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White-Collar Crime: Effective November 1, 2015, New Sentencing Amendments Attempt to Make Sense out of the Nonsensical!

By Colby S. Hearn | Categories: Business & Tax Law, Litigation | October 2015

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As explained in Harvey Silverglate’s book, Three Felonies a Day, the average professional in this country wakes up in the morning, goes to work, comes home, eats dinner, and then goes to sleep, unaware that he or she has likely committed multiple federal crimes that day. The reason lies in the very nature of modern federal criminal laws, which have exploded in number but also have become impossibly broad and vague, enabling prosecutions for even the most innocuous behavior. Thus, while seemingly esoteric, this article has widespread implications, as the widening nets continue to entangle unsuspecting citizens.



The Federal Sentencing Guidelines (“Guidelines”) are rules that attempt to set forth a uniform sentencing structure for individuals and organizations convicted of felonies and serious misdemeanors in the United States federal courts system.  Essentially, it is a point system that provides federal judges with a sentencing score, which accounts for the crime(s) charged, the prior criminal record, and any enhancing or mitigating factors.

In recent years, however, federal judges and federal practitioners have criticized the Guidelines for recommending inconsistent and unjust sentences with respect to white-collar crimes.  Notably, they lament the Guideline’s vagueness, undue harshness for defendants with secondary roles, and disproportionate sentences for first-time offenders.  In fact, Jed S. Rakoff1, a federal senior judge for the Southern District of New York, where many of Wall Street’s highest-profile cases are heard, recently stated that “[the] arithmetic behind the sentencing calculations is all hocus-pocus—it’s nonsensical.”  As is stands now, Senior Judge Rakoff explained, “you may be the lead offender in a crime or the low man on the totem pole and still get the same sentence.”

Federal Judge John Gleeson2 for the Eastern District of New York City, remarked that, as public pressure to prosecute offenders more aggressively rose, the congressional directives and statutes have acted as a “one-way ratchet,” boosting the austerity and length of sentences ever higher.

In response to the criticism, on April 9, 2015, the United States Sentencing Commission (the “Commission”)3 voted to promulgate amendments to the Guidelines.  The Department of Justice objected, stating that the amendments will create unwarranted leniency, while other practitioners argue that the amendments do not go far enough in departing from an abstract numerical approach when attempting to gauge culpability.

Despite the continued debate, the amendments were submitted to Congress on April 30, 2015. Barring congressional action to the contrary, the following amendments will take effect on November 1, 2015:

I. MITIGATING ROLE

The Commission made modest changes to the mitigating role guideline that clarify its operation and that should result in more defendants receiving a mitigating role adjustment.

First, it addressed a circuit split on the meaning of “average participant,” adopting the approach of the Seventh and Ninth Circuits, which defines “average participant” by reference to those persons who participated in the criminal activity at issue in the defendant’s case. It rejected the approach of the First and Second Circuits, which required a court to consider the defendant’s culpability relative to his co-participants and to the typical participant in a similar crime.

Second, it added a non-exhaustive list of factors for the court to consider in determining whether to apply an adjustment:

  • the degree to which the defendant understood the scope and structure of the criminal activity;
  • the degree to which the defendant participated in planning or organizing the criminal activity;
  • the degree to which the defendant exercised decision-making authority or influenced the exercise of decision-making authority;
  • the nature and extent of the defendant’s participation in the commission of the criminal activity, including the acts the defendant performed and the responsibility and discretion the defendant had in performing those acts; and
  • the degree to which the defendant stood to benefit from the criminal activity.

Third, the commentary now states that “a defendant who does not have a proprietary interest in the criminal activity and who is simply being paid to perform certain tasks should be considered for an adjustment under this guideline.” It also provides that “[t]he fact that a defendant performs an essential or indispensable role in the criminal activity is not determinative.” This latter change rejects the approach of many circuits, which have held that a defendant who plays an indispensable or essential role does not qualify for a mitigating role adjustment.

Fourth, the commentary discussing individuals who perform limited functions has been changed to state that they “may receive” a mitigating role adjustment rather than that they “are not precluded” from receiving an adjustment.

II. JOINTLY UNDERTAKEN CRIMINAL ACTIVITY

The Commission voted to promulgate an amendment to §1B1.3, restructuring the guideline and its commentary to “set out more clearly the three-step analysis the court applies in determining whether the defendant is accountable for acts of others in the jointly undertaken criminal activity.”

