his wife filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court, without notice to either the District Court or the Probation Department. After a few additional small payments, Colasuonno stopped paying restitution altogether on the ground that the automatic stay effected by the filing of the bankruptcy petition forestalled any payment obligation. He was again brought before the court on a violation of probation action.

Finding that Colasuonno had violated his original sentence of probation by failing to pay the court-ordered restitution, the District Court resentenced him to four months’ imprisonment and again ordered him to pay restitution.

Colasuonno then appealed his amended sentence to the Second Circuit, claiming that the automatic stay provision of the United States Bankruptcy Code, 11 U.S.C. § 362(a), temporarily halted his obligation to pay restitution and barred the District Court from revoking his probation for nonpayment. The Second Circuit was unpersuaded by the automatic stay argument. In United States v. Colasuonno, 697 F.3d 164 (2d Cir. 2012), the appeals court concluded that court-ordered conditions of a criminal sentence, such as restitution imposed as a condition of probation, and proceedings related to those court-ordered conditions, constitute a continuation of a criminal action. Therefore, these court-ordered conditions and the related proceedings fall within an express exception to the automatic stay imposed in bankruptcy, and the automatic stay does not provide temporary relief for criminal defendants from the operation of those proceedings.

Under 11 U.S.C. § 362(a), the filing of a bankruptcy petition automatically operates as a stay of the commencement or continuation of a judicial, administrative, or other action or proceeding against the debtor, of the enforcement of a judgment obtained before the commencement of the bankruptcy case, and of any act to collect a claim against the debtor that arose before the commencement of the case. However, the reach of the automatic stay established under 11 U.S.C. § 362(a) is restricted by 11 U.S.C. § 362(b), which provides that the filing of a bankruptcy petition does not operate as a stay of the commencement or continuation of a criminal action or proceeding against the debtor.

The Second Circuit concluded that, for purposes of 11 U.S.C. § 362(b)(1), the criminal action against Colasuonno did not end when the judgment of conviction became final. Rather, the proceedings to enforce the conditions of his probationary sentence constituted the continuation of a criminal action or proceeding against the debtor and thus fell within the specific exception to the automatic stay codified in 11 U.S.C. § 362(b)(1).

Relying on the legislative history of 11 U.S.C. § 362(b)(1), the Second Circuit held that “bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial over-extension.” The court indicated that, in accordance with this legislative history, its holding was necessary to prevent criminal defendants from using the bankruptcy laws to shield themselves from punishment. The Second Circuit warned: “A failure to recognize enforcement of the conditions of a probationary sentence or proceedings to address violations of probation as a ‘continuation’ of the criminal action that resulted in such a sentence would allow the bankruptcy laws to become a haven for criminal offenders, allowing them to interrupt, if not completely frustrate, their criminal punishment.”
 

(Jana C. Volante, Esq., the author of this entry, is an associate with Fox Rothschild LLP, based in our Pittsburgh, PA office. Her practice concerns white collar criminal defense and commercial litigation)

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Alain Leibman writes:

In bank fraud cases, sentencing courts are obliged under the advisory Sentencing Guidelines to fix the "loss" at the greater of actual or intended loss to the victim, and to resort to the (usually more defendant-friendly) lesser gain from the offense only if that loss "reasonably cannot be determined." U.S.S.G. § 2B1.1, cmt. n. 3(B). The difference is often dramatic and resort to a gain-based sentence almost always greatly benefits the defendant, frequently reducing or eliminating the potential for a jail sentence.

So, defense counsel is well-advised to make every effort to persuade the sentencing court that an actual/intended loss calculation is exceedingly difficult (as when many witnesses would have to testify), problematic (because of causation or intervening-event principles), or unproven by the government, pushing the judge toward a gain-based calculation. The recent case of United States v. Martinez, 690 F.3d 1083 (8th Cir. 2012), shows both how it is done and why it matters. Martinez was the CFO of a food distributor dependent on a large line of credit from its bank, secured by accounts receivable and inventory. To stave off the company's financial difficulties, Martinez inflated the value of the collateral for the line of credit, leaving the company's debt at $55 million when the bank discovered the fraud. That debt had dropped to $20 million by the time the company later filed for bankruptcy, and to $2.8 million after the sale of some collateral in bankruptcy. During the one-year period of the actual fraud, Martinez received $48,000 in salary.

At a sentencing hearing, the district court took testimony from a number of bank officials, trying to determine the value of any remaining collateral and the effect of future collection activity against that collateral, a complex endeavor, and to determine if the loss resulted from Martinez's actions. The court held that it could not reasonably determine the amount of actual loss (higher than the intended loss, because Martinez did not truly intend a loss at all), and so resorted to Martinez's meager gain to calculate the Guidelines range. The Eighth Circuit affirmed on the ground that the calculation of actual/intended loss could not reasonably be made; the government had failed to provide a basis for estimating the value of the remaining collateral and the bank’s testimony on this point was unhelpful.

As a further victory for the defense, the court of appeals also upheld the lower court's decision to award no restitution to the bank. The Mandatory Victims Restitution Act, 18 U.S.C. § 3663(A), while generally requiring restitution to be ordered in such property crimes, pegs the restitution amount to the provable loss to the victim. But if arriving at this calculation requires the court to determine complex issues of fact and threatens to so prolong the sentencing process as to raise the burden on that process over the need to provide restitution, then the court need not order restitution. Ibid. The Eighth Circuit read this provision, as has the Second Circuit, to reflect a Congressional intent to streamline sentencing processes to prevent courts from being entwined in intricate issues of proof.

Moreover, giving some credence to a causation argument made by the defense, the court of appeals noted that since the company was going out of business regardless of the fraud and since the lower court would have had to hear from numerous additional witnesses, it did not abuse its discretion in deciding to deny restitution.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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Alain Leibman writes:

It is axiomatic under the Sentencing Guidelines that interest owed on a financial obligation, such as a fraudulently-obtained loan, is not included for purposes of calculating the “loss” from the offense when the loan goes unpaid; the unpaid principal is the usual measure of loss. § 2B1.1, App. Note 3(D). But should the defendant get credit, reducing the “loss,” for interest payments which he did make over the term of the loan?

