This may not be exactly what W had in mind, since it is in part an object lesson in not exercising your right to a trial instead of pleading out, but in fact penalties for white collars crimes have been jacked way up. For example, mail, wire, bank, and securities fraud, which used to be 5 years max, can now get you 30 years. That's per count. As the article makes clear, judges can't depart from the Guidelines (in fed ct) just because or even if they find the defendant sympathetic. And don't think high powered lawyers can get you off just because they are high powered. I mean, it doesn't hurt, but the conviction rate in federal court is approximately equal to the indictment rate. No kidding. jks
> DO THE CRIME, SERVE MORE TIME
Midlevel Dynegy Exec Feels the Brunt of New Guidelines
>From the ABA on-lin e-journal this month
BY JOHN GIBEAUT
Jamie Olis holds degrees in law and accounting. He worked as a midlevel executive for Houston energy producer Dynegy Inc. until he was indicted–and convicted last year–in a $105 million stock fraud scheme.
Still, as corporate scandals go, Olis was essentially nobody. That was until a judge in Houston federal district court on March 25 sent him to prison for 24 years and four months. Only days and weeks before in the same district, drug dealers, a corrupt public official, a kiddie-porn collector and a six-time felon caught possessing a gun all received less time behind bars.
After Olis was sentenced, prosecutors were quick to mount soapboxes and proclaim that the days had ended when button-down crooks could expect little more than a sharp rap on the knuckles.
"This case should serve as a warning to any accountant, CEO or other executive contemplating perpetrating a fraud on the marketplace," says Executive Assistant U.S. Attorney Nancy Herrera. "The cost is high."
Yet even among his fellow white-collar defendants, Olis became a sort of unenviable trendsetter, receiving the harshest sentence yet in the corporate crime wave blamed for billions of dollars in investment losses. Sentences for his two Dynegy co-defendants, who pleaded guilty, are expected to max out at no more than five years each. And in the case that started it all, prosecutors are expected to recommend 10 years for former Enron Corp. chief financial officer Andrew S. Fastow, who has agreed to help the government in cases against other top Enron officers.
Prosecutors say those defendants’ cooperation sets them apart from Olis, who insisted on his innocence and went to trial. To other corporate criminals willing to risk trial, the cost of getting caught not only is high, it has grown exponentially.
Just three years ago, Olis’ presumptive sentence likely would have been less than six years under federal guidelines. But the U.S. Sentencing Commission in 2001 quadrupled that when it amended the guidelines to hammer defendants who commit financial crimes.
The price rose again in 2003 in response to passage of the corporate corruption-fighting Sarbanes-Oxley Act, which in some cases doubled potential guideline sentences on top of the 2001 changes. Olis, 38, was comparatively lucky because he was sentenced under the 2001 amendments, meaning he can expect to be released when he reaches 60. Under the changes mandated by Sarbanes-Oxley, an older executive realistically could face spending the rest of his or her life in prison.
Then there’s the more unpredictable cost of getting caught. It arises because the penalty stiffens as the amount of the loss increases. Traditionally the formula has worked well for garden-variety flim-flam artists who bilk widows out of their life savings. Calculating loss simply was a matter of examining the victim’s bank balance before and after the fraud.
Computing loss from lesser stock frauds also has been no great feat. One simply measured the decline in a stock’s value then multiplied it by the number of outstanding shares. But until Enron’s collapse in 2001, no one counted on frauds reaching into hundreds of millions of dollars, if not more. In cases that big and so public, the tabulation suddenly becomes more complex because losses attributable to fraud also must be computed against an infinite number of other factors that affect the financial markets.
Defense lawyers say the system isn’t equipped to handle these new crimes, from the probation officers who estimate potential sentences under the guidelines to the judges who must impose them against an ever-shrinking backdrop of discretion.
"We are measuring it in a haphazard and undisciplined manner," says Kirby D. Behre, a white-collar defense lawyer and former federal prosecutor from Washington, D.C. "If you have millions of shares out there, and each one drops by five bucks or 10 bucks, then you propel every sentence into the 20- to 30-year range."
