The Challenging Terrain of White-Collar Sentencing

By: James Trusty

Federal judges are required to balance a number of factors whenever imposing sentence, including specifically enumerated areas that largely stem from the broader philosophical categories of General Deterrence, Specific Deterrence, Retribution/Punishment, Restitution and Victim Impact, and Rehabilitation. In determining the presumptively reasonable range of potential sentences, federal practitioners consult their always-handy U.S. Sentencing Guidelines, which create a sentencing range grid based upon the offense characteristics and the offender criminal history. Believe it or not, that is all the easy part. In some cases, such as the prosecution of Samuel Bankman-Fried (“FTX”) the job is even more complicated, particularly due to the high-profile nature of the case and a backdrop of uncertainty as to whether victims will be made whole financially.

In white collar prosecutions, defense attorneys have discovered that the federal guidelines seemingly overcompensate for traditionally lax treatment of the “executive class” defendants in state court or in federal courts of yesteryear. The offense characteristic typically starts with an innocuous base level of 6 or 7, before jumping to the biggest factor, the “loss” or “intended loss.” Many U.S. Attorney’s Offices will not even open a case if the loss amount is under $1 million, so the class of cases they prosecute are going to jump up 14-30 levels on just this factor alone. And then come the adjustments, which almost inevitably have some applicability to ramp that offense score level higher and higher, even to the maximum level of 43 (which has a guideline range simply designated as “life”). Some of the commonly applicable adjustments include asking:

• Did the case result in substantial hardship to five or more victims (+4 levels)?
• Did the offense involve theft (+2 levels)?
• Did the offense involve sophisticated means (+2 levels) or did it result in more than $1 million in gross receipts from a financial institution (+2 levels)?

These, and other adjustments, kick in all the time, and that is all before a judge embraces or rejects the advisory guideline range as being sufficiently punitive or not.

White collar defendants with multi-million-dollar loss figures are finding out the hard way that their final guideline range may exceed crimes like manslaughter, airplane piracy, and arson. But it does not end with tough guidelines, particularly if the client is a high profile one.

The Sam Bankman-Fried prosecution is a decent example of the recurring challenges faced by high profile white-collar defendants. Do not get me wrong, SBF is a crook who was rightly convicted for deceitful practices that led to exorbitant wealth and apparent lawlessness. But some of these high- profile cases have the distinct whiff of trophy hunt when it comes to sentencing. Enron CEO Jeffrey Skilling received a 24-year sentence, Bernie Madoff died serving a 150-year term, and young Sam edged out Skilling with a 25-year sentence.[1]

Note two loud voices that may have nudged the judge up into that dramatic zone – the U.S. Attorney’s Office seeking 40-50 years and the U.S. Probation Office weighing in with a recommendation of 100 years. As a side note, let me be the first to point out that many U.S. Probation Offices have established policies in which they will never condone a sentence under the guideline range but they will occasionally suggest an upward variance that equates white collar criminal activity with presidential assassination. The good news consequence is that most judges are not being swayed by such auto-draconian nonsense, so Probation has rendered itself a social historian without much credibility on the ultimate issue at sentencing.

The other wild card, which can be brutally unavoidable for the defense, is victim impact statements submitted to the Court for consideration. In FTX, there were heart-wrenching stories of betrayal and harm that likely pushed the Court to a higher bottom line. But in a lot of instances, victim impact statements are snapshots or even gratuitous in nature. For example, when I was a federal prosecutor handling a death penalty prosecution, one of the victim impact letters submitted and considered by the Capital Review Committee (which makes a weighty recommendation to the Attorney General on whether to pursue death) was from a mailman saying he used to see the victim around and she seemed nice. I wanted to mark “return to sender” on his submission just so nobody would give it weight in the context of a life-death decision.

In addition, positions on impact can greatly change over time. In the Charleston Church massacre case, several victims—consistent with strongly-held religious beliefs—announced they had forgiven the defendant and did not support the pursuit of a death penalty. Later, when evidence slipped out that the defendant was unapologetically spouting racist and Nazi views from his jail cell, some of those victims flipped over to favoring pursuit of the death penalty. In short, there are inherent limits to the enduring validity of these letters, but as a defense attorney it is usually a serious tactical mistake to aggressively challenge the victims in the context of sentencing.

Restitution is another huge variable in the world of white-collar sentencing. In a perfect world for defense attorneys, the client makes full restitution before sentencing. It can go a long way toward deflating inflated guidelines. Mr. Fried-Bankman’s sentencing memo pledged that all of the individual investors were going to get their money back. The prosecution response effectively said, “too late-they wanted their money back two years ago” and relied on poignant victim-impact statements to blunt the impact of possible reimbursement. Shortly after Sam’s sentencing, at which the issue remained somewhat unsettled, a reimbursement plan for customers and creditors was unveiled in the U.S. Bankruptcy Court. The plan announced that about 98% of the FTX customers will receive 118% of their claimed losses.[2]

That extraordinary fact comes in too late to change the 25-year sentence for Sam–raising a very practical reminder that if good news is on the horizon regarding restitution, it behooves defense counsel to push off the sentencing date until expectations blossom into facts.

Of all the recurring issues that arise in the white-collar sentencing context, the most stubbornly harmful fact that regularly drives the sentence towards harshness is that a defendant has a high profile. “General deterrence,” a concept of dubious vitality when it comes to white-collar defendants,[3] seemingly trumps all other considerations, and the ensuing headlines inevitably fuel “the next Bernie Madoff” game where prosecutors, probation officers, and yes, judges, use inflated guideline calculations to justify sensationally lengthy imprisonments.

[1] Was FTX Collapse as Bad as Enron? In sentencing SBF, Judge Kaplan Says Yes – Ifrah Law

[2] Nearly all FTX customers are getting their money back: What to know – Los Angeles Times (latimes.com)

[3] Eugene Soltes, Why They Do It: Inside the Mind of the White-Collar Criminal, (New York: Public Affairs, 2016).