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Open-Booker Test

In Bids for Resentencing, White-Collar Criminals Want Review of Loss Figures

Posted Feb 22, 2006 12:10 AM CDT
By John Gibeaut

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Before Jamie Olis went off to serve nearly 25 years in prison in March 2004 as a bit player in a stock fraud scheme, a cast of other offenders preceded him from the same federal court district that covers Houston.

They included drug dealers, a crooked public official, a child pornography collector and a six-time felon caught with a gun. Each got less time behind bars than Olis, who was senior tax planning director and vice president for finance at Hous­ton energy producer Dynegy Inc.

Olis went to prison to do 292 months based on a pension fund’s claims that it lost $105 million in a complex transaction that hid more than $300 million in debt from investors. At age 38, Olis would not have been eligible for release until he reached 60. But U.S. District Judge Simeon Lake told Olis at the time that the federal sentencing guidelines left him no choice.

Sentences Re-Examined

Harsh prison terms for Olis and other corporate criminals are getting a second look, as is the guidelines’ usefulness in cases where the amount lost drives up sentences almost to the exclusion of other factors. In other words, the higher the loss, the longer the prospective sentence under the guide­lines.

In what white-collar criminal defense lawyers call a major development, the New Orleans-based 5th U.S. Circuit Court of Appeals on Oct. 31 ordered Olis resentenced, holding that the judge had engaged in unconstitutional fact finding, since outlawed by the U.S. Supreme Court. Moreover, the appellate panel also determined Lake had incorrectly calculated Olis’ sentence. United States v. Olis, No. 04-20322.

The decision comes as business interests are complaining that in some instances white-collar punishments don’t fit the crimes. And courts are beginning to listen. Critics say the guidelines simply aren’t up to the job of arriving at reasonable sentences because the extent of the loss often dwarfs other sentencing considerations that may favor leniency. They also argue that the government provides unrealistic loss estimates that sometimes effectively lay all blame for major corporate wrongdoing at the feet of relatively minor defendants.

For example, to hear the U.S. Chamber of Commerce tell it, the government might as well have blamed the entire 2001 collapse of Enron Corp. on four Merrill Lynch investment bankers and an Enron executive sentenced last year in a small-time spin-off case involving Merrill’s purchase of three Nigerian barges to shore up the failing company’s balance sheet.

“This government argument is the worst kind of bootstrapping,” the chamber argued last spring in an amicus brief filed for the defendants before sentencing. “It holds individuals who participated in a specific transaction responsible for numerous other separate transactions, overriding any reasonable attribution of responsibility for conduct. And its logic would attribute to defendants responsibility not simply for the loss allegedly caused by the barge transaction, but for the entirety of the billions of dollars lost in Enron’s collapse and bankruptcy.”

‘Have Some Humanity’

A new look at loss determinations could benefit white-collar felons in other stock-fraud cases serving the kind of time that the guidelines often effectively multiply into eternity. “Just doing mathematical calculations doesn’t fit into the criminal justice system,” says Georgia State University law professor Ellen S. Podgor, co editor of the White-Collar Crime Prof Blog. “It doesn’t work. You have to have some humanity.”

Olis was given a new sentencing in the wake of the Supreme Court’s landmark 2005 decision, United States v. Booker, 125 S. Ct. 738, which held that judges violated defendants’ Sixth Amendment jury trial rights when they used the mandatory guidelines to compute sentences based on facts jurors never heard and defendants never admitted. The justices remedied the situation by making the guidelines voluntary, requiring only that post ­Booker sentences be “reasonable.”

Despite basing its holding on Booker, the 5th Circuit panel concentrated on how Lake figured the victims’ losses. The judge merely relied on testimony from one witness, a representative of the University of Cali­fornia Retirement System, who told the court that the pension fund’s 140,000 members lost $105 million. In doing so, the appeals judges found that Lake “overemphasized his discretion as fact finder at the expense of economic analysis.”

Thus, Lake didn’t account for influences besides fraud that could have caused Dynegy’s stock to fall and investors to lose money. The stock dropped to $5 a share from $50 in a single day in April 2002 after the Securities and Exchange Commis­sion forced Dynegy to restate its earnings. Olis maintained, however, that a much more precipitous drop in Dynegy’s shares already had occurred either before the fraud became public knowledge or so long afterward that some other factor could be to blame.

“A substantial portion of the entire loss on the [pension fund] investment in Dynegy, over $100 million, could not have been caused by Olis’ work,” wrote appeals Judge Edith H. Jones. Additional evidence Lake brushed aside included a defense expert’s report on similar drops that other energy companies experienced at the same time Dynegy’s price was falling and the effect on Dynegy’s cash flow from a failed bid to acquire Enron as it collapsed.

“These factors and others cited in the report suggested that attributing to Olis the entire stock market decline suffered by one large or multiple small shareholders of Dynegy,” Jones wrote, “would greatly overstate his personal criminal culpability.”

At resentencing, the 5th Circuit suggested Lake look to civil courts, which have extensive experience distinguishing among different causes for market losses to determine who is responsible and for how much. While detailed testimony on loss often dominates civil securities fraud cases, criminal courts treat loss calculations almost casually.

“The civil damage measure should be the backdrop for criminal responsibility because it furnishes the standard of compensable injury for securities fraud victims and because it is attuned to stock market complexities,” Jones wrote.

Regardless of their approach, other courts also have expressed misgivings about basing sentences on loss alone, especially when the numbers are often so hard to pin down. The five Enron barge defendants had faced terms ranging from seven years to life when they appeared for sentencing in April and May 2005. But U.S. District Judge Ewing Wer­lein Jr., also in Houston, conceded that he couldn’t determine the loss and refused to consider the $43.8 million the government claimed shareholders dropped.

Werlein instead substituted $1.4 million the deal made in profits and relied on other traditional sentencing factors, such as the relative scope of the fraud, sentences meted out to other Enron defendants and dozens of letters of support from the defendants’ friends and business associates. The sentences ranged from 30 months to four years.

Leeway For Judges

Things may not go so smoothly every time, especially with the Booker remedy lurking in the background. That’s because the Supreme Court, while striking down mandatory guidelines, returned to trial judges the discretion in sentencing the guidelines had taken away.

With no mandatory guidelines in the way, neither prosecutors nor judges are constrained at sentencing beyond Booker’s cryptic reasonableness touchstone. Under the advisory system left by Booker, prosecutors can continue to offer sentencing evidence to judges, who in turn can make factual findings on their own without involving juries. So while the barge defendants caught a break, Olis still might not like the results when he once again comes before Judge Lake—where he theoretically faces an even longer term.

“That’s the magic and the curse of the Booker remedy,” says sentencing expert Douglas Berman, a law professor at the Ohio State University.

Michigan con man Michael L. Meeker is one defendant who may wish he had been more careful when he asked for a new sentence. After he pleaded guilty to running a fraudulent investment racket that swindled 76 people and two small businesses out of $3.8 million, Meeker got 84 months behind bars—21 months longer than the 63-month maximum sentence recommended by the guidelines.

Meeker won his Booker claim in the Cincinnati-based 6th U.S. Circuit Court of Appeals because the judge made some factual findings beyond those admitted in the plea. But Meeker probably wasn’t encouraged by Judge Ron­ald Lee Gilman’s suggestion for the sentencing court:

“Meeker does not cite any authority for his claim that the sentence he received was excessive. The district may therefore wish to consider a similar upward departure on remand, with the knowledge that such a sentence is unlikely to run afoul of Booker’s reasonableness requirement.” United States v. Meeker, 411 F.3d 736 (June 17).

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