No, according to the Seventh Circuit in United States v. Peugh, 657 F.3d 736 (7th Cir. 2012). Using the legal equivalent of the “good for the goose, good for the gander” maxim, the court held that if interest cannot be added to unpaid principal to increase a “loss,” then it cannot be deducted from unpaid principal to effect its reduction. Moreover, the court held -- rejecting another loss mitigation argument-- that the payment of ordinary course and obligatory interest on a loan does not constitute “money returned to the victim” prior to detection of the offense under App. Note 3(E), either, and so cannot be credited against the “loss” on that basis.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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Jana C. Volante writes:

Courts of Appeal have increasingly explored their authority to review variances under the Sentencing Guidelines for both procedural and substantive reasonableness and, using those rubrics, to impose limitations on the discretion of lower courts. For example, on March 12, 2012, the Ninth Circuit handed down its opinion in United States v Ressam, 2012 WL 762986 (9th Cir. Mar. 12, 2012). In Ressam, the Ninth Circuit provided a thorough step-by-step analysis regarding appellate review of the substantive reasonableness of a sentence imposed by a federal district court under the now advisory Guidelines. Then, the Ninth Circuit vacated a sentence in which a convicted terrorist had received a far shorter prison term than the range suggested by the Guidelines.

Ahmed Ressam was apprehended as he carried out a plan to detonate explosives in LAX airport. After being convicted of nine different counts, but before being sentenced, Ressam entered into a cooperation agreement with the government. However, after briefly cooperating, Ressam refused to cooperate any further and recanted the testimony that he had given while cooperating. Despite this breach of the cooperation agreement, the district court judge sentenced Ressam to 22 years in prison and five years of supervised release, a very substantial downward variance from the applicable range of 65 years to life under the Guidelines.

On an appeal heard en banc, the Ninth Circuit embarked on an extensive analysis regarding whether the sentence imposed on Ressam was substantively reasonable in light of the factors set forth in 18 U.S.C. § 3553(a), using an abuse-of-discretion standard of review and looking at the totality of the circumstances. According to the Ninth Circuit, when a sentencing judge determines that an outside-Guidelines sentence is warranted, he/she must consider the extent of the deviation and ensure that the justification is sufficiently compelling to support the degree of variance in light of the § 3553(a) factors.

According to the Ninth Circuit, Ressam’s sentence did not adequately reflect the seriousness of his offense, one of those factors. If his plan to blow up LAX had succeeded, he would have killed hundreds of people. Furthermore, many common criminals have been sentenced to much longer prison terms for offenses with much less serious consequences. The district court should also have considered the need to protect the public from further crimes. Under the sentence imposed by the district court, Ressam would be released from prison at the age of 51, an age when he would still be capable of organizing another terrorist attack. Because terrorists have a high likelihood of recidivism, are difficult to rehabilitate, and, thus, must be incapacitated to prevent future crimes, there is a substantial upward adjustment that the Guidelines provide for federal crimes of terrorism.

The Ninth Circuit also indicated that it is appropriate for a district court to consider a defendant’s cooperation when sentencing him. However, Ressam did not begin cooperating until he had been convicted by a jury and faced life in prison, leading to the conclusion that he did not cooperate out of sincere remorse or with an altruistic motive, and he then breached his agreement with the government.

Under Ressam’s cooperation agreement, even with his full and continuing cooperation, both parties committed to a prison sentence of “not less than 27 years.” The Ninth Circuit held that even if it was determined that Ressam should be given some credit for his cooperation in the absence of a government downward departure motion, he was not entitled to nearly enough credit to justify the substantial downward variance that would result if the district court’s 22-year sentence was to be affirmed.

Because the district court based its sentence on several findings that were clearly erroneous, the Ninth Circuit vacated the sentence imposed by the district court as being not substantively reasonable. District judges who effect significant variances from the Guidelines should increasingly expect that at some point, when the extent of the variance is great, appellate courts will place some boundaries on just how low (or, perhaps, high) they can go.
 

(Jana C. Volante, Esq., the author of this entry, is an associate with Fox Rothschild LLP, based in our Pittsburgh, PA office. Her practice concerns white collar criminal defense and commercial litigation)

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Every defendant has been entitled since Booker to have his or her sentencing judge consider the full array of Section 3553(a) factors in selecting an appropriate sentence which is sufficient, but no more than necessary, to implement the proper purposes of criminal sentencing. Also, any pre-sentencing cooperation which rendered value to the government is considered by that judge through the vehicle of a government-filed downward departure motion under Section 5K1.1 of the Sentencing Guidelines. Now, if that defendant should later provide post-sentencing cooperation to the government, an analogous and subsequent sentence-reduction motion may be filed by the government under Federal Rule of Criminal Procedure 35(b). But should there also be an analogous consideration of the Section 3553(a) factors in deciding in this second phase just how much of a sentence reduction to grant?

Until the recent Ninth Circuit decision in United States v. Tadio, 2011 WL 5839660 (9th Cir., Nov. 21, 2011), every court of appeals to have considered the question has held either that Section 3553(a) has no role at all to play in a subsequent sentence-reduction hearing or that the Section 3553(a) factors could only be considered to limit the extent of any reduction, a peculiar application of Booker and what Tadio called an improper ”one-way ratchet.”

The Tadio court instead held that once the government has filed a Rule 35(b) motion to reduce a defendant’s sentence for cooperation, and the sentencing floor is therefore open, the judge may consider all of the Section 3553(a) factors in deciding how much of a reduction to grant, allowing the ratchet to work in both directions symmetrically. The Tadio court rejected the contrary positions of the Sixth, Seventh, and Eleventh Circuits, and held that the sentencing judge, while not obliged to do so, could apply the Booker factors to support either a larger or a smaller reduction than that sought by the government's motion.

In effect, a Rule 35(b) motion would now set the stage for a second, plenary sentencing hearing. The government may well argue that the “rule of the case” or like doctrine restricts a judge’s ability to give greater weight to a Section 3553(a) factor at the second hearing than it did at the original sentencing. Still, the Tadio analysis at least gives counsel a full-throated opportunity to have a court reconsider its earlier views on particular sentencing criteria or to newly consider a factor inadequately weighted earlier. It is a welcomed door-opener and one which gives the fairest meaning to the mandate of Booker.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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In an extensive Medicaid fraud case, United States v. Bradley, 2011 WL 2565480 (11th Cir., June 29, 2011), the defendants were convicted and subsequently consented to forfeiture orders which entitled the government to seize the defendants’ company and to take a $40 million judgment against them. The day before sentencing, anticipating that the court would impose fines and special assessments as well, the government moved for the appointment of a receiver to marshal and liquidate the defendants’ assets. Defendants objected on the elegant and simple ground that there is no authority under federal law authorizing the appointment of a receiver for such purposes. The sentencing court appointed one anyway, citing the general authority of the Federal Debt Collection Procedures Act and the good old All Writs Act.

