Ebbers' 25 Year Sentence for Worldcom Fraud Upheld. Good.
I'll confess to being a little frusted that after finishing page proofs on Class, Race, Gender and Crime, important events happen. But a function of this blog is to fill in the gaps between books and editions, as well as to have a conversation about the excellent questions raised by the White Collar Crime Prof Blog as well as the Second Circuit Sentencing Blog.
Much of the attention around corporate fraud has been centered on Enron, which declared the largest corporate bankruptcy in history because of
an orgy of multifaceted fraud. When "Worldcon" declared bankruptcy a month or so later, it displaced Enron and became the biggest corporate bankruptcy (a record it still holds). Bernard Ebers was CEO, found guilty by a jury on multiple counts and sentenced to 25 years. His sentence has just been upheld - and I'm glad, although some other people have questions and concerns.
Worldcon Background & Ebbers Sentencing
The Court of Appeal's decision in U.S. v Ebbers (.pdf/47 pages) briefly reviews the relevant history before pronouncing their bottom line:
the securities fraud here was not puffery or cheerleading or even a misguided effort to protect the company, its employees, and its shareholders from the capital-impairing effects of what was believed to be a temporary downturn in business. The methods used were specifically intended to create a false picture of profitability even for professional analysts that, in Ebbers' case, was motivated by his personal financial circumstances. Given Congress' policy decisions on sentences for fraud, the sentence is harsh but not unreasonable.(p 47)
Before I detail the objections and respond to them one at a time, let's just review how the sentence was calculated. In general, the sentencing guidelines are a grid that judges use to look up a sentence based on (a) the severity of the crime and (b) the offender's criminal history. In Ebbers' case:
The pre-sentence report ("PSR") recommended a base offense level of six, plus sentencing enhancements of 26 levels for a loss over $100 million, of four levels for involving more than 50 victims, of two levels for receiving more than $1 million from financial institutions as a result of the offense, of four levels for leading a criminal activity involving five or more participants, and of two levels for abusing a position of public trust, bringing the total offense level to 44 levels. The government also sought a two-level enhancement for obstruction of justice on the basis of Ebbers' having testified contrary to the jury's verdict. With Ebbers' criminal history category of I, the Guidelines range calculated in the PSR was life imprisonment. The Probation Department recommended a 30-year sentence. Judge Jones declined to apply the enhancements for deriving more than $1 million from financial institutions or for obstruction of justice. She also denied Ebbers' motions for downward departures based on the claims that, inter alia, the loss overstated the seriousness of the offense, his medical condition was poor, and he had performed many beneficial community services and good works. She determined that his total offense level was 42 and that the advisory Guidelines range would be 30 years to life. She then sentenced Ebbers to 25 years' imprisonment and three years' supervised release, and imposed a $900 special assessment but no fines.
Sounds to me like he caught a few breaks. They are not necessarily unreasonable, but would probably generate outrage and an appeal for downward departures if it was a drug case.
Questions & Issues
The concerns outlined in the White Collar Crime blog are in the bulleted points below, followed by my responses.
- should a white collar offender who commits an economic crime be receiving a greater sentence than someone who commits a murder?
This general issue also shows up in the comment that "In some cases money losses may be more important when it comes to determining a sentence, then loss of life." While the question form sounds more outrageous, the statement seems reasonable: yes, causing $100 million in losses to more than 50 victims, while leading leading a criminal activity involving others and a breach of public trust can be worse than a loss of life - especially where the latter was not premeditated (passion, negligence, etc).
I will quickly add that I am pissed off that his sentence is greater than what some other executives receive for deaths that result from willful violations of workplace safety. According to a NY Times report: "When Congress established OSHA in 1970, it made it a misdemeanor to cause the death of a worker by willfully violating safety laws. The maximum sentence, six months in jail, is half the maximum for harassing a wild burro on federal lands." Counterquestion: why is it that a corporate executive who kills receives less of a sentence than everyone else? (please read the article before answering and review this)
If we are going to engage in arguments on the basis of disparities, consider that Leandro Andrade received 50 years for for two incidents of shoplifting videos from K-Mart. Two convictions of burglary in the 1980s counted as stikes 1 and 2; the shoplifting charges became strikes 3 and 4, with each strike carrying a mandatory 25 years. The Supreme Court upheld the sentence, as I disussed in A Tale of two Criminals: We're tougher on Corporate Crime, But They Still Don't get What They Deserve. That piece compares Andrade with Fastow, who received 10 years in a plea bargain for 109 felony counts. But if it is OK to argue that murderers get less than Ebbers, I'll ask why these sentences - and lots of drug sentences - are higher than what he received?
- Should being a first offender mean something when it comes to the sentence imposed?
In many ways, I think the blog's comment on the decision shows better perspective: "Being a first offender doesn't mean much if the loss is high - the sentence basically ends up placing the convicted defendant in prison for the rest of his life." The first part of this makes sense and applies to many serious crimes, where there is a limited break for being a first offender. Although I've never before defended the rationality of the guidelines, they did take into consideration he was a first offender, but that was outdone by the fact he was leader of an activity involving others, etc. Given that the fraud was ongoing for more than a year also raises questions about how much of a break you should get for a "first offense."
- Have we failed to consider the potential future harmfulness in sentencing white collar offenders? Do we really need these extreme sentences to deter others who may be contemplating these crimes?
