NEW YORK As the U.S. government remains under pressure to hold individuals accountable for the financial crisis, a federal commission is launching a review that could actually reduce sentences for white-collar criminals.
Those pushing for lighter sentences for white-collar offenses such as securities, healthcare and mortgage fraud include not only the American Bar Association, the nation's largest trade group for lawyers, but also a growing number of federal judges.
The judges' position could have particular weight, since they are the ones who turn to the advisory guidelines in imposing sentences.
Under the guidelines, first adopted in 1987, judges calculate sentences by assigning points for the seriousness of the offense, the defendant's criminal history and, for white-collar crimes, a complicated 16-level table based on the resulting financial loss.
Critics argue that financial losses, which can easily rise to hundreds of millions of dollars in crimes like securities fraud, have grown to dwarf the other factors in the calculation, leading to outsize sentences.
Notable sentences in securities fraud cases include former Enron Corp Chief Executive Jeffrey Skilling, who in June received a reduced term of 14 years in prison; former WorldCom CEO Bernard Ebbers, who in 2005 was sentenced to 25 years in prison; and disbarred New York lawyer Marc Dreier, who was sentenced to 20 years in 2009. Insider-trading sentences are covered by a different section of the guidelines.
The U.S. Sentencing Commission, an independent agency of the federal judiciary that establishes sentencing policies, has said revising guidelines for economic crimes is a priority. It is holding a two-day fact-gathering meeting in New York this week.
The commission typically sends any amendments to the guidelines to Congress each May. If Congress doesn't act, they become effective that November.
Even though the guidelines are advisory, critics say that the focus on total losses prevents judges from considering factors like the intent of a defendant or the degree of harm caused to victims.
In July, for instance, U.S. District Judge Stefan Underhill, who was sitting as a visiting judge on the 2nd U.S. Circuit Court of Appeals, described as "shockingly high" the 20-year sentences imposed on three men convicted of conspiring to lure an intermediary to help them find $3 billion to finance a fictional Siberian oil pipeline.
While he said the pipeline scheme was treated as sophisticated, Underhill wrote that it "could be more accurately described as a comedic plot outline for a 'Three Stooges' episode."
It took just a Google search for a broker to figure out the deal "smelled," according to Underhill, and no money was ever lost in what amounted to a case of "absurd lies piled on top of even more absurd lies."
If not for the 20-year statutory maximum sentence, the $3 billion intended loss amount under the guidelines would have worked out to a life term for the three men, John Juncal, Rodney Sampson and James Campbell. Underhill called those guidelines "fundamentally flawed."
"The widespread perception that the loss guideline is broken leaves district judges without meaningful guidance in high-loss cases," he wrote.
While some judges and other criminal-justice experts are calling for an easing of penalties, some lawmakers want to see change go in the other direction.
"Judges have often imposed sentences for securities and other financial frauds that are too lenient," Senator Chuck Grassley said in a statement on Monday.
Grassley, the ranking Republican on the Senate Judiciary Committee, cited disparities in the sentencing of individuals accused of financial crimes.
He said Congress should consider imposing mandatory minimum sentences for financial cases in order "to reduce overall racial disparities in federal sentencing and to give prosecutors additional tools to combat these serious crimes."
THE MADOFF FACTOR
Supporters of changing the guidelines said they do not object to harsh punishments for extreme cases of intentional fraud, such as Bernard Madoff, who received a 150-year sentence in 2009 for his massive Ponzi scheme.
They also acknowledge that the prospect of reducing sentences for white-collar defendants could run into opposition amid continued criticism of whether enough executives were held accountable for the recent financial downturn.
U.S. District Judge Jed Rakoff in New York, a longtime critic of the guidelines, said in an interview that the real question was how to distinguish between "white-collar criminals who are truly evil in their intent and in their impact and other white-collar criminals whose mistakes were less venal and whose opportunities to make contributions to society are still present."
In a speech in March, Rakoff called for the guidelines to be "scrapped in their entirety," saying "the amount of the loss does not fairly convey the reality of the crime or the criminal."
Rakoff, who was nominated to the bench by President Bill Clinton, is a member of an American Bar Association task force arguing for a revision to the guidelines.
In the run-up to Wednesday's meeting, the ABA task force submitted a draft proposal recommending streamlining the financial loss table, while giving judges an ability to score a defendant's culpability, a factor they say is generally overshadowed.
Any changes could take years to fulfill. In the meantime, judges have increasingly deviated from the guidelines, which became advisory rather than mandatory after a U.S. Supreme Court decision in 2005.
From 2003 to 2012, the minimum sentence defendants would get under the guidelines in economic crime cases increased from 10 months to 29 months, according to the Sentencing Commission.
Yet actual sentence lengths dispensed by judges during that time have climbed at a slower rate, from 10 months to 22 months, suggesting more judges were departing from what the guidelines recommended, it said.
James Felman, a Florida defense lawyer and member of the ABA group, said he believed there was a "renewed sense we ought to evaluate use of imprisonment across the board.
"There's only so much bang for buck you get for locking someone up that doesn't impose a threat to safety for the purpose of deterrence," he said.
(Reporting by Nate Raymond; Editing by Eddie Evans and Prudence Crowther)