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The starkest display of judicial authority is not the grant of summary judgment, the sustaining of an objection, the issuance of an order to show cause or the banging of the gavel on a block of wood to begin the day’s proceedings. It is the pronouncement of a term of imprisonment and the deprivation of liberty that goes with it. Absolutely nothing more sobering occurs in a federal courthouse than this: The judge asks the defendant whether he wishes to speak before the sentence is pronounced; the defendant expresses sorrow to those he has hurt and apologizes to the court; and the judge announces the sentence. If the defendant is already in custody, he is led by the marshals out of the courtroom with one last look over the shoulder at his family in the gallery. If out on bond, the judge sets a date for the defendant to turn himself in to begin serving the sentence. Yet for the last 20 years, this awesome responsibility of meting out sentences has been the province of bean counters. Under the Federal Sentencing Guidelines, federal sentencing had become a hypercomplicated math test: Find the formula, fill in the blanks, add six here, subtract three there, move down nine vertically, move across three horizontally and pinpoint the sentence on the chart. The mathematical formulas were no doubt intended to give the process the neutral air of science, but the result was more like formalized randomness. While the guidelines were intended to eliminate disparities among similarly situated defendants, the ultimate sentence frequently bore little relation to the individual defendant, the victim or the crime. On Jan. 12, the U.S. Supreme Court shot back at the bean counters. No one knows at this juncture just what United States v. Booker, 125 S. Ct. 738 (2005), will ultimately mean for defendants, defense counsel and prosecutors. It is quite clear, however, that the immediate beneficiaries of Booker are federal judges, many of whom have chafed under the constraints on their authority and who believe that their wisdom and judgment should come into play in sentencing decisions. How judges will choose to exercise their new authority, and in particular whether they will exercise it to salvage the guidelines by continuing to rely on them, or will revert to other models of sentencing, is the central question that occupies bloggers and commentators. The answers will arrive on a case-by-case basis in published decisions and minute orders issued around the country, unless Congress decides to pre-empt the common law by accepting Justice Stephen G. Breyer’s invitation to establish an alternative sentencing regime. Beyond these published decisions and slip opinions on sentencing, Booker will have an effect at a much earlier stage in criminal proceedings, and perhaps a momentous one. Behind the scenes, away from the public’s view, before a case ever makes it to sentencing, trial or even indictment, prosecutors and defense counsel will skirmish over the meaning and impact of Booker. In most jurisdictions, more than 95% of cases never reach trial. In large-scale white-collar matters, much of the action occurs before the public, or even the judge, knows about the existence of an investigation, as the government solicits cooperators, and the prospective targets of that investigation-both individuals and corporations-decide whether to cut a deal or hang tough. Recent history of prosecutions The fascinating question is whether, and to what extent, Booker will change this dynamic. At first blush, it appears that the Supreme Court’s recent jurisprudence is good news for white-collar criminal defendants, although this comes after several years of unremitting bad news for those defendants. To appreciate how Booker may alter white-collar preindictment negotiations, it is necessary to step back a bit. Even before Booker and Blakely v. Washington, 124 S. Ct. 2531 (2004), we were in a unique time in the history of white-collar criminal cases. It was unique in four regards: There were more white-collar cases than ever before and in more far-flung jurisdictions; the public seemed to care and support these cases as never before; the U.S. Department of Justice (DOJ) was successful in coercing companies to waive the attorney-client privilege and had undertaken an initiative to prosecute companies as well as individuals; and, most importantly, the sentencing guidelines had been recalibrated upward to punish financial crimes, and punish them severely. Step back even further. Ten years ago, none of these four things was true. Certainly, large-scale financial criminal prosecutions were common-in New York. Look elsewhere and you would have seen a mere smattering of cases in San Francisco, Miami, Chicago and Los Angeles. In most instances, the few cases prosecuted took years to bring to trial, and whatever convictions were obtained resulted in short jail sentences or probation. Juries didn’t understand the cases. Judges were unsympathetic. Many jurists appeared to believe that violations such as securities fraud did not constitute criminal behavior and should be prosecuted, if at all, civilly by the Securities and Exchange Commission or through private actions brought by the plaintiffs’ bar. A lot of prosecutors, schooled in the prosecution of violent gangs, probably agreed. Likewise, there were few official resources dedicated to the prosecution of white-collar crime. The FBI is an organization driven by statistics. These complex cases involving lengthy, painstaking investigations resulted in few defendants being charged and concluded with either dismissals, acquittals or minimal sentences. At that time in Louis Freeh’s FBI, nothing could be worse for an FBI agent’s career than to be assigned to a complicated, paper-intensive investigation that dragged on for five years and might or might not have ended with anyone going to prison; that was not the way to get promoted in the FBI. Finally, the prosecutor who ultimately decided whether to indict faced unfamiliar statutes, hostile judges, unmotivated agents, mounds of paper and defendants who had the resources to put up a fight with their large law firms and teams of paralegals, associates and experts. In those circumstances, most prosecutors were unwilling to risk high-profile failure. Thus, the all-powerful government was a myth. As a result, few sophisticated financial fraud cases were brought outside of the jurisdictions that had historically succeeded in doing them. Legal landscape post-Enron All that changed when Enron Corp.