X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
If U.S. District Judge Barbara Jones seemed to anguish over the July 13 sentencing of former WorldCom Chief Executive Officer Bernard Ebbers, it was understandable. Not only was Ebbers’ case the largest accounting fraud in U.S. history, Jones also had to consider the Federal Sentencing Guidelines that have been put into a strange limbo by recent Supreme Court decisions. While many may argue that the guidelines aren’t a perfect model for determining a sentence, Ebbers’ 25-year sentence, the toughest yet in this post-Enron string of corporate fraud cases, just adds up. The guidelines show us how. The Federal Sentencing Guidelines, first enacted in 1987 and amended many times since, were intended by Congress to impose a greater degree of consistency, transparency and rationality on sentencing judges across the nation. They created a complex system of factors and formulas for calculating an “offense level” for every situation, which then triggered a narrow range of sentences. The guidelines have always been controversial. Many judges balked at losing some of their judicial discretion. Others objected because the guidelines required judges to sentence based upon facts far beyond what may have been decided by the jury at trial. In January, the Supreme Court decided in U.S. v. Booker that because they required the use of such untested facts, the guidelines could not be mandatory. Although it is no longer mandatory that judges follow the guidelines, it is mandatory that they “consider” them. Nonmandatory guidelines? Talk about a recipe for legal and political limbo. Enter Bernie Ebbers, convicted of a fraud so massive that it blew the lid off the guidelines’ calculations: His “offense level” was well above what was needed for life imprisonment. Ebbers filed a lengthy memorandum challenging every part of the guidelines’ calculations and submitted 169 letters from friends and beneficiaries of his good deeds to convince the judge to depart from the guidelines. Here’s how it works: For most economic crimes, the guidelines look first to dollar amount of the loss. A simple table tells judges how many points to add to the offense level for a series of dollar ranges. There has been much debate over both the interpretation (how you define “loss”) and fairness of this table. But Ebbers’ situation overwhelmed those arguments: In 2001, when the WorldCom fraud was ongoing, the guidelines’ loss table was capped at $100 million. In 2003, it was increased to $400 million. Ebbers was convicted of directing a $2 billion fraud-more than five times the guidelines’ maximum add-on for loss. Points added on relevant factors The guidelines then separately address a series of other issues: the victims’ losses, the defendant’s gain and the defendant’s role. Ebbers was not just over the top on economic loss; he hit the ceiling on nearly every other relevant factor, too. Victims’ losses. The highest level for adding on points for the number of victims in the 2001 guidelines was “50 or more.” That was expanded to add a category of “250 or more” in 2003. But Ebbers’ fraud cost the savings, pensions and hopes and dreams of thousands of people who bought stock in WorldCom; here again the maximum add-on makes sense. Defendant’s gain. The guidelines add points if the defendant earned more than $1 million from the fraud. That’s petty cash for Ebbers: He borrowed hundreds of millions of dollars using fraudulently inflated WorldCom stock for security, and picked up another $70 million on the forward sale of inflated stock. Another add-on makes sense. Defendant’s role. When Ebbers took the stand, he claimed that he knew nothing about the fraud, did not direct it and was more of a laid-back “coach” than a hard-charging CEO. For the first time in his long, successful career as a promoter, nobody bought what he was selling. In both style and substance, he clearly fit the guidelines’ description for added points based on his role as an “organizer or leader of a criminal activity.” As the CEO of a major public corporation, he also clearly held and abused a “position of public trust,” another basis for adding points. It all adds up. Even using the more lenient 2001 guidelines, and giving Ebbers the benefit of the doubt on several issues, the probation department-which does an independent evaluation for the court-gave him a total “offense level” of 44. Using the 2003 guidelines, and adding points for perjury at trial, the total could easily be 54. It doesn’t matter: Both scores are off the charts. Under the guidelines, once the offense level is determined, the judge uses a sentencing table to tabulate the length of the sentence. Level 43 is life. Even if Jones had substantially reduced Ebbers’ offense level, she could still easily have arrived at 25 years, effectively a life sentence for the 63-year-old Ebbers. While judges shouldn’t be compelled to use the sentencing guidelines, they should certainly consider them. The guidelines’ process is a helpful one, highlighting and weighing some of the key factors in sentencing. The result here was the toughest sentence yet in this post-Enron string of corporate fraud cases. But the guidelines’ framework lends credence to such a sentence in a case that was, after all, also the largest corporate fraud in U.S. history. Dan Small is a trial lawyer and a partner in the Miami office of Duane Morris, where he focuses on complex commercial litigation, selected white-collar criminal matters, Securities and Exchange Commission and other investigations, and witness preparation.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.