Enormous downward variance in Gen Re fraud sentencing
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)
