white collar crime and punishment

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  • File: 2 Strader - Correctiions to Soft Proofs.doc Created on: 10/2/2007 4:28:00 PM Last Printed: 10/3/2007 1:22:00 PM

    2007] 45



    J. Kelly Strader*

    Yes, [former WorldCom CEO] Bernie Ebbers is a bad, bad guy. Hes convicted of massively cheating investors, he ruined lots of lives. But 25 years? Many murderers get lighter sen-tences. Sending him away forever may make people feel better. But Im not sure it will make their money safer.1


    Judge Barbara Jones sentenced 63-year-old-Ebbersa first-time violatorto 25 years in prison . . . . Judge Jones commented that, while she recognized that this was likely to be a life sentence for Mr. Ebbers, anything else would not reflect the seriousness of the crime.2

    Business Crimes Bulletin


    Our society is deeply conflicted about white collar crime and punish-ment. On the one hand, high-profile corporate fraud scandals have produced widespread condemnations of corporate wrongdoing and greed. With this outcry have come calls for more criminal statutes, more prosecutions, and greater penalties.3 The Sarbanes-Oxley Act of 2001, the revised federal

    * J. Kelly Strader. Professor of Law, Southwestern Law School, Los Angeles; J.D., University of Virginia School of Law; M.I.A., Columbia University; A.B., College of William & Mary. Thanks to Catherine Carpenter, Michael Dorff, Bryant Garth, Stuart P. Green, Warren Grimes, Janine Kim, Geraldine Szott Moohr, and Byron Stier for helpful comments on earlier drafts, and to Mary Trinh, Hillary Gerber, Jason Freeman, and Jason Clouse for their research assistance. 1 Allan Sloan, Does the Punishment Fit?, NEWSWEEK, July 25, 2005, at 18. Bernard John Ebbers was co-founder and CEO of telecommunications giant WorldCom. In 2005, he was convicted of fraud and conspiracy in connection with massive accounting fraud. See Carrie Johnson, Ebbers Gets 25-Year Sentence For Role in WorldCom Fraud, WASH. POST, July 14, 2005, at A1 (The fraud at WorldCom ultimately topped $11 billion and led to the countrys biggest bankruptcy filing, in July 2002.). The Second Circuit affirmed Ebberss conviction and sentence. United States v. Ebbers, 458 F.3d 110 (2d Cir. 2006). 2 Joseph Savage & Christine Sgarlata Chung, Trends in Corporate Fraud Enforcement: A Calm During the Storm?, BUS. CRIMES BULL., Oct. 2005, at 1, 1-2. 3 See Daniel C. Richman & William J. Stuntz, Al Capones Revenge: An Essay On The Political Economy Of Pretextual Prosecution, 105 COLUM. L. REV. 583, 626 (2005) (The pressure to go after all forms of white collar crime remains strongindeed, that pressure has intensified since the Enron and

  • File: 2 Strader - Correctiions to Soft Proofs.doc Created on: 10/2/2007 4:28:00 PM Last Printed: 10/3/2007 1:22:00 PM

    46 GEO. MASON L. REV. [VOL. 15:1

    corporate sentencing guidelines, and a spate of high-profile prosecutions have been fueled by a perceived public outcry over corporate fraud.4 The government has succeeded in many cases: the principal Enron defendants were found guilty, and Martha Stewarts and Bernard Ebberss convictions and sentences were affirmed on appeal.5 And a number of these convic-tions, like Ebberss, produced effective life sentences.6

    On the other hand, many believe that individual prosecutions either have not been warranted or have led to draconian sentences that serve nei-ther retributive nor utilitarian principles of punishment.7 Consider the re-cent wave of white collar cases. Critics railed when the government de-clined to charge Martha Stewart with insider trading in ImClone stock but proceeded to charge her for attempting to cover up her reasons for selling that stock.8 Some critics suggested that Stewart was targeted because she is

