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For the second time, the sentence for former HealthSouth Corp. Chief Financial Officer Michael Martin has been rejected by a federal appeals court for being too lenient. The 11th U.S. Circuit Court of Appeals called Martin’s sentence “shockingly short” and said that it “wholly fails” to serve the purposes of criminal sentencing prescribed by Congress. “Martin’s crimes and the district court’s punishment are so wildly disproportionate that we readily conclude that the district court’s 7-day sentence is also unreasonable and must be vacated,” a three-judge panel declared in an opinion written by Judge Frank M. Hull. Strongly criticizing the short sentence, based on the scale of Martin’s fraud and its devastating effect on the victims, the federal appeals court remanded the case with directions that a new judge sentence Martin. The 11th Circuit gave no guidance on what a reasonable sentence would be, saying, “The district court on remand will exercise discretion in fashioning an appropriate sentence consistent with what we have stated in this opinion, and there is a range of reasonable sentences. A 7-day sentence is not nearly within that range.” HealthSouth executives were accused of vastly overestimating the company’s earnings from the early 1990s until 2002. Although Martin tried to convince HealthSouth CEO Richard Scrushy not to continue with the fraud after Martin took over as CFO in 1997, the three-judge panel said in its July 11 ruling that a conservative estimate of the losses attributable to Martin mounts to about $1.4 billion. The court noted that investors, employees with stock options and others lost money due to the fraud while the executives continued to receive multimillion-dollar salaries. U.S. District Judge U.W. Clemon of Alabama originally sentenced Martin to five years’ probation for inflating the company’s earnings. The judge cited his assistance in the prosecution of other executives, his payment of fines and his lack of a criminal record. The 11th Circuit reversed that sentence in 2005 because Clemon did not explain why he departed so substantially from federal guidelines. Although the guidelines now are only advisory following the 2005 U.S. Supreme Court ruling in U.S. v. Booker, 543 U.S. 220 (2005), judges still must properly calculate and carefully consider the guidelines. Appellate courts can then consider whether the sentence is reasonable. On remand, Clemon imposed the seven-day sentence that the 11th Circuit overturned. Federal prosecutors had asked for a 3 1/2-year sentence, in part because Martin confessed to the Federal Bureau of Investigation and agreed to testify against Scrushy. The government argued that Clemon gave too much weight to Martin’s assistance in the case, noting that he talked to investigators only after other co-conspirators had already tipped them off about the inflated earnings. “Martin’s cooperation, while commendable and extremely valuable, is not a get-out-of-jail-free card. Martin’s cooperation does not wash the slate clean,” the 11th Circuit panel said. “Yet departing 23 levels to a 0-6 months range effectively accomplishes that by permitting a sentence of no jail time at all, or 7 days, which is close to none.” The appellate court rejected Clemon’s decision to grant a large downward departure based in part on Martin’s previously unblemished criminal record. Writing for the circuit court, Hull said, “Martin’s offense conduct spanned a period of years, during which Martin . . . played a leadership role in a conspiracy that resulted in over a billion dollars of loss harming thousands of victims. Martin’s crimes are major league economic crimes that harmed not only individual victims but also many institutions and companies.” Finally, the court noted that Martin’s seven-day sentence was too short to deter criminal conduct by other business executives. “Defendants in white collar crimes often calculate the financial gain and risk of loss, and white collar crime therefore can be affected and reduced with serious punishment,” the court said. “Yet the message of Martin’s 7-day sentence is that would-be white-collar criminals stand to lose little more than a portion of their ill-gotten gains and practically none of their liberty.” Martin pleaded guilty to securities fraud and falsifying books and records before Scrushy’s trial began. He also agreed to pay about $2.38 million in restitution and a $50,000 civil fine. Other HealthSouth executives had their sentences overturned because the trial judge had not given a thorough explanation for the substantial reduction. The court asked that the cases be remanded so that Clemon could outline his rationale. Martin’s case was the first to return to the appellate court.

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