-the seventh-largest corporation in the United States-collapsed in the final months of 2001, leaving investors with worthless stock and midlevel employees without their pensions. Enron was followed by WorldCom Inc. And so on. Enron changed the landscape of white-collar prosecutions. While it is certainly correct that there have been sporadic upsurges in white-collar prosecutions like those of Michael Milken and Ivan Boesky, the post-Enron era has represented the most sustained period of white-collar criminal prosecutions. After Enron and WorldCom, DOJ began to view accounting fraud cases as alluring. The public wanted revenge. Newspapers covered the trials and guilty pleas. Suddenly, juries understood the real-world consequences of fraud; judges discovered the merits of deterring chief financial officers from cooking the books; and the FBI assigned more agents willing and able to investigate these cases. In the FBI now, it is the accountants rather than the members of the SWAT team who land supervisory jobs and plum transfers. Now, when a hot case breaks, various field offices of the FBI and U.S. attorney’s offices compete for the right to handle the investigation. Cases move through the system more quickly as prosecutors approach them like drug cartels: working from the bottom rungs to flip low-level and midlevel employees against their better-paid supervisors. At the same time, legislators in Washington see that there are political points to be scored by stiffening sentences for white-collar crime. Drugs are pass�. Immigration is yesterday’s news. Congress increased the statutory maximums for wire and mail fraud, enacted a new securities fraud statute and, under Sarbanes-Oxley, forced top-tier officers and directors to attest to the accuracy of financial statements. Most significantly, the U.S. Sentencing Commission amended the guidelines to redress the imbalance between white- and blue-collar offenses. Faced with the option of lowering sentences for violent crimes or raising the tariff for white-collar crimes, it is hardly surprising that the commission stiffened the penalties for financial offenses. The results were dramatic. The guidelines for fraud are driven by loss. The commission essentially doubled those penalties, and more. For example, an officer or director who committed a crime with more than 50 victims and $20 million in loss-with no other enhancements and no prior criminal history-faces a sentencing range of 188 to 235 months under the current version of the guidelines. Five years earlier, a defendant engaging in identical conduct would have fallen within a sentencing range of 51 to 63 months under the 2000 guidelines. While $20 million may seem like an unusually large fraud, the loss in an accounting fraud case, under some theories, is measured by the drop in the stock price times the number of outstanding shares. In those circumstances, it is not difficult to reach $20 million. In one securities fraud case in San Francisco involving a health care company, the government alleged a loss of $9 billion. This increase in penalties, coupled with the more hospitable climate for white-collar prosecutions, caused an extraordinary shift in the dynamics of white-collar prosecution and defense. Example of Olis prosecution The shift in dynamics can be described as follows: The government has all the power. Take the case of Jamie Olis, a midlevel vice president of finance at Dynegy Inc. Olis was charged with securities fraud, mail and wire fraud and conspiracy for falsely inflating Dynegy’s books and defrauding investors. He was convicted following a trial in November 2003. U.S. District Judge Sim Lake sentenced the first-time offender to 292 months in prison (24 years and four months), and actually expressed remorse to the defendant for having to impose such a harsh sentence. His co-defendants (including a supervisor of Olis), who pleaded guilty and cooperated in the investigation, received five years in prison each. According to his lawyers, Olis earned $40,000 for his role in the scheme. Olis’ sentence, however, was based not on his $40,000 gain but on the $100 million decline in the value of Dynegy’s stock between June 2001 and December 2002. Suppose a criminal defendant in a securities fraud case is considering whether to go to trial or to plead and cooperate, when he happens to read about Olis’ 24-year sentence in the morning newspaper. He would choke on his coffee, recalculate his odds and call his lawyer and tell him or her to make a deal, not necessarily in that order. Nor did the government shy away from using its power during this period. For example, with the blessing of top officials at DOJ, the U.S. attorney’s offices began demanding that companies waive their attorney-client privilege and turn over interview memoranda. DOJ also began prosecuting the corporations themselves, and sometimes requiring waivers and a guilty plea from the corporation in the same case. These may be proper uses of power in the right circumstances. However, the significance lies in the companies’ willingness, despite great reservations, to waive the privilege regardless of the budget-busting implications for the civil cases that routinely follow on the backs of corporate criminal pleas. In other words, these deals demonstrate just how far the pendulum had swung in the government’s direction. For defendants, the rigidity of the guidelines and the severity of their sentences provided two powerful incentives: to avoid trial in favor of a negotiated disposition and to cooperate. Merely pleading guilty alone was not enough, since credit for a plea shaved off only a few months of the sentence. In addition, under the pre- Booker guidelines, the sentencing court was required to consider so-called “relevant conduct.” Philosophically, the guidelines contemplated that defendants should be punished for all aspects of their conduct regardless of whether that conduct had been charged in an indictment, presented to a jury or found by a jury beyond a reasonable doubt. Thus in United States v. Watts, 519 U.S. 148 (1997), the