JURIST Guest Columnist Randall D. Eliason of the George Washington University Law School discusses DOJ’s recent opposition to relaxed sentencing guidelines …

On March 12, 2015, the US Sentencing Commission held a public hearing on its annual proposed amendments to the Federal Sentencing Guidelines. A number of the proposals concern the guideline for economic crimes and fraud cases, § 2B1.1. The amendments would reduce the recommended sentence in many such cases, particularly those involving large dollar amounts.

At the hearing the US Department of Justice opposed most of these amendments. DOJ argued that any move to reduce the sentences in fraud cases would be bad policy and would ignore the “overwhelming societal consensus” in favor of harsh punishment for these crimes. (The DOJ’s written testimony is available here [PDF].) But given the current realities of federal sentencing, DOJ is fighting the wrong battles.

The Proposed Amendments

There are five key proposed amendments affecting fraud and economic crimes:

Inflation Adjustment: The sentencing guidelines operate by calculating an offense level, ranging from 1 to 43, for every criminal conviction. That offense level, along with the defendant’s criminal history, is used in the sentencing table to find the recommended sentencing range. The greater the offense level, the greater the sentence.

In a fraud case the single biggest driver of the offense level is the loss caused by the defendant’s conduct. That amount is plugged into the “fraud table” within § 2B1.1(b)(1) and the corresponding number of offense level points is added; if the loss exceeds $5,000.00 two points are added, if it exceeds $10,000.00 four points, and so on. At the top of the fraud table, for losses exceeding $400 million, thirty points are added to the offense level.

Since the fraud table was last revised in 2001 the dollar amounts defining the different levels have not been adjusted for inflation, which has resulted in “bracket creep.” A crime that caused $100,000.00 in damage in 2001 would cause more than $130,000.00 in damage today, due to the effect of inflation. That would place it higher in the fraud table and result in a greater sentence for the same crime. The Commission proposes adjusting the amounts in the table to bring them back into line with what they represented in 2001, which would reduce the average sentence under § 2B1.1 by more than 20 percent.

Victims Table: The “victims table” in § 2B1.1(b)(2) provides a two level enhancement if the offense affected ten or more victims, four levels if it affected fifty or more victims, and six levels if it affected 250 or more. This focus on the number of victims may lead to inappropriate results in some cases. For example, suppose one defendant defrauds 500,000 people of only $5.00 each while another defrauds five victims of $500,000.00 each and wipes out their life savings. The total loss is identical and each would receive the same increase from the fraud table. But the first would receive an additional six levels based on the number of victims while the second, who caused far greater harm to his individual victims, would not. Six additional levels may lead to a doubling or more of the recommended sentence, but probably few would argue that the first defendant deserves twice the jail time of the second.

The Commission proposes adding a new enhancement for cases in which a defendant causes substantial financial hardship to one or more victims, while at the same time halving the increases based solely on the number of victims. The overall effect would be to shift the emphasis away from the number of victims and toward the seriousness of the harm the defendant caused.

Sophisticated Means: The fraud guideline contains a two level enhancement for offenses that involved multiple jurisdictions, overseas bank accounts, shell corporations, or other types of “sophisticated means.” § 2B1.1(b)(10). The Commission proposes modifying this provision to specify that it will apply only when the sophisticated means employed were truly unusual relative to other similar cases and only when the defendant personally engaged in or caused the conduct constituting sophisticated means.

Intended Loss: The loss caused by the defendant’s behavior that is plugged into the fraud table is the greater of either the actual or the intended loss. There has been some dispute in the courts over whether “intended loss” means all losses that are reasonably foreseeable based on the nature of the defendant’s conduct (objective standard) or only the losses that the defendant actually and purposely sought to inflict (subjective standard). The Commission proposes an amendment that focuses on the subjective standard.

Fraud on the Market: “Fraud on the market” cases are those that involve the fraudulent increase or decrease in the price of a publicly traded security. Courts have found the loss in such cases difficult to calculate, due to the many different market forces that may be at work. The Commission proposes that in such cases the sentence enhancements be based on the (easier to calculate) gain to the defendant, rather than on the loss to the victims.

DOJ’s Opposition: Fighting the Wrong Battles

At the March 12 hearing DOJ opposed the inflation adjustment; opposed the amendments concerning sophisticated means, intended loss, and fraud on the market; and supported the new enhancement based on causing victims substantial hardship. In other words, DOJ opposed virtually any amendment that could lead to lower sentences while supporting changes that could lead to higher ones. While this may seem predictable, I think it’s a mistake.

DOJ was a lonely voice at the hearing and is definitely swimming against the tide by opposing the amendments. There is a widespread and growing belief that the sentences called for in major fraud cases have become excessive