Not so fast, according to the Eleventh Circuit. The appointment of a receiver is an extraordinary equitable remedy and the appointment here was inappropriate, since the FDCPA provides the government with “all the tools necessary to obtain payment of the fines, special assessments, and [judgment].” Given the panoply of devices available to the government under the statute -- writs of attachment and garnishment, post-judgment discovery -- the appointment was an abuse of discretion.
 

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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A recent post discussed a Second Circuit decision which prevents prosecutors from penalizing a pleading defendant who challenges an upward adjustment under the Sentencing Guidelines, holding that prosecutors may not deny such a defendant the extra, third-point reduction for acceptance of responsibility simply because he forced the government to defend its position at a sentencing hearing. Grounded partly on a plain reading of § 3E1.1(b), the holding in United States v. Lee also drew broader philosophical support from the due process right of a defendant to reasonably contest issues at sentencing. But, generally, as long as federal prosecutors do not act for obviously unconstitutional reasons -- such as the race or gender of the defendant -- there are virtually no other court-imposed impediments to their insistence on plea agreement provisions which limit the opportunities for defense lawyers to advocate for their clients.

But then there is the New Jersey Supreme Court. In a recent ruling which represents nothing less than a full-throated defense of the right to advocate for a defendant, the state’s highest court held unenforceable plea agreement provisions which prevented a defense attorney from seeking a lower sentence and from making mitigation arguments at sentencing. State v. Hess, 207 N.J. 123, 23 A.3d 373 (2011).

Hess plead guilty to killing her husband. The plea bargain included a 30 year sentence, with a reduced parole disqualification period of 25½ years; a concession by defense counsel at sentencing that aggravating factors justifying this sentence outweighed mitigating factors arguing for a lesser sentence; and an agreement not to argue for a lesser sentence. Bound by these provisions, Hess’s attorney said almost nothing at sentencing, despite possessing evidence that his client suffered from battered woman’s syndrome.

The Supreme Court held that the provisions foreclosing advocacy of the mitigating evidence and of a lesser sentence were void. There was no doubt that those provisions had been bargained over, had been accepted with full advice of counsel, and that there was consideration for them. But the effect of these provisions was to deprive a defendant of effective assistance of counsel and to “vitiate the court’s ability to exercise discretion in sentencing.” 207 N.J. at 151, 23 A.3d at 389.

The hunt for the presence of these contractual indicia represent the point at which federal courts often conclude their examination of the propriety of plea bargain arrangements, as if the government and the defendant are two commercial parties bargaining as equals, treating each other at arm’s length. But matters of consideration and lawyer participation and the fiction of two equally-enabled negotiators were unimportant to the Hess opinion, which focused instead on broader notions of the proper operation of the criminal justice system:

A plea agreement that prevents a defense attorney from presenting or arguing mitigating evidence to the sentencing court deprives the court of the information it needs to faithfully carry out its unfettered obligation to identify and weigh the appropriate sentencing factors. The unhindered adversarial process at sentencing allows the court to be fully informed about all the evidence and factors that will lead to a just sentence … In the end, the restrictive plea agreement helped to fuel the breakdown of the adversarial process in this case ….

207 N.J. at 153-54, 23 A.3d at 390-91.  Perhaps it is time for the federal courts -- facing an increasing prosecutorial effort to limit appeals, to gag advocacy, to limit the presentation of mitigating evidence and argument at sentencing -- to place less emphasis on artificial concepts of contractual interpretation in favor of a clearer-eyed view of the distortions of the criminal justice system which result from those efforts.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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Federal prosecutors are seemingly encouraged by the DOJ to use their leverage to extract concessions from defendants who wish to limit their sentencing exposure in connection with negotiated pleas of guilty. Compelled waivers of the right to appeal have become de rigueur; fact stipulations with sentencing consequences are often demanded and waivers of Booker variance arguments are often sought, without little or no court oversight or review. But, sometimes, the government can go too far even in the view of courts which typically do not wade into areas of prosecutorial discretion.

The Second Circuit recently halted such a practice of prosecutorial overreaching, which had prevailed in at least one district. In United States v. Lee, 2011 WL 3084958 (2d Cir., July 26, 2011), a sentence in a drug case was vacated on appeal as procedurally unreasonable because the government had refused to seek a third level reduction for acceptance of responsibility. Its rationale, rejected by the court of appeals: at sentencing Lee had contested the basis for a single upward adjustment set forth in his presentence report, which necessitated a hearing, and as a result required the government to expend the effort to prepare for that hearing.

Under Sentencing Guidelines § 3E1.1(b), a sentencing court may reduce the total offense level by a third level or point for a defendant pleading guilty if he has timely notified the government of his intention to plead guilty, thereby “permitting the government to avoid preparing for trial ….” The Guidelines require a government motion for that third level of reduction, but under the case law that motion cannot be withheld for unconstitutional reasons or in bad faith. The Second Circuit first held that a plain reading of the section makes clear that, as long as the government is spared the effort of preparing for “trial,” it may not withhold its motion because of work it was obliged to undertake for sentencing. But the Court went further, resting its holding on a higher ground: the defendant “should not be punished” for exercising his due process right to reasonably contest errors in his presentence report; the government’s refusal to move under such circumstances was unlawful, an abuse of authority, and “grounds for reproach.”

Perhaps more federal courts will in the same way exercise oversight and undertake review as to other provisions imposed on defendants and their lawyers in an effort to limit their advocacy for a fair and reasonable sentence.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts)

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The courts of appeal have since Santobello v. New York, 404 U.S. 257 (1971) applied rules of contract construction to hold prosecutors fairly strictly to the terms of their plea agreements, even employing equitable devices such as specific performance to impel accomplishment of the promised terms. Frequently, questions of the government’s fidelity to its commitments arise in the sentencing context, especially as to Sentencing Guidelines issues. A recent Third Circuit case explored the bounds of proper government advocacy, and upheld actions seemingly in conflict with contractual obligations.