The three step analysis requires that before a court may consider the acts and omissions of others under §1B1.3(a)(1)(B), it must find that those acts and omissions were (1) “within the scope of the jointly undertaken activity; (2) in furtherance of that criminal activity; and (3) reasonably foreseeable in connection with that criminal activity.” The commentary to §1B1.3 also makes clear that if one of those criteria is not met, the conduct is “not relevant conduct” under the “jointly undertaken provision.”

III. INFLATIONARY ADJUSTMENTS

Due to inflationary changes, there has been a gradual decrease in the value of the dollar over time. As a result, monetary losses in current offenses reflect, to some degree, a lower degree of harm and culpability than did equivalent amounts when the monetary tables were established. Thus, the Commission, for the first time in the history of the guidelines, voted to amend the monetary tables to account for inflation. This means it will take larger loss amounts to trigger enhanced offense levels. For example, it will take a loss amount of more than $40,000 instead of $30,000 to trigger a +6 enhancement under USSG §2B1.1.

IV. ECONOMIC CRIME

a. Intended Loss

The Commission amended the definition of intended loss at §2B1.1 (n.3(A)(ii)) to limit intended loss to the pecuniary harm “that the defendant purposely sought to inflict.”

b. Victims Table

The Commission made several changes to the victims table. First, the only enhancement based solely on the number of victims is now a +2 for 10 or more victims. The enhancements for 50 or more, and 250 will be eliminated effective Nov. 1, 2015. Second, the amendments bring new victim enhancements. Starting Nov. 1, 2015, when the offense resulted in “substantial financial hardship” to victims, the following enhancements will apply:

+2: substantial financial hardship to one or more victims;
+4: substantial financial hardship to five or more victims;
+6: substantial financial hardship to twenty-five or more victims.

The Commission also amended the commentary to provide a list of factors the “court shall consider, among other factors” in determining whether the offense “resulted in substantial financial harm to a victim.” Specifically, whether the offense resulted in the victim:

  • becoming insolvent;
  • filing for bankruptcy;
  • suffering substantial loss of a retirement, education or other savings or investment fund;
  • making substantial changes to his or her employment, such as postponing his or her retirement plans;
  • making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
  • suffering substantial harm to his or her ability to obtain credit.

c. Sophisticated Means

The Commission’s amendment “narrows the scope of the specific offense characteristic to cases in which the defendant intentionally engaged in or caused (rather than the offense involved) sophisticated means.” USSG §2B2.1(b)(10)(C) as amended provides: “the offense otherwise involved sophisticated means and the defendant intentionally engaged in or caused the conduct constituting sophisticated means.”

d. Fraud on the Market

Although the Commission just amended the guidelines in 2012 to add a rebuttable presumption that loss should be calculated in a specific way in cases involving the fraudulent inflation or deflation of a publicly traded security or commodity, this year, the Commission changed course. With these amendments, the Commission now advises courts to “use any method that is appropriate and practicable under the circumstances.” The previously recommended method is now just “one… method the court may consider.”

CONCLUSION

With the explosion of recent broad and vague federal statutes, even the most innocuous behavior, by seemingly law abiding citizens, is susceptible to federal prosecution.  Thus, the amendments discussed in this article will have widespread implications that will play a critical role in the sentencing of white-collar cases for years to come.

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1 Judge Rakoff is a leading authority on securities laws and white collar crime. He has authored many articles on the topic, as well as leading treatises on RICO and corporate sentencing. Speaking about the federal mail fraud statute, Rakoff wrote, “To federal prosecutors of white-collar crime, the mail fraud statute is our Stradivarius, our Colt .45, our Louisville Slugger, our Cuisinart — and our true love. We may flirt with other laws and call the conspiracy law ‘darling,’ but we always come home to the virtues of [mail fraud], with its simplicity, adaptability, and comfortable familiarity. It understands us and, like many a foolish spouse, we like to think we understand it.  Jed S. Rakoff, The Federal Mail Fraud Statute (Part 1), 18 Duq. L. Rev. 771 (1980).

2 Judge Gleeson was a former Assistant U.S. Attorney for the Eastern District of New York from 1985 to 1994, where he was noted for his prosecution of Mafia cases, most notably, that of Gambino crime boss John Gotti, which resulted in Gotti’s conviction.

3 The United States Sentencing Commission is an independent agency in the judicial branch of the United States Government. The Commission promulgates sentencing guidelines and policy statements for federal sentencing courts pursuant to 28 U.S.C. § 994(a). The Commission also periodically reviews and revises previously promulgated guidelines pursuant to 28 U.S.C. § 994(o) and generally submits guideline amendments to Congress pursuant to 28 U.S.C. § 994(p). Absent action of Congress to the contrary, submitted amendments become effective by operation of law on the date specified by the Commission.


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