    WorldCom scandals.); Savage & Chung, supra note 2 (stating that the Department of Justice and Securities and Exchange Commission were devoting ever-more attention and resources to corporate fraud). The governments focus on white collar crime may be lessening, as other areas compete for government resources. See infra note 238 and accompanying text. 4 For a summary of recent prosecutions of corporate executives, see Kathleen F. Brickey, In Enrons Wake: Corporate Executives on Trial, 96 J. CRIM. L. & CRIMINOLOGY 397 (2006) [hereinafter Brickey, In Enrons Wake]. 5 United States v. Stewart, 433 F.3d 273 (2d Cir. 2006); Ebbers, 458 F.3d 110. Stewart has also settled the civil suit that the SEC brought against her. Press Release, Sec. & Exch. Commn, Martha Stewart and Peter Bacanovic Settle SECs Insider Trading Charges (Aug. 7, 2006), available at http:// www.sec.gov/news/press/2006/2006-134.htm. 6 For example, 80 year-old John Rigas, Adelphias founder and former CEO, received a 15-year sentence; the sentence for 64 year-old Ebbers was 25 years. See Jane Sasseen & David Polek, White-Collar Crime: Who Does Time?, BUS. WK., Feb. 6, 2006, at 60. In addition, 64 year-old former Enron chairman Kenneth Lay and 52 year-old former Enron president Jeffrey Skilling were convicted of crimes that exposed them to up to 45 and 185 years in prison, respectively. See Mark A. Stein, From Top of the Corporate World to Appeals Court, N.Y. TIMES, May 27, 2006, at C2. Lay died before his sentencing, and his attorney asked the court to vacate his conviction and dismiss the indictment. See John C. Roper, Lawyers Take Step To Clear Lays Name, HOUSTON CHRON., Aug. 11, 2006, at A1. On October 17, 2006, the judge dismissed the fraud and conspiracy charges against Lay. Kate Murphy, Judge Throws Out Kenneth Lays Conviction, N.Y. TIMES, Oct. 18, 2006, at C1. 7 See, e.g., Howard W. Goldstein, Corporate Crime: Government Prosecutors Are Going to Extremes, N.Y.L.J., Sept. 1, 2005, at A1. As one well-known federal judge stated in a recent sentencing decision, there is considerable evidence that even relatively short sentences can have a strong deterrent effect on prospective white collar offenders. United States v. Adelson, 441 F. Supp. 2d 506, 514 (S.D.N.Y. 2006) (Rakoff, J.) (citing Richard Frase, Punishment Purposes, 58 STAN. L. REV. 67, 80 (2005); Elizabeth Szockyj, Imprisoning White Collar Criminals?, 23 S. ILL. U. L.J. 485, 492 (1999)). 8 See, e.g., Stuart P. Green, Uncovering the Cover-Up Crimes, 42 AM. CRIM. L. REV. 9, 11-12 & nn.12-16 (2005) [hereinafter Green, Uncovering] (summarizing criticisms of Stewarts prosecution); Geraldine Szott Moohr, What the Martha Stewart Case Tells Us About White Collar Criminal Law, 43 HOUS. L. REV. 591, 597-98 & n.347 (2006) [hereinafter Moohr, Martha Stewart Case] (summarizing debate over the prosecution).

  • File: 2 Strader - Correctiions to Soft Proofs.doc Created on: 10/2/2007 4:28:00 PM Last Printed: 10/3/2007 1:22:00 PM


    a celebrity and a woman.9 Others criticized the lengthy sentences imposed on Ebbers and Adelphias John Rigas. Those critics query whether effective life sentences were appropriate for previously upstanding citizens who pose no future threat to society.10 And the courts have reversed the convictions in a number of recent, high-profile white collar crime prosecutions, rejecting the governments attempt to expand white collar criminal statutes to new areas of alleged wrongdoing.11

    Thus, it is not only public perceptions that are contradictory.12 Prose-cutors and lawmakers are inconsistent in the degree to which they focus their time and resources on fighting white collar crime. Juries are inconsis-tent in their willingness to convict white collar defendants.13 And courts are inconsistent when deciding whether to interpret white collar crimes broadly or narrowly14 and whether to impose lengthy sentences on white collar criminals.15 9 See, e.g., Joan MacLeod Heminway, Save Martha Stewart? Observations About Equal Justice In U.S. Insider Trading Regulation, 12 TEX. J. WOMEN & L. 247 (2003) (concluding that the Stewart prosecution was infected with sexism at many stages). 10 See, e.g., Jamie L. Gustafson, Note, Cracking Down on White-Collar Crime: An Analysis of the Recent Trend of Severe Sentences for Corporate Officers, 40 SUFFOLK U. L. REV. 685, 701 (2007) (questioning whether it is justifiable for corporate officers to receive and serve the same sentences as rapists, drug dealers, and murderers); cf. Stanley S. Arkin, Essentially Life Sentences for Commercial Crime in the U.S., N.Y.L.J., June 18, 2007, at 3 ([T]he sentences handed down in other countries rarely come close to matching the sentences recently imposed in this country for similar crimes.). See gener-ally Szockyj, supra note 7, at 502. 11 In these cases, the government clearly sought to expand the reach of white collar statutes, either through new interpretations of those statutes or through aggressive applications of those statutes to fact patterns that did not plainly evince wrongful conduct. See, e.g., Arthur Andersen LLP v. United States, 544 U.S. 696, 708 (2005) (reversing obstruction of justice conviction because of flawed jury instruction that would have allowed criminalization of routine corporate document retention policies); United States v. Lake, 472 F.3d 1247 (10th Cir. 2007) (reversing wire fraud and money laundering convictions of Westar executives David Wittig and Douglas Lake, finding insufficient evidence of fraud); United States v. Brown, 459 F.3d 509 (5th Cir. 2006) (reversing wire fraud convictions in the Enron Nigerian barge case because the governments theory of honest services fraud was overly broad); United States v. Quattrone, 441 F.3d 153 (2d Cir. 2006) (reversing obstruction of justice conviction because of flawed jury instruction that would have criminalized innocent document destruction); United States v. Howard, 471 F. Supp. 2d 772