White-collar crooks deserve tough treatment. But 24 years for Dynegy's Jamie Olis? Politics has turned financial fraud into a worse crime than running drugs or killing someone.
Former Tyco chief executive Dennis Kozlowski is a lucky guy. Not because a stubborn juror landed him a mistrial. He's lucky because even if New York prosecutors retry him, as they've vowed to do, the flamboyant former exec is looking at 15 to 30 years, no more. Were Kozlowski in federal court instead, he could easily be facing what amounts to a life sentence--with no chance of parole--under rigid new sentencing guidelines.
While most of the country wasn't paying attention, Congress cranked up the penalties for white-collar crimes. This is Washington's way of dealing with the terrible losses in your 401(k) plan. Next time a stock goes into the tank, prosecutors will be looking to see if they can get the chief executive behind bars and throw away the key.
Sentencing guidelines--despite their name, they give judges little discretion--have been around since 1987. But they were stiffened in 2002 as part of "emergency" measures in the wake of the Sarbanes-Oxley corporate reform movement. The maximum punishment for wire and mail fraud, the most common white-collar infractions, was increased from 5 to 20 years. A chief executive who makes a material misstatement that causes a 50-cent drop in his company's billion-share float now faces 11 years in jail.
If he is instead caught trafficking 40 grams of heroin, he'll be back on the street in three years. If he kills someone intentionally, but not murderously, and is convicted of voluntary manslaughter, the maximum federal punishment is ten years.
"These sentences are outrageous for nonviolent, nondrug cases," says Preston Burton, a former federal prosecutor who, as a criminal defense attorney, serves on the U.S. Sentencing Commission's practitioners' advisory group.
Okay, Enron's ex-finance chief Andrew Fastow should do hard time for a fraud that cost employees and investors billions of dollars. But the irrationality of the white-collar sentencing system became painfully apparent in March, when Jamie Olis, a 38-year-old former midlevel Dynegy executive, was given 24 years for booking a loan as revenue. Olis is no Snow White, but neither is he a thief on a grand scale. His take from the misdeed reportedly was $272,000 in salary and bonus in 2001, plus $200,000 in stock sales. "I take no pleasure in sentencing you ... but my job is to follow the law," U.S. District Judge Sim Lake said in meting out punishment from a formulaic federal sentencing grid. Nearby, Olis' wife held a baby daughter who could be out of college before her dad gets out of prison.
Olis' sentence was based on his total of 40 "offense level" points: 6 for fraud, 26 for causing $100 million in investor losses, 4 for harming 50 or more people, 2 for being a "sophisticated" executive and 2 for being a certified public accountant.
Bubble-era white-collar crooks, beware: Even crimes committed before the new guidelines took effect can be "pulled forward" for sentencing purposes if prosecutors prove a perp obstructed justice or committed another related offense later on. It's not just the Bernie Ebbers of the world who need fret either. Anyone nailed for causing more than $1 million in losses to investors faces a decade or more in prison.
There's a lot of imagination in calculating losses from a misdeed. Dynegy was a sick company in any event, as lenders fled energy traders and suits started flying over the California power scandal. But under the guidelines, an accountant who puffs up earnings can be blamed for the whole collapse.
As the law now stands, someone who artificially pumps up a stock with 100 million shares outstanding, and whose price subsequently falls $8 below where it was when the scam started, is treated as if he personally stole $800 million.
A judge can depart from the sentencing guidelines if he's willing to send a report on the matter to Capitol Hill. Judge Lake declined to take this step.
It's scary stuff, enough to coerce folks under suspicion to cop a plea. That's exactly what Olis' colleagues did, including his boss, and they're getting no more than five years. Demand a day in court, or just be a chief executive with no one higher up to snitch on, and you risk rotting away.