court found that it was proper for the district court to sentence the defendant for conduct on which the jury had actually acquitted him. Even sympathetic prosecutors could not negotiate deals beneath the guideline range, a situation exacerbated by a directive from then-Attorney General John Ashcroft that no plea deals could be approved (except in certain situations) unless the defendant pleaded guilty to the most serious crime charged. In many cases, then, for a defendant the only means of escaping the consequences of a guideline sentence was to cooperate. Under � 5K1.1 of the guidelines, the government is permitted to reward a cooperator by seeking a downward departure to whatever level it thinks appropriate in return for substantial assistance in prosecuting a crime. For a defendant without a compelling defense, cooperation was really the only game in town. In an investigation with many targets, it could be a bonanza for the government, with several people vying to be the first to cooperate and thus receive the largest benefit. In the antitrust division, that policy is formalized: The first party in the door receives complete immunity. Meanwhile, the corporations pledge cooperation to the government as they fire their bad apples and turn over the results of their internal investigations to the government in an effort to stave off indictment of the corporate entity. Booker could slow this stampede to DOJ. Booker requires judges to “consider” the guidelines, but otherwise renders the guidelines advisory, meaning that judges are free to disregard them in light of the other goals of sentencing such as deterrence and proportionality. What does that mean? For starters, it means that Judge Lake, having already sentenced Jamie Olis’ supervisor to five years, could have given Olis 10, 15 or 20 years, rather than the 24 years specified by the guidelines. He could have justified the lower sentence based on proportionality, overstatement of the loss, a bad childhood or any other “reasonable” factor that happened to have struck his fancy. So long as the court of appeals found the judge’s rationale “reasonable,” it would have been upheld. The fact that trial court judges-courtesy of the curious alignment of Supreme Court justices who banded together simultaneously to strike down the guidelines yet preserve them in shrunken form as helpful hints-now may choose to reject a guideline sentence injects an entirely new metric in preindictment negotiations between defense counsel and the government. Cooperation is no longer the only means of lowering a sentence. In other words, there is a possibility but not a guarantee that a defendant with a compelling story or an appeal to fairness could go to trial, get convicted and still appeal to the mercy of the judge. It is a high-risk proposition, and defense counsel will have to size up the likelihood of success before a particular judge. On the other hand, the possibility-however remote-that a defendant could put the prosecutor to proof by going to trial, losing and still receiving a reasonable sentence alters the dynamics of the negotiation between the defense and prosecution, and should act to some extent as a restraint on prosecutorial demands during negotiations. DOJ’s concerns DOJ is worried about this very problem. It is pretending that Booker has not changed anything by instructing line prosecutors to follow the guidelines and encouraging courts to rely on the guidelines just as before. DOJ is now asking its lawyers to report to Washington the names of judges who disregard the guidelines. As reflected in a speech at the University of Virginia on Jan. 25 by Paul McNulty, U.S. attorney for the Eastern District of Virginia and one of the most influential U.S. attorneys in the country, “If the bad guys believe that they’re better off going to a judge to get sentenced rather than agreeing with the government to cooperate-getting certain benefits for that under the sentencing guidelines as they have in the past-then our ability to get cooperation is going to go down substantially.” DOJ’s concerns will be particularly apt if defense lawyers can argue that the guidelines represent an upper limit on the defendant’s exposure based on ex post facto concerns. Some commentators make the compelling case that defendants who committed a crime pre- Booker had a constitutional expectation of receiving a guideline sentence. For a judge to go above the guidelines implicates ex post facto issues in light of the holding (in the first part of Booker) that factors that increase a sentence must be found by a jury beyond a reasonable doubt. In other words, Booker permits judges to give a sentence lower than would have been required under the guidelines, but not higher. If true, defendants could go to trial knowing the upper limits of their exposure-a fact that would, in essence, shift the burden of uncertainty onto the prosecutor. If the prosecutor offered the defendant a take-it-or-leave-it guideline sentence (common before Booker), the defendant would have little to gain from a guilty plea. Go to trial and maybe win an acquittal. If you lose, appeal to the judge for leniency. It should be noted that this scenario does not apply to offenders convicted of crimes involving violence or drugs because prosecutors may file mandatory minimum sentences, over which judges have no discretion. These mandatory minimums are statutory, and they say expressly that judges have no power to override them. Booker doesn’t apply to mandatory minimus because the guidelines never come into play. It should also be noted that all of the other factors that have made white-collar prosecutions such a lucrative business of late remain in place, including higher guideline ranges that have raised the bar for sentences across the board. Still, in the poker game of negotiations between the government and the defense, the Supreme Court has dealt the defense a face card. Whether that face card is enough to win the hand will depend on luck, a willing judge, a sympathetic defendant and the skill of the lawyer playing poker. Matthew J. Jacobs, a former federal prosecutor in San Francisco, is a partner in the Palo Alto, Calif., office of McDermott, Will & Emery, where he specializes in white- collar criminal defense.

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