In United States v. Larkin, 629 F.3d 177 (3d Cir. 2010), the female defendant pled guilty to production of child pornography, in the form of images of one of her own children. Sentence-critical issues included whether or not a computer was used in the offense and whether an upward departure was appropriate. Generally, the court held, it is vital to the efficient function of the criminal justice system and to the integrity of various constitutional rights that the government be held strictly to the terms of a plea agreement. Yet, the opinion reflects a pro-active prosecutor, arguably exceeding the bounds of the plea agreement.

In the Larkin plea agreement, the government agreed to recommend a sentencing range of 121-151 months and agreed that no adjustment for use of a computer (§ 2G2.1(b)(3)) was appropriate, but reserved the right to respond to any request by the court for briefing or argument and to provide the court and the Probation Office with all information the prosecutor deemed relevant to the Guidelines

At sentencing the judge proposed declining to resolve the computer-use enhancement -- an adjustment favored by Probation and opposed by Larkin -- if the government “just [doesn’t] want to fight it.” Based on its stipulation, the government should in fairness have done no more than restate its position that the enhancement was inapplicable. But instead the prosecutor noted Probation’s position in favor of its application and volunteered to “explain their views as to why it’s appropriate.” The government then submitted a brief setting forth the law and facts supporting the enhancement, and the court imposed it.

The court also departed upwards five levels based on the duration of the offense, a characteristic raised by the government. In a sentencing submission discussing the recommended offense level, the government included “other pertinent details … worth noting” when considering the appropriate punishment, including the duration of the offense, a factor outside the Guidelines.

Larkin was sentenced to 360 months’ imprisonment, and argued on appeal that the government had violated its plea agreement both in persuading the sentencing judge to apply an enhancement which had been stipulated to be inapplicable and in justifying an upward departure from the agreed-upon range.

The Third Circuit held that this plea agreement was not a “take-no-position” agreement, which would have precluded the prosecution from attempting to influence the sentence in any way at all. Rather, the government had met its obligation under the Larkin agreement to recommend a sentence between 121-151 months and had the right to supply relevant information to the court; the line between “providing an analysis,” which was permitted, and impermissibly “advocating for application of the [computer-use] enhancement” was not crossed. The brief on the computer-use issue was presented in a “straightforward manner.” Unfortunately, the court did not explain the textual difference between neutral analysis and impassioned argument; presumably the prosecutor restrained her impulse to use underlining, bold, italics and all-caps to make her points.

As for the upward departure which flowed from the government’s written arguments, the appeals court held that the government had presented the factor of offense duration for consideration under 18 U.S.C. § 3553(a) and as an argument for a sentence at the high end of the range. To the extent that the same factor and arguments could also form the basis for an upward departure, that was simply a collateral consequence.

(Alain Leibman, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office. A former decorated federal prosecutor, he practices both criminal defense and commercial litigation in federal and state courts) 
 

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On May 19, 2010, Attorney General Eric J. Holder, Jr. issued a memorandum addressing "Department Policy on Charging and Sentencing." The memorandum recognizes the advisory nature of the United States Sentencing Guidelines ("Guidelines"), emphasizes that charging and sentencing decisions must be made individually "on the merits of each case" rather than beginning and ending with the Guidelines, and extends to individual prosecutors greater discretion to make charging and sentencing decisions.

The Holder memorandum supersedes the prior DOJ position that prosecutors "charge and pursue the most serious readily provable offenses," i.e., the charges that would generate the most substantial sentence, in all cases. The prior policy also required Department prosecutors oppose any sentence below the Guidelines range.

Under the new guidance, charging, plea bargaining, and sentencing decisions “must also follow from an individualized assessment of the facts and circumstances of each particular case," and are not necessarily tethered to the Guidelines. As a result of this new approach, Department prosecutors should be more open to defense advocacy in seeking charge avoidance or reduced sentences in appropriate cases.

A more detailed description of this recent guidance may be found on the Fox Rothschild website.

(With appreciation to Eric E. Reed, Esq., for contributing this entry)

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Prompted by a critical report from the United States Government Accountability Office ("GAO"), on May 25, 2010, the Department of Justice ("DOJ") issued additional guidance on the use of corporate monitors in deferred prosecution agreements ("DPAs") and non-prosecution agreements ("NPAs") with business organizations under criminal investigation. Building on past guidance, the recent release calls for DPAs or NPAs to specify DOJ’s ongoing role in resolving disputes between the business organization and the monitor over the monitor’s compensation (which is paid by the business organization) and the monitor’s compliance recommendations (which the business organization may find unreasonable).

A more detailed description of this recent guidance may be found on the Fox Rothschild website.

(With appreciation to Eric E. Reed, Esq., for contributing this entry)

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On January 21, 2010, the United States Sentencing Commission (the “Commission”) issued a notice of proposed amendments to the Sentencing Guidelines, which included amendments to those guidelines regarding the sentencing of organizations. Generally, when organizations are charged and convicted of a federal offense, the sentencing court uses Chapter 8 of the Sentencing Guidelines as a barometer in imposing penalties. Since they became effective in November 1991, those organizational Sentencing Guidelines have formed an important underpinning of corporate compliance programs by setting normative standards for good corporate citizenship. If enacted, the proposed amendments are expected to have a further significant effect on corporate structure and decision-making.

The first proposed amendment is to Section 8B2.1 titled Effective Compliance and Ethics Program (the “Compliance Guidelines”), which guides effective corporate compliance programs. The focus of the proposed amendment is document-retention policies, and it provides that executive management and members of the Board of Directors must be aware of the organization’s document-retention policies and conform such policies to the objective of an effective compliance plan. In addition, as part of a periodic assessment of its compliance plan, the organization will be required to verify that all employees are aware of the document-retention policies, and that such policies advance effective compliance. This amendment appears to be a response to recent prosecutions, such as the Arthur Andersen case, founded on allegations that multiple persons within organizations destroyed investigation-sensitive documents and that the organizations lacked document-retention policies which would have prevented the destruction.

The second proposed amendment also addresses the Compliance Guidelines and sets forth the steps the organization should take after detecting criminal conduct. The steps include self-reporting, cooperating with authorities, and providing restitution and remediation to identifiable victims. In addition, the amendment recommends that an organization periodically modify its corporate compliance as necessary, including employing an independent monitor to oversee the necessary modifications.

