Tuesday, October 27, 2015

Ponzi Scheme Adviser Receives Significant Benefits from Plea Bargain

Law360 is reporting that a Florida investment adviser who served as a "verifier" for $200 million worth of transactions related to the Scott Rothstein $1.2 billion Ponzi scheme has been sentenced to 30 months in prison.  Given the original charges in the case and the significant loss figures associated with his actions, the investment adviser, Michael Szafranski, faced a possible sentence of 20 plus years in prison if he had proceeded to trial and lost.  The fact that the government was willing and able to offer him a plea deal that resulted in only 30 months in prison indicates once again the immense leverage available to the government to structure favorable bargains, particularly in white collar cases.  

Szafranski was originally charged with 11 counts of wire fraud and one count of conspiracy.  Each wire fraud count carried a potential 20 year sentence and the conspiracy count carried a potential 5 year sentence.  Therefore, the maximum sentence available if the terms ran consecutively was 225 years in prison.  While such a sentence was unlikely, particularly as Rothstein himself received 50 years in prison after pleading guilty, Szafranski faced the real possibility of being sentenced to 20 years in prison (the statutory maximum for wire fraud) given the applicable Federal Sentencing Guidelines.  

Under the 2014 Sentencing Guidelines, the case would have included at least the below factors:

7 base points
+ 26 points for a loss exceeding $100 million+ 6 points for more than 250 victims                                           
= 39 points (resulting in a sentencing range of 262-327 months)

While there are likely additional applicable Guideline points available in the case, it is sufficient to stop our analysis after just considering these three.  With an offense level of 39, even a first time offender would face a sentencing range of 262-327 months in prison.  As the statutory maximum for wire fraud is 240 months (20 years), a sentence in this range would not be unusual in such a situation.

With a potential sentencing differential of almost 17 years in prison between the plea bargain and trial, one must wonder whether anyone would risk proceeding to trial in a case like this one.  I’m certainly not arguing that Szafranski is innocent of the charges in this case or that he is not deserving of a significant prison sentence for his involvement in this devastating fraud.  But I do think the case raises interesting questions about the size of sentencing differentials and incentives to plead guilty more generally.  Such sentencing differences are not limited to this case or even white collar cases.  They are prevalent throughout the entire U.S. criminal justice system.  

Tuesday, September 29, 2015

New York Times Article re Plea Bargaining and Over-Incarceration

The New York Times has an interesting opinion piece today from David Brooks regarding "The Prison Problem."  The article focuses on over-incarceration and examines what might be driving this phenomenon outside of the usual suspects, such as the "war on drugs" and mandatory minimum sentences.  The piece argues that while the "war on drugs" and mandatory minimums certainly played their roles, there is also much to be said for the impact of changes in prosecutorial behavior over time.  In discussing the role of prosecutors, Brooks mentions the role of plea bargaining.
District attorneys and their assistants have gotten a lot more aggressive in bringing felony charges. Twenty years ago they brought felony charges against about one in three arrestees. Now it’s something like two in three. That produces a lot more plea bargains and a lot more prison terms.
Brook's piece is well worth a read.  I look forward to a future opinion piece from Brooks looking more closely at the role of plea bargaining in the U.S. criminal justice system.

Brook's piece also references a recent documentary on Angola prison, entitled "Angola for Life."  It's an interesting documentary that explores an infamous prison that has gone through many transformations over the years.

Wednesday, September 23, 2015

Congress and Overcriminalization

I was honored to serve as the moderator of a recent discussion on Capital Hill regarding overcriminalization.  The discussion occurred on September 16, 2015 and was entitled "Striking the Right Balance: Criminal v. Civil Law Sanctions."  The program description is below:
How should our federal government strike the right balance between the use of criminal law sanctions instead of civil law sanctions? Are prosecutors expanding the reach of criminal statutes to address conduct that was clearly not contemplated by Congress when enacted? 
The event began with an opening address by Norman Reimer, Executive Director of the NACDL.  That was followed by a panel discussion, which included myself as moderator, Adeel Bashir (Appellate Division, Office of the Federal Defender, M.D.Fla.), John Lauro (Lauro Law Firm), and Marjorie Peerce (Ballard Spahr).  It was a wonderful event, and I encourage you to watch the below video of the discussion.  It included several fascinating stories of overcriminalization and the impact of this phenomenon on people, families, and communities.  The panel also addressed the symbiotic relationship between plea bargaining and overcriminalization (see article here regarding this topic).  Finally, among other issues discussed, the panel offered thoughts regarding potential solutions to overcriminalization with a particular focus on the role of Congress in drafting criminal laws.  

Interestingly, several days after the presentation, Senator Orrin Hatch (Utah) took to the floor of the U.S. Senate and presented his approach to reforming the U.S. criminal justice system.  Specifically, he focused on the need for meaning criminal intent requirements to ensure that "honest, hard-working American are not unjustly imprisoned."  

Senator Hatch also discussed overcriminalization and touched on many of the issues presented during the above panel discussion.
For too long, Congress has criminalized too much conduct and enacted overbroad statutes that sweep far beyond the evils they’re designed to avoid.  Surely, of all the categories of laws we pass here in Congress, we should take most care with criminal laws.  Criminal laws empower the state to deprive citizens of liberty and precious financial resources.  They carry serious collateral consequences, including loss of the right to vote, the right to own a firearm, and the ability to hold certain jobs.  And they permit the state to brand citizens with that most repugnant of all titles—criminal.  There is simply no excuse for sloppily drafted, slapdash criminal laws.  Too much is at stake.
Senator Hatch's full speech is available here.

Monday, September 14, 2015

Last Week Tonight Discusses Plea Bargaining

Below is a link to an excellent piece that appeared last night on Last Week Tonight with John Oliver.  The show has been focusing a lot on criminal justice issues lately.  This particular piece on public defenders includes discussion of plea bargaining and innocence, including the story of Erma Faye Stewart.

Hopefully, the show will soon have a piece devoted exclusively to the plea bargaining issue.

DAG Yates Issues Memo re Corporate Wrongdoing and Individual Criminal Liability

Deputy Attorney General Sally Yates has issued a memorandum regarding "Individual Accountability for Corporate Wrongdoing."  The memorandum describes important new priorities and policies regarding the prosecution of individual employees, not just corporations, in cases involving corporate crime.

From the memorandum:
Fighting corporate fraud and other misconduct is a top priority of the Department of Justice. Our nation's economy depends on effective enforcement of the civil and criminal laws that protect our financial system and, by extension, all our citizens. These are principles that the Department lives and breathes- as evidenced by the many attorneys, agents, and support staff who have worked tirelessly on corporate investigations, particularly in the aftermath of the financial crisis.

One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public's confidence in our justice system.
The memorandum goes on to make substantive changes to the Principles of Prosecution of Business Organizations (USAM 9-28.000 et seq.), available here.  The changes fall into 6 categories:

  1. To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct. 
  2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another. 
  4. Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals. 
  5. Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized. 
  6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay. 

Read the entire memorandum here.  The New York Times also has an article about the memorandum here.