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.  

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