Moreover, the Commission has proposed an amendment to Section 8D1.4, governing conditions of probation for organizations. The amendment provides, as a condition of probation, that an organization would be required to retain an independent corporate monitor, agreed upon by the parties or appointed by the court. Further, the scope of the independent monitor’s role is to be approved by the court and the organization is to pay for the monitor’s compensation and costs. Similar provisions have become a staple of dispositions in recent years, but on an ad hoc basis. Furthermore, certain controversial monitorship appointments made by the former U.S. Attorney in the District of New Jersey, which organizations were obliged to accept as a condition of avoiding prosecution, have cast a critical light on the discretion formerly afforded individual U.S. Attorneys to appoint supporters or friends to lucrative monitorships. DOJ policies have changed as a result, significantly constraining that level of individual discretion, and the proposed amendment would codify and regulate the monitorship practice in the related sentencing context.

The Commission also proposed an amendment to Section 8C2.5(f)(3), which at present provides a reduction in sentencing for an effective compliance program. The proposed amendment would entitle an organization to receive such a reduction even where executive management or members of the Board are involved in the wrongdoing if: (a) the person with operational responsibility for corporate compliance reports directly to the Board level; (b) the compliance program is the first to uncover the offense; and (c) the organization reports the criminal conduct to the appropriate authorities. Clearly, this amendment aims at creating a wedge issue for organizations, incentivizing strong special committees of the Board and high-ranking compliance officers to act in the entity's overall interests, regardless of the particular interests of other individual officers or Board members.

Comments to the Commission regarding the proposed amendments are due March 22, 2010. The Commission will then hold a public hearing on these comments.

(With appreciation to Patrick J. Egan, Esq. and Christine Soares, Esq., for their analysis of the Sentencing Commission's proposals, from which this entry was drawn)

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Nearly five years, the Supreme Court held in Dura Pharmaceuticals. Inc. v. Broudo, 544 U.S. 336 (2005) that a civil securities fraud plaintiff was required to show both that an alleged fraud was disclosed to the market and that the disclosure caused a loss to shareholders, that is, that the share price fell after the truth about a defendant's fraud became known. No longer could civil plaintiffs allege the requisite loss on the theory that they had purchased stock at a price artificially inflated by undisclosed losses, because someone who purchased overvalued stock could quickly sell that stock and sustain no out of pocket loss. Two courts of appeals have applied Dura's loss-causation theory to limit the "loss" and resulting Guidelines range for criminal securities fraud defendants. United States v. Olis, 429 F.3d 540 (5th Cir. 2005); United States v. Rutkoske, 506 F.3d 170 (2d Cir. 2007).

But in a recent case, the Ninth Circuit rejected the approaches of the Fifth and Second Circuits and held that Dura's loss formulation methodology does not apply to sentencing in criminal cases. United States v. Berger, 2008 WL 4141478 (9th Cir., Nov. 30, 2009). The defendant was the CEO, President, and Chairman of the Board of Craig Electronics, where he had actively concealed the company's true, negative financial condition from lenders. When an outside auditor forced a restatement of earnings, Craig's share price fell but, still, the fraud committed by Berger was not disclosed to the market until the company's stock was finally delisted. Under Dura. there was no loss that the government could show was suffered by the market at the moment following disclosure of the fraud; instead, the government pursued a stock overvaluation theory to establish millions in losses for sentencing purposes.

But the Ninth Circuit reasoned that Dura was limited to the civil context, where a given plaintiff was required to show that he or she sustained an actual, economic loss. In contrast, in the criminal setting, the Guidelines expressly endorse the calculation of loss by taking a snapshot of the then-overstated and misrepresented value of an item, such as a worthless check represented to have value, and assessing the loss as the difference between actual and overstated values (see U.S.S.G. § 2F1.1, cmt. 7(a)). So, a criminal court may assess "loss" by measuring the amount of loss caused to the market as a whole, which could appropriately be done by measuring the overvaluation of Craig's stock at a given point in time before disclosure of the misdeeds.

Although agreeing that the court below correctly eschewed reliance on Dura, the Ninth Circuit did reject the unusual approach taken by the district court in measuring loss to Craig's shareholders by looking to the typical change in stock value of other companies where frauds had been disclosed. This was rejected as an inapt methodology because Craig's irregularities were never disclosed before trading was ended. On remand, the trial court was obliged to try again to gauge the difference between Craig's share-price as inflated and what it would have been absent the misrepresentation, with no guidance from the Ninth Circuit as to how precisely to accomplish the task.

The appeals court did note in footnote 7 that Dura might well control Berger's restitution analysis, since the MVRA focuses on actual harm sustained by any victims, as opposed to broader losses caused by the defendant. In short, the Berger decision is bad news for defendants seeking through application of Dura to cabin their loss numbers for Guidelines purposes, although Dura may still be helpful in reining in the restitution figure.
 

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The Seventh Circuit recently held that, on a government motion under Rule 35(b) to reduce a sentence for new cooperation, the district court may not use the occasion to reopen sentencing to assess whether a reduction is justified under the 18 U.S.C. § 3553(a) factors.  Cooperation is the only basis for a post-sentencing reduction within the Rule. United States v. Shelby, 2009 WL 3335548 (7th Cir., Oct. 19, 2009).

Rarely, one might imagine, would sentencing judges so regret the severity of their initial sentence that they would relish a subsequent opportunity to broadly reexamine and reduce that sentence. However, one such instance occurred in the Northern District of Illinois when the trial court sentenced Gregory Shelby in 1996 to serve 285 months under then-mandatory Sentencing Guidelines for drug and firearms offenses. When the government moved 12 years later under Rule 35(b)(2) to reduce Shelby's sentence to 255 months on the strength of his post-sentencing cooperation, the same sentencing judge leapt at the opportunity to instead reduce the sentence to 180 months, basing his departure not only on Shelby's cooperation but on the § 3553(a) factors. The Seventh Circuit reversed.

Judge Posner wrote for the majority that Rule 35(b) -- which in subsection (2) concerns cooperation motions made more than one year after sentencing and limits the kinds of cooperation which qualify -- is not intended to create a kind of judicially-administered parole system which considers the defendant as a whole, and was created solely to assist law enforcement by encouraging cooperation. While a sentencing judge may look to § 3553(a) in determining the extent of a cooperation departure, and may exceed the government's recommended extent of departure in doing so, the judge may not consider those factors in determining the basis for a post-sentencing departure.
 

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Adding its voice to a split among the circuits, the D.C. Circuit recently joined the Third Circuit in holding that, as the result of an interplay between two sentencing statutes, the perceived need to rehabilitate a defendant is not a permissible basis upon which to impose a longer sentence.