As for other executives in similar situations, the $105 million price tag that District Judge Simeon Lake attached to Olis’ fraud was the driving force behind his sentence.
Once Dynegy’s senior tax planning director and vice president for finance, Olis was convicted in an Enron-type scheme called Project Alpha. He and his co-conspirators used the complex transaction to disguise more than $300 million in debt as cash flow to answer criticism that Dynegy’s stock might be overpriced because its energy trading operations appeared to lag behind its rapidly growing earnings. After the Securities and Exchange Commission discovered the fraud and forced Dynegy to restate its earnings in April 2002, the company’s stock price fell to $5 from $50 in a single day.
Olis was indicted in June 2003 along with Gene Shannon Foster, formerly Dynegy’s vice president for tax, and Helen Christine Sharkey, an accountant and a former member of the company’s risk control and deal structure groups. Foster and Sharkey pleaded guilty last year in deals expected to net them no more than five years in prison.
Olis instead rolled the dice and took his chances on a jury. It took the panel just two hours last November to convict him of conspiracy, securities fraud, mail fraud and three counts of wire fraud. Foster testified against him. The trial also featured testimony from a representative of the University of California retirement system, who told jurors the pension plan’s 140,000 members lost $105 million.
In civil securities fraud trials, courts meticulously calculate loss, typically after hearing lengthy testimony from accountants, economists and other experts. It’s considerably less precise on the criminal side.
Sentencing guidelines are supposed to ensure that similar defendants in like situations are treated equally. The process begins with probation officers, who are Justice Department employees who delve deeply into every aspect of a defendant’s background and the impact the crime had on the victims, including financial loss. They weigh those factors according to predetermined formulas to mathematically arrive at a sentencing range. In Olis’ case, the presumptive guideline sentence ranged from 24 to 30 years.
"They know about crime, and they know about punishment," Behre says. "But they don’t know about accounting or calculating loss. That’s way beyond their expertise."
The government submitted an expert report estimating the loss at $500 million. (That exercise was purely academic, though, because $100 million was the top loss category at the time of Olis’ crime. Since then, the Sentencing Commission in response to Sarbanes-Oxley has added two new categories for losses of more than $200 million and more than $400 million.)
Olis’ expert reported that the loss was impossible to gauge because of other major market factors at work when the fraud became public knowledge.
Those dynamics included the effect of the Enron collapse on other energy trading companies that also saw their stocks hit rock bottom from mid-2001 through 2002. A flubbed attempt by Dynegy to acquire Enron as the scandal broke also came into play, as did the bursting dot-com bubble and other economic forces.
"The whole energy trading business was collapsing," says Olis’ Houston lawyer, David Gerger. "It’s a fiction to apply the guidelines to stock losses. We don’t know why stocks go up or down."
Without objection from prosecutors, Gerger allowed his expert report to stand on its own without calling the witness to testify at sentencing. Then Judge Lake did what he had suggested he would do at an earlier hearing: Instead of using the defendant’s or the government’s loss tabulation, he relied on the California testimony that put the university pension fund loss at $105 million. Though the figure may be inexact, both sides agree that it was within Lake’s authority to use it.
"The court is not required to make a mathematically certain calculation of the loss, but a reasonably certain calculation of the loss," explains prosecutor Herrera.
Then, saying he saw no legal reason to impose a shorter term, the judge sentenced Olis at the bottom of the recommended range. Though Olis had no criminal record and otherwise had led an exemplary life, the $105 million loss–compounded because he was an accountant engaged in a sophisticated scheme–just weighed too heavily.
Though Congress has taken much discretion from sentencing judges under the 2003 Feeney amendment, Gerger says jurists with such wide freedom in determining loss still deserve latitude in the punishment department.
"Once the judge determines the loss, the guidelines still put handcuffs on him," Gerger complains. "This shouldn’t be the automatic punishment."
©2004 ABA Journal
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