Are white-collar defendants treated more favorably than other criminals when it comes to sentencing A case involving the chief executive of a technology firm in Ohio that collapsed in 2003 after fraud allegations seems to indicate that perhaps there is such a thing as being too lenient, according to a Federal Appeals Court.
The recent case involves Michael E. Peppel, the former chairman and chief executive of MCSi, who pleaded guilty to conspiracy, money laundering and filing false documents with the Securities and Exchange Commission. Federal authorities said he inflated revenue and earnings to prop up MCSi’s stock price at a time when the company was failing after years of having grown throug acquisitions.
Even though the firm collapsed after the fraud came to light, the judge overseeing the case took into account the letters of support and handed down just a seven-day prison sentence because the defendant was “a remarkably good man.â€
An appeals court, however, recently concluded that the district judge abused her discretion by taking into account factors that were not permissible in imposing sentences in white-collar cases.
The recommended sentence was approximately eight to 10 years, based largely on the estimated loss to shareholders of $18 million when the company disclosed the fraud. By imposing only seven days in prison, the United States Court of Appeals for the Sixth Circuit in Cincinnati noted that this was “a 99.9975% reduction†from what the federal sentencing guidelin! es provide.
Mr. Peppel’s sentence also seems to buck the trend of recent cases in which white-collar defendants convicted of committing fraud had received long prison terms, far greater than what has been meted out in the past.
The appeals court decision reflects an underlying tension in white-collar cases involving defendants who present no real threat of physical harm to society and continue to lead productive lives after committing a crime. When there is little likelihood that the defendants convicted of fraud will ever be trusted enough to commit a similar violation, is it in society’s best interest to send them to prison for a significant period of time
At one time, the federal sentencing guidelines were applied quite rigidly, and such a minimal sentence would have been almost impossible unless the defendant provided extraordinary assistance to the government. Mr. Peppel did not orce the government to go to trial by pleading guilty, but it does not appear that he provided any significant help in the investigation, largely because he was its main target.
The Supreme Court restored much of the judge’s discretion in determining the appropriate sentence to district court judges in 2005 in United States v. Booker, when it ruled that the sentencing guidelines were only advisory.
The punishment must still be reasonable and the judge is required to explain the reason for a variance from the recommended sentence. But there is now much greater flexibility to take into consideration the specific factors in a case, including the defendant’s personal background and the impact of the crime.
One method frequently used in white-collar cases involves letter-writing campaigns to point out the many positive attributes of the defendants. The emphasis is usually on charitable contributions and close family t! ies to sh! ow that a reduced punishment reflects the sentencing factor to “provide just punishment for the offense.â€
Letters in some recent high-profile insider trading cases appear to have had at least some effect on the sentence. More than 200 letters were sent on behalf of Raj Rajaratnam, who received an 11-year term that was well below the government’s recommendation of more than 24 years in prison.
Rajat Gupta, convicted of tipping off Mr. Rajaratnam, had more than 400 letters sent on his behalf, including ones from Bill Gates, the Microsoft billionaire and philanthropist, and Kofi Annan, the former United Nations secretary-general. Mr. Gupta received a two-year prison term rather than the eight to 10 years sought by prosecutors.
In contrast, Bernard L. Madoff received not a single letter of support when he received a 150-year prison term.
In Mr. Peppel’s case, the district judge noted that more than 100 letters had been sent attesting to his “hu! mble begi! nnings and his many community and charitable activities both before and after the charges in this case.†Among the reasons for giving a short sentence was evidence of his strong community and family involvement, and business expertise that included starting a new company achieving growing success.
The appeals court rejected those grounds as insufficient for such a significant departure from the recommended guidelines. It was troubled by the district judge’s reference to his work as a reason for giving a lighter sentence, rejecting the position that a defendant “should be sentenced lightly on the asserted ground that they offer more to society than those who do not possess such knowledge and skill.â€
There is no simple answer to what is the appropriate sentence for any defendant, and especially for those who commit business crimes. The impact of white-collar offenses is far broader than most street crimes, but also much more diffuse - it is unlikely the many investors in MCSi had a harde time rebuilding their lives than victims of murder or assault.
The judge’s sentence implied that a senior executive is somehow not as bad as an “ordinary†criminal, and perhaps more valuable to society living outside prison. The fact that there are significant collateral consequences from a conviction may just reflect that white-collar defendants have more to lose, and have a greater concern about their reputation and future employment prospects than others.
But a long prison sentence imposes significant costs on the public. According to the Bureau of Justice Statistics, the average annual cost to house a convicted felon in a state prison is approximately $28,000 a year. That amount does not take into account what a white-collar defendant could generate by being gainfully employed instead of working on the prison laundry.
Mr. Peppel’s case has been sent back to the same judge to reconsider the appropriate sent! ence. I ! expect he will receive more than the seven days imposed the first time he appeared, but given his background and strong support from family and friends it is unlikely that he will get anywhere near the eight to 10 years recommended by the sentencing guidelines.