Under 18 U.S.C. § 3553(a), courts are directed to consider a range of factors in imposing sentence.  Among them is the need to provide a defendant with educational or vocational training or other correctional treatment.  However, 18 U.S.C. § 3582 provides that in determining whether to impose imprisonment or, if imprisonment is imposed, the length of sentence, the sentencing court must recognize that imprisonment is not an appropriate means of promoting rehabilitation.  Several courts of appeal have held that the statutes taken together do not prohibit consideration of a rehabilitation need in selecting the length of a sentence, but only prohibit its consideration in deciding whether or not to incarcerate at all.  United States v. Duran, 37 F.3d 557 (9th Cir. 1994); United States v. Hawk Wing, 433 F.3d 622 (8th Cir. 2006); United States v. Giddings, 37 F.3d 1091 (5th Cir. 1994); United States v. Jackson, 70 F.3d 874 (6th Cir. 1995).

Recently, in In re Sealed Case, 573 F.3d 844 (D.C. Cir. 2009), the D.C. Circuit departed from the preceding courts to sensibly read the plain language of Section 3582 as barring any consideration of the need for rehabilitation in either imposing prison in the first instance or in deciding on the length of incarceration.  Accord United States v. Manzella, 475 F.3d 152 (3d Cir. 2007); United States v. Yehuda, 238 Fed. Appx. 712 (2nd Cir. 2007). 

The defendant in In re Sealed Case had distributed a small quantity of heroin, so his Criminal History category of VI yielded a range of only 24-30 months.  But he also qualified as a career offender under  § 4B1.1, resulting in an enhanced range of 151-188 months.  The trial court selected a sentence of 132 months, indicating that it had imposed a longer period that it might have otherwise because the defendant would benefit from BOP programs and training.  Based on its reading of Section 3582, the appeals court vacated the sentence and remanded.

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Once the government opens the door post-sentencing to a reduction of sentence under Rule 35(b), defense counsel is free to argue, and a court should consider, all of the 18 U.S.C. § 3553(a) factors which must be weighed at the initial sentencing, the Sixth Circuit has held in a case of first impression.

While the post-sentencing cooperation of the defendant is a precondition to the government's filing a motion, it is not a limiting condition in terms of the factors which drive the resulting reduction. United States v. Grant, 567 F.3d 776 (6th Cir. 2009). In a 2-1 decision, the court of appeals held in Grant that current Rule 35(b) requires only that cooperation be the condition precedent to any reduction; it no longer requires, as did a previous iteration of the Rule, that any reduction "reflect" that cooperation. Indeed, the majority wrote, cooperation may still be the predominant consideration in determining the extent of any reduction. But the consideration of a defendant's cooperation does not limit the district court's assessment of the full array of Section 3553(a) factors which must be considered in imposition of any sentence.

The dissenting judge maintained that, since the Section 3553(a) factors will already have been considered at the original sentencing, the majority's ruling invites a "redo" of sentencing, an invitation unlikely to be welcomed by trial judges who already sentence an average of 117 defendants each year.
 

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In the recent case of United States v. Tomko, the en banc Third Circuit upheld a probationary, below-Guidelines sentence for a run of the mill tax evader. 562 F.3d 558, 2009 U.S. App. LEXIS 8227 (3rd Cir., Apr. 17, 2009). Tomko, a plumbing contractor, had faced an advisory Guidelines range of 12-18 months, but instead received probation, community service, and a large fine.

The Court of Appeals rejected the government's argument that the sentence was substantively unreasonable because Tomko was an ordinary tax evasion defendant, that is, nothing about the offense or offender was extraordinary. But the Third Circuit found no abuse of discretion; the sentencing court had considered all of the 18 U.S.C. § 3553(a) factors and provided specific reasons for the variance from the Guidelines, including the defendant's "negligible" criminal history (driving a boat while intoxicated); employment record; community ties; and substantial record of charitable works. Id. at *34. (Although Tomko had presented evidence at sentencing that his incarceration would threaten ruination for his contracting business and its 300 employees, neither the district court nor the Court of Appeals addressed that circumstance only by tersely subsuming it under the rubric of "employment record," with no extended discussion of the weight to be assigned to that circumstance).

The Court of Appeals rejected any argument that the variance in this case was so substantial as to be per se unreasonable. The Court cited various cases involving greater departures to reach a probationary sentence. Id. at *40. In any event, it is highly uncommon to strike down a sentence on this quantitative basis. "It will be a rare case when it is clear that no acceptable reasoning can justify a given sentence." Ibid. (citation omitted).
 

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The Third Circuit recently vacated a six-year sentence imposed by Judge Chesler in a child pornography case, even though the sentence was substantially below Guidelines, because the trial court failed to adequately consider and give weight to all of the 18 U.S.C. § 3553(a) factors. United States v. Olhovsky, 2009 U.S. App. LEXIS 7895 (3rd Cir., Apr. 16, 2009).

In an evidentiary ruling prior to sentencing, the sentencing judge had denied a defense motion to subpoena Olhovsky's treating psychologist, in part because the court held that it was improper to subpoena a witness to give expert testimony. Id. at *33-34. The Third Circuit held this ruling to be incorrect, finding no rule, civil or criminal, which prohibits compelling expert testimony by subpoena. Ibid. Moving to the sentencing phase, the appeals court held that a sentencing court must give meaningful consideration to all of the 3553(a) factors; although they need not each be discussed by the court, they must each be taken into account at sentencing. Id. at *44-45. Nor did the below-Guidelines nature of the sentence render it immune to substantive reasonableness review. Id. at *51.

In taking into account the individual 3553(a) factors, the sentencing court must abide by the "parsimony provision" in that statute, which requires the court to impose a sentence which is sufficient but not greater than necessary to comply with the purposes of sentencing. Id. at *45. This sentencing court, so focused on the nature of the crime, failed to obey these precepts; "it is exceedingly difficult to review this sentencing transcript without becoming convinced that the district court was so appalled by the offense that it lost sight of the offender." Id. at *50.

Finding the sentence substantively unreasonable and vacating it, the appeals court noted, in words sure to become popular in sentencing memoranda throughout the Circuit:

[I]t is not severe punishment that promotes respect for the law, it is appropriate punishment  …     unduly severe punishment can negatively affect the public's attitude toward the law and toward the criminal justice system.