Probably not much thought has gone into the first point about harmfulness of individual offenders. That's not to say they should be considered unlikely to be a problem (bacause there are many ways to commit frauds), just that it is not an important factor in any criminal sentencing now; it's all about "just deserts." Counter-question: If future harmfulness is an important factor, then shouldn't it be so for all defendants and not just relevant for white collar offenders?
By the way, in Andrade's shoplifting case, the Supreme Court cited Rummell v Estelle, another Supreme Court case upholding a life sentence for three felonies for thefts that totaled less than $230 and never involved force or the threat of force. In contrast to the largest corporate bankruptcy in US history, Justice Louis Powell’s dissent in Rummell noted that “it is difficult to imagine felonies that pose less danger to the peace and good order of a civilized society than the three crimes committed by the petitioner” (445 US 263, 295).
On the deterrence point, I do tend to believe that smooth-talking, well paid, highly privileged executives will be difficult to deter.
- If you decide to take the risk of trial and don't plead guilty and cooperate with the government, you may be spending the rest of your life in prison if the jury convicts you.
This concern arises because of a statement in the court's decision that: "Under the Guidelines, it may well be that all but the most trivial frauds in publicly traded companies may trigger sentences amounting to life imprisonment -- Ebbers' 25-year sentence is actually below the Guidelines level. Even the threat of indictment on wafer-thin evidence of fraud may therefore compel a plea."
The Supreme Court rejected the notion that Andrade's 50 year sentence was "life imprisonment" for stealing videos. Once again, let's be consistent - if we're going to talk of 25 year sentences as life imprisonment, let's do so for all crimes, including a large number of harsh and mandatory ones.
Since the next point deals with the harshness directly, consider the coerced plea bargain argument - that the threat of harsh penalties may improperly compel guilty pleas. Interestingly, my Criminal Justice Ethics anthology includes a 1976 article by Kipnis on this topic (Criminal Justice and the Negotiated Plea). He shares the concern about coercion and plea bargains in all criminal cases, and reviews the Supreme Court cases of North Carolina v Alford and Brady v US. In both cases, defendants accepted very long prison terms to avoid possible/probable death sentences. The Court upheld these as voluntary, even though the defendant in Alford said in open court: "We never had an argument in our life and I just pleaded guilty because they said if I didn't they would gas me for it, and that is all" and "You told me to plead guilty, right. I don't - I'm not guilty but I plead guilty." (400 US 28, note 2)
Return to the theme and counterquestion: is the coercion with plea baragining a problem across a wide range of crimes for which we have harsh sentences, or it is just about poor Bernie Ebbers and corproate crooks? Frankly, I am much less concerned about coercion involving CEOs, who have vast resources at their disposal to challenge government attorneys. Not only is CEO pay extrememly high, but at times their employment contract specifies that the company pays attorney fees (unless the crime involved ripping off the company). In many cases CEO defendants will have more resources for a trial than the
government local US Attorney will. The situation with street criminals is different, so I continue to be more concerned about coercive plea bargains there.
- Have we gone overboard in sentencing white collar offenders?
Let's add to this several questions from the Second Circuit Sentencing Blog:
- 25 years. Perhaps it is reasonable today. But would it have been reasonable 15 years ago? I don't think so. And, if not, what accounts for the change in view as to why 25 years is reasonable today and not yesterday?
As I argued elsewhere, sentences for white collar criminals are certainly tougher. But they have been excessively lenient in the past. We've been getting "tough on crime" for more than 30 years, but how many times have corporate crimes been included? I think once, after the Savings and Loan scandals, when people thought white collar crime was overcriminalized because executives actually did several years in prison.
In response to whether 25 years would have reasonable in the past, no. But crimes were also smaller then. The S & L losses didn't approach the losses from Worldcom. Or Enron. Companies are now bigger, more powerful, and their collapse from fraud leaves a much larger financial crater. More people get hurt, and the losses are much more severe, with more powerful ripple effects through associated businesses and the economy in general.
Thus, the question is about balancing the harm done by the crime with the punishment. Is 25 years really exessive for being the head of a fraud that causes the largest corporate bankruptcy in history, which impacts hundreds of thousands of people through employment, retirement funds and other avenues?
My question would be why the government was content was $100 million loss, when it would be easy to prove more? Even if there is some controversy about how exactly to figure losses (see p 37-42 of the decision), the appeals court notes (p 42): "the loss amount is still well above $1 billion, or ten times greater than the $100 million dollar threshold for the 26-level enhancement." In describing several shareholders whose losses were not calculated in, the Court said: "And neither their loss nor those of bondholders -- estimated by the Probation Office at $10 billion -- is included in the Probation Office's calculations. Even a loss calculation of $1 billion is therefore almost certainly too low, and there is no reasonable calculation of loss to investors that would call for a remand."
So, the sentence is based on a loss of $100 million, when the loss could easily be a $1 billion or more. And somehow Ebbers has received a raw deal? Please.
- Is this what Congress wanted?
Congress was under a great deal of pressure because of the large number of companies that imploded because of financial and accounting scandals. The U.S. Chamber of Commerce has launched an aggressive campaign to get Congress to relax many provisions of Sarbanes-Oxley. No doubt that at some future point when we have a bit more distance, this will happen. But it will be a bad idea.
"They say that patriotism is the last refuge