Does an executive who helps defraud investors of, say, more than
$100 million deserve prison time on par with murderers?
That's the question prompted by the 24-year prison sentence
handed down last week to Jamie Olis, a former mid-level executive of
In its efforts to crack down on white-collar criminals, the
United States has beefed up federal sentencing guidelines. The stiff
penalties send a message, prosecutors say, deterring others from
trying similar schemes. But some experts suggest the new levels of
punishment have gone too far.
However that debate plays out, experts say executives facing
federal prosecution will be more inclined to cooperate in the wake
of Mr. Olis's sentence.
"This is clearly a new stage in federal sentencing for business
crimes - it's a preview of things to come in the other big-name
cases," says Kirby Behre, an expert on sentences for corporate crime
and a partner at Paul, Hastings, Janofsky & Walker in Washington,
Olis's long prison term is partly a result of harsher sentencing
guidelines, which target fraud that causes more than $100 million in
losses to investors. The US Sentencing Commission made those changes
in 2001, before the wave of scandals that started with Enron. After
that wave, in 2003, it added other penalties at Congress's request
to take into account obstructionist factors such as document
How to measure fraud
But some experts warn that the revised guidelines are problematic
because it's difficult to measure the effect of fraud on stock
values. "It's not whether Aunt Nellie is out by $1,000 or by $1
million," Mr. Behre says. "How can you say anyone is truly
responsible for the total amount of the stock dropping? There are so
many other factors."
The Dynegy scheme, dubbed "Project Alpha," deceived investors by
making a $300 million loan appear to be part of the company's cash
flow. The court ruled that when the stock dropped after the scheme
was revealed, large investors, such as the University of
California's retirement plan, lost more than $100 million.
"The damage caused by false financial information being illegally
reported to the marketplace can't be measured solely by how much
corporate wrongdoers line their own pockets," said James Comey, a
deputy attorney general and chair of President Bush's Corporate
Fraud Task Force, in a statement after Olis's sentencing March 25.
No more white-collar time
Many experts say the federal sentencing guidelines, created in
the 1980s, deserve credit for fixing a two-tier system in which
judges often let white- collar criminals walk away with probation
because they were from a "good family" or had done charitable work.
"The guidelines basically said white-collar crime no longer gets
white-collar time," says Paul Fiorelli, director of the Center for
Business Ethics and Social Responsibility at Xavier University in
Cincinnati. At the same time, the federal system eliminated parole.
The most time off someone can get for good behavior is 15 percent of
the sentence - 3-1/2 years in Olis's case.
David Gerger, Olis's lawyer for sentencing but not for trial,
argues that the court should consider the fact that Olis did not
enrich himself the way some high-level executives have been shown to
do in other recent frauds. …