Id. at *56-57.
 

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Prior to Booker, the prosecution held the exclusive ability to trigger a downward departure for cooperation, that is to say, if the government could not be persuaded to file a 5K1.1 motion, then, absent a showing of a bad faith refusal to do so, the defendant had no hope of a departure. As Booker has changed the landscape generally, so it has specifically in the area of sentence reductions for cooperation. A government motion is no longer necessary to secure such a reduction, according to the Sixth Circuit in an opinion released on March 9th.

In United States v. Blue, 557 F.3d 682 (6th Cir. 2009), the defendant had argued unsuccessfully in the District Court that she was entitled to a 5K1.1 motion which the government had withheld as a result of unspecified cooperation. The Court of Appeals agreed with the District Court that the government's failure to move was not undertaken in bad faith, so affirmed on that point. However, the better argument to have been made below was not made there -- the defendant had failed to argue in the trial court, however, that under Booker, the court could have considered her cooperation under 18 U.S.C. § 3553 in imposing a below-Guidelines sentence. That failure effected a waiver of the point in this particular case. But the Court of Appeals held more broadly that a 5K1.1 motion is no longer necessary before a sentencing judge may sentence below the advisory Guidelines range. That kind of downward variance is available whether or not the prosecutor seeks it.
 

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In United States v. Cavera, 550 F.3d 180 (2d Cir. 2008), the Second Circuit (en banc) considered the interesting issue of when, under federal criminal sentencing in the aftermath of United States v. Booker, 543 U.S. 220 (2005)¸ a sentencing court may properly consider community conditions in varying from the advisory Sentencing Guidelines range. In concluding that such consideration was appropriate in this gun trafficking case, the court vacated an earlier panel decision (United States v. Cavera, 505 F.3d 216 (2d Cir. 2007)), which held that the district court had erred in imposing a non-Guidelines sentence that relied upon a demographics-based approach to sentencing.

Gerard Cavera pled guilty to one count of conspiring to deal in and transport firearms in violation of 18 U.S.C. § 371. When it came time for Cavera to be sentenced, the district court (Eastern District of New York), calculated the Sentencing Guidelines range for the defendant’s offense as 12 to 18 months imprisonment, but, rather than impose a sentence within that range, the district court imposed a more severe sentence outside the Guidelines of 24 months imprisonment. Id. at 185-186. In support of this upward variance from the Guidelines, the district court pointed to factor (a)(2) of 18 U.S.C. § 3553, which instructs the court to consider the seriousness of the offense and the need for deterrence of this type of crime. The district court reasoned that firearm trafficking in an urban environment such as New York City mandated a heavier sentence. Id.

On appeal to the Second Circuit, Cavera argued that the district court had committed legal error by considering the population density of New York City in imposing a non-Guidelines sentence. The panel which heard his appeal reversed, concluding that the district court’s sentence constituted legal error and was unreasonable, noting that the district court’s “demographics-based approach to sentencing” contradicted one of the primary purposes of the Sentencing Guidelines, which is to diminish unwarranted sentencing disparity.

Rehearing en banc was ordered to allow the parties to brief the effect of the intervening decisions in Gall v. United States, 128 S. Ct. 586 (2007) and Kimbrough v. United States, 128 S. Ct. 558 (2007). Based on guidance gleaned from those two rulings, the full Court of Appeals vacated the decision of the panel and affirmed the judgment of the district court.

The court began its analysis by noting that Booker rendered the Sentencing Guidelines “effectively advisory” and allowed sentencing courts to tailor the appropriate sentence to each offense in light of other concerns. Going further, the court explained that, after Gall and Kimbrough, the Guidelines should be considered the “starting point” and “initial benchmark” for sentencing, even though they are “truly advisory.” Id. at 189. Subsequent to the decisions in Gall and Kimbrough, appellate courts play a “clearly secondary” role in determining an appropriate sentence, reviewing the district court’s decisions under a “deferential abuse-of-discretion standard.” Id., quoting Gall, 128 S. Ct. at 591. This analysis consists of both a procedural review and a substantive review of the sentence imposed by a district court.

The court explained that it would set aside a substantive decision of the district court only in “exceptional circumstances” where the district court’s decision “cannot be located within the range of permissible decisions.” Id. However, this degree of deference is only warranted if the appellate court is convinced that the district court complied with the procedural requirements of the Sentencing Reform Act. When conducting a substantive review, the court would take into account the totality of the circumstances, and afford significant deference to the discretion of the sentencing judge, who has a certain institutional advantage. Id. at 190. The court would not necessarily presume that a non-Guidelines sentence is unreasonable or require “extraordinary” circumstances to support a deviation from the range suggested by the Sentencing Guidelines. Id. The court explained that sentencing responsibility “is placed largely in the precincts of the district court,” and noted that Gall and Kimbrough require appellate courts to afford more latitude to sentencing judges than would have been afforded before those decisions.

The Second Circuit then explained that one of the procedural requirements is that a district court must explain its reason for a chosen sentence, and, where the chosen sentence is outside the range of the Guidelines, the court must explain its reasons “with specificity in the written order of judgment and commitment.” Id. at 192, citing 18 U.S.C. § 3553(c). The district judge’s justification for a “major departure” from the Guidelines should be supported with a more significant justification than a minor one. However, as the court noted, “[w]hen all is said and done though, once we are sure that the sentence resulted from the reasoned exercise of discretion, we must defer heavily to the expertise of district judges.” Id. at 193.

The court noted that, in appropriate circumstances, a district court may rely on categorical factors to increase or decrease sentences, and, in particular, the environment in which a crime was committed may inform a district court’s decision as to the appropriate punishment. Id. at 195. The district court here justified its decision to impose a sentence above the Guidelines as necessary to satisfy the § 3553(a)(2) factors on two separate grounds: (i) non-specific geographical and demographic fact that New York City is a large metropolitan area and (ii) New York’s stricter gun regulatory scheme, which, according to the district court, justified a more severe penalty to produce adequate deterrence.

The Second Circuit was divided on the permissibility of the first ground relied upon by the district court, but found it unnecessary to resolve the disagreement because the second ground, deterrence, provided an “independently sufficient justification” for the district court’s decision to impose a non-Guidelines sentence. The court noted that the district judge had addressed the issue of unwarranted sentencing disparities, a major concern of the panel of the Second Circuit, and that the district judge concluded that sentencing disparities among different federal districts were warranted by factors such as the greater need for deterrence in New York, which has a profitable black market for firearms. Id. at 197. In light of the deference owed to district courts, especially after the decisions in Gall and Kimbrough, the Second Circuit found that the district court’s deterrence-based rationale “easily suffices” to justify the non-Guidelines sentence it had imposed. Id.
 

