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Technically speaking, Jay Jones is more than $1 billion in the red. Five years ago, when Jones pleaded guilty to conspiracy, U.S. District Judge Sven Erik Holmes ordered him to pay $1,089,636,980 to victims of the fraud that he committed at Tulsa’s Commercial Financial Services Inc. CFS bought bad credit card debt and collected on accounts that other companies had written off — but when CFS’s collections dipped, Jones funneled bad debt into a separate company, fraudulently propping up the value of CFS bonds. Today, though, it’s as though Jones’ debts have been written off. The government seized more than $4.4 million worth of his assets before he went to prison. Now, with monthly income of about $1,500 in Social Security and $1,000 for odd jobs he takes for the law firm that once defended him, the ridiculously unattainable $1.1 billion might as well be a trillion. “Honestly, from my standpoint,” Jones says matter-of-factly with a Northern Oklahoma drawl, “if it would have been $400,000 or $500,000, it would have scared me more than $1 billion.” In fact, Jones hasn’t paid a cent toward restitution since his release in January after three-and-a-half years in prison, followed by six months split between a halfway house and home detention. Adding insult to mega-injury, if Jones started to make small payments, it would cost more for the CFS estate to administer the distributions than Jones can afford to pay. Jones is just one of the many corporate fraudsters who will never repay the debt they’ve been deemed to owe their victims. Judges have handed down some staggering restitution orders in both high-profile and obscure cases during the past five years: E. Kirk Shelton and Walter Forbes both owe $3.3 billion in the Cendant Corp. case prosecuted by the New Jersey U.S. Attorney’s Office, and former executives of Michigan mortgage company MCA Financial Corp. owe as much as $256 million in restitution. Of the defendants prosecuted under the banner of the Corporate Fraud Task Force, at least 25 people face more than $7 million in restitution debts (in some cases jointly and severally with their co-defendants). Those debts are based on documented, direct losses by victims. But how much of the money will be collected? The Jones case is a fairly representative example. The government seized Jones’ assets before he was released from prison. “The government did a pretty good job of hanging on to everything I have,” Jones says, except for his clothes and an old guitar. Still, that sum was just more than 4 percent of the total restitution Judge Holmes ordered. And that’s not too far off the national average. According to the U.S. Attorneys’ Annual Statistical Report for fiscal year 2006, even with record-level collections of more than $1.5 billion, the Justice Department brought in only 3.3 percent of all criminal debt on the books last year. The responsibility to enforce fines and restitution in federal cases rests with financial litigation units — teams of data entry clerks and collection specialists headed up by an assistant U.S. attorney from the civil divisions in each of the 93 U.S. attorney’s offices. Prosecutors face many obstacles in trying to turn restitution judgments into actual cash for victims, according to information gathered from court filings, congressional studies, and discussions with about 30 lawyers and victims involved in white-collar fraud cases. Some white-collar defendants don’t actually have much money, particularly those convicted of operating sham companies or Ponzi schemes. Of those who do, some take advantage of the time it takes to investigate and prosecute corporate fraud by transferring and hiding assets in the meantime. Sometimes the award is so preposterously huge that even a decent-sized collection doesn’t put a dent in it. Senators from both sides of the aisle, including Byron Dorgan (D-N.D.) and Susan Collins (R-Maine), have asked the Government Accountability Office to look into the collection of criminal debts, the fines and restitution owed to the government and to third parties since 2001. According to several assistant U.S. attorneys who handle collection cases, the congressional scrutiny has pushed prosecutors to think beyond the initial conviction and coordinate their efforts with financial litigation units well before sentencing to go after criminal assets. Yet the balance of uncollected fines and restitution continues to grow — up by $4.3 billion to $45.7 billion for fiscal year 2006. More than 75 percent of that amount consists of restitution owed to victims. Going forward, additional convictions mean more restitution judgments, but without a significant uptick in collections, these awards will seem increasingly meaningless to victims, criminals, and the public. BIG-DOLLAR JUDGMENTS No matter how much restitution — or how little — the government may ultimately collect from a criminal, first it has to calculate the size of the award and who should receive it. In a corporate fraud case, victims are typically identified by investigating agencies, such as the Federal Bureau of Investigation or the Securities and Exchange Commission. After a conviction, a probation officer presents the court with a pre-sentence report, which includes a summary of the criminal’s finances and a collection of statements from victims about the financial and emotional impact of the crime. In some cases, judges order restitution as a lump sum payable at sentencing, plus a monthly amount to be paid after release from prison. In other cases, the whole amount comes due in full at judgment. The federal law that governs restitution assures that in most big-dollar frauds there will be big-dollar restitution judgments. The Mandatory Victims Restitution Act of 1996, the federal law that governs how the courts determine restitution in most white-collar fraud cases, says that judges “shall order restitution to each victim in the full amount of each victim’s losses as determined by the court and without consideration of the economic circumstances of the defendant.” The law clearly had an effect on the overall balance of criminal debt on the books as well. The U.S. attorneys’ annual statistical reports show the total amount of criminal debt owed increased from about $6 billion in 1995 — the last year before restitution amounts were governed by the new law — to nearly $46 billion in 2006. For at least two decades, the GAO has highlighted problems in collecting fines and restitution in multiple reports to Congress. Each year U.S. attorneys report criminal debts as well as collections made on those debts. In 2001, the GAO found that an average of only 7 percent of all fines and restitution in a five-year span was collected; 66 percent of the uncollected money was restitution to victims outside of the government. In a follow-up report in 2004, the GAO found that the average rate for collections had dipped to 4 percent. In a 2005 report, the GAO focused on restitution in a selection of white-collar cases at the request of Dorgan. The study found that only 7 percent of the total restitution amounts were collected, even in cases where records indicated criminals had millions in assets prior to sentencing. The 2005 report concluded that without a strategic plan to address the problem of criminal debt collections, the Justice Department could not guarantee “that offenders are not benefiting from ill-gotten gains and that innocent victims are being compensated for their losses to the fullest extent possible.” (Such a strategic plan was delivered to Congress in summer 2005; it set goals to improve Justice’s ability to identify assets, make collections, and track outstanding debt while raising the possibility of bringing in private collection agencies.) Justice officials argue that there are reasonable explanations for the eye-popping statistics cited by the GAO. Fines and restitution can stay on the books for 20 years after a criminal’s release from prison. Debt lingers on Justice’s books until it is paid, the statute of limitations expires, the debtor dies, or the court approves its removal — a resource-consuming process that most prosecutors don’t spend time pursuing. In comments included in the response sections of the 2005 GAO report, Mary Beth Buchanan, then director of the Executive Office for United States Attorneys, pointed out that although Congress gave Justice a new mandate to collect restitution on behalf of victims under the 1996 restitution law, it allotted no additional resources to the U.S. attorney’s offices to carry out that work. Legislation sponsored by Dorgan and endorsed by Justice is pending in the Senate. The bill would give prosecutors the power to freeze assets pre-conviction in cases where a big restitution award could be in the offing. RESTITUTION HEADACHES Sometimes what appears as a win on paper for prosecutors turns out to be a big headache. Take the $1.1 billion restitution judgment in Jay Jones’ case: While Jones was in prison in late 2003, the Federal Bureau of Prisons sent a check for $25 (from his quarterly prison earnings of less than $40) payable to the federal court clerk in Tulsa. It was a mistake: The judge had ordered the $1.1 billion restitution payable to the bankruptcy trustee of Jones’ company, CFS, so the check should not have been made out to the court or sent there. Through the mix-up, the judge learned that each time the trustee in the case pays out, it costs up to $4,000 to update the list of victims and cut checks. In some cases there’s nothing for prosecutors to go after in the first place. In Michigan, seven executives of MCA, a mortgage company, were convicted of accounting fraud, illegally boosting assets, revenues, and profits in hopes of cashing in on an initial public offering. Joint and several restitution judgments ranged from $11 million to $256 million among the seven defendants, but prosecutors faced a hurdle in collecting: The company never cashed in on its intended initial public offering. The conspirators were living relatively modestly when their scheme came unhinged. Even those criminals who do manage to cash out often plead poverty later on. “Let’s see, what’s the old line? �I spent it on women, drinking, and drugs, and I blew the rest,’” says Patrick Layng, a former Chicago assistant U.S. attorney who prosecuted five executives of FLP Capital Group Inc. “These are not the most fiscally responsible people.” Between 1994 and 1998, the FLP defendants promised investors high returns on risk-free investments, but ultimately funneled the money they collected through corporate accounts back to themselves — and promptly spent it. The five owe restitution of more than $11 million. Even when the government is able to collect restitution in big chunks, losses can be so large that full repayment remains a pipe dream. Former Cendant vice chairman Shelton owes $3.3 billion in restitution stemming from his fraud conviction. Judge Alvin Thompson based the restitution order on settlements paid out by Cendant to settle shareholder suits and the $25 million Cendant paid for Shelton’s defense. He has handed over cash and life insurance policies valued at $15 million. Prosecutors continue to pursue more than $20 million worth of property and accounts that Shelton and his wife hold jointly. But even a complete liquidation of Shelton’s assets would leave billions in owed restitution on the books. For his part, Jay Jones says he feels bad that he doesn’t have enough income to pay restitution. But practically speaking, the only way he might be able to pay victims back is if he wins the lottery. If he’s lucky enough to come across that winning ticket, though, Jones knows what to do with it. “Chances are, I probably wouldn’t hit the lottery,” Jones quips. “But my daughter might.”
Ross Todd is a staff reporter for The American Lawyer , an ALM publication. He can be contacted at [email protected].

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