(With appreciation to Beth L. Weisser, Esq., for contributing this entry)

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In a January 14, 2009 opinion, the Supreme Court ruled 5-4 that the Sixth Amendment does not mandate jury determination of facts necessary to the imposition of consecutive (rather than concurrent) sentences in multi-offense convictions. Writing for the majority in Oregon v. Ice, No. 07-901, Justice Ginsberg declined to extend the Apprendi v. New Jersey, 530 U.S. 466 (2000) and Blakely v. Washington, 542 U.S. 296 (2004) line of cases to consecutive sentencing determinations. In Apprendi and Blakely the Court held that the Sixth Amendment requires juries to find all facts (other than the existence of a prior conviction) that could be used to lengthen a defendant’s sentence.

A majority of states leave the consecutive or concurrent sentencing decision to the judge’s discretion but a minority, including Oregon, limit that discretion by requiring sentencing judges to find certain facts before imposing consecutive sentences. Justice Ginsberg found no Sixth Amendment issue with either approach. Justice Ginsberg based her rationale on respect for state sovereignty in justice administration and pre-Constitutional practice, which arguably places the holding at odds with Apprendi itself. Justice Ginsberg resolved the issue by applying Apprendi only to findings which have an impact on the length of a sentence for “discrete crimes,” rather than to determinations such as consecutive sentencing that affect the total sentence.

Writing in dissent, Justice Scalia noted the apparent conflict with Apprendi, observing that “Oregon’s sentencing scheme allows judges rather than juries to find the facts necessary to commit defendants to longer prison sentences, and thus directly contradicts what we held [in Apprendi] and have reaffirmed several time since.” Justice Scalia rejected Justice Ginsberg’s dichotomy between sentence lengths for individual crimes and total sentences as a distinction without difference under the Sixth Amendment.

Further development in the lower courts will be necessary to see how this decision might apply beyond the concurrent-consecutive sentencing issue, but Oregon v. Ice at least signals a willingness on the part of a majority of the Court to limit the potential reach of Apprendi.

(With appreciation to Eric E. Reed, Esq., for contributing this entry)

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Federal judges sentencing white collar defendants are increasingly disregarding the guideline calculated/recommended sentences and focusing more on the defendants and their actions. In a recent decision issued by Judge Droney of the United States District Court for the District of Connecticut, the Court sentenced one of the defendants to two years in prison, rather than the guideline-recommended life in prison. See United States v. Ronald E. Ferguson, 3:06 CR 137 (D. Conn., Oct. 31, 2008).

In Ferguson, the defendants, who were executives at General Reinsurance Corp. (“Gen Re”), were charged with seven counts of securities fraud, five counts of making false statements to the SEC, and three counts of mail fraud. The charges arose from a loss portfolio transfer (“LPT”) reinsurance transaction negotiated between Gen Re and AIG. The defendants, including Ferguson, were all executives of Gen Re at the time of the transaction and were convicted on all counts.

The base offense level for Ferguson was 7. United States Sentencing Commission Guidelines, § 2B.1.1 (Nov. 2007). A significant factor in calculating sentences was the amount of loss the caused by the fraud. Id. The maximum loss under the guidelines, $400 million, causes the offense level to increase by 30 levels. Id. A second important factor is the number victims that the fraud involved, with 250 or more victims resulting in an increase by 6 levels. Id. at 2B.1.1(b)(2).
The amount of loss was calculated by the Standard Event Study method. The method analyzed the reaction of the stock price of AIG on the specific dates that news about the LPT transaction was reported by the media. See Ferguson, "Ruling on Loss Calculation, Victim Enhancement, and Restitution," at 10 [Doc. # 1164]. As a result, the sentencing court found that the loss attributed to the fraud was between $544 million and $597 million, causing a 30 level increase in the sentence. Id. at 11. Also, the number of shareholders far exceeded 250, resulting in another increase of 6 levels. Id. at 16. Thus, the guidelines called for an offense level of over 43, recommending life in prison.

Judge Droney, however, sentenced Ferguson to two years' imprisonment. The Court, noting the outpouring of support for the defendant, was clearly influenced by recent Second Circuit jurisprudence affirming trial court's substantial variance downwards from lengthy sentencing terms suggested by the Sentencing Guidelines. See United States v. Adelson, Nos. 06-2738-cr(L), 06-3179(XAP) (2008). Thus, some judges, in sentencing white-collar defendants, appear open to arguments which focus on the defendant and not simply on mathematical computations.
 

(With appreciation to Amit Shah, Esq. for contributing this entry)

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As many practitioners are all too keenly aware, the Sentencing Guidelines remain alive and well. Gall instructed district judges that reasonableness and abuse of discretion review freed them from the structures of the Guidelines. But, to paraphrase Al Pacino in Godfather III, the courts of appeals just keep pulling the Guidelines back in.

The Seventh Circuit became only the latest to upend a sentence as too lenient and too far below the Guidelines minimum. In United States v. Omole, 523 F.3d 691 (7th Cir. 2008), the “lead architect” of an identity theft scheme – a brazen one in which the defendants used 120 stolen identities to buy cell phones and clothing, then had 300 auctions on eBay to sell the merchandise – faced a sentencing range of 87-102 months. However, noting that Omole was only 20 years old and that this was his “first substantial involvement with the law” (although he had a prior record of one felony and three motor vehicle convictions, and was in Criminal History category II), the district judge departed downwards and imposed a 36 month sentence.

The Seventh Circuit could find no procedural error in the sentence, as the trial judge had properly calculated the Guidelines range and considered the § 3593(a) factors. But as a mater of substantive reasonableness, the circuit court observed that Omole’s sentence was a full 81% lower than the Guidelines minimum. Although the court of appeals would not in the abstract venture a view as to the precise point below a Guidelines minimum that a sentence turns from reasonable to unreasonable, it noted that in this case the sentencing judge had disparaged Omole’s arrogance and contempt for others, was “scathing” in his comments, and identified no unusual rehabilitative potential. In short, Omole seemed to deserve the punishment prescribed by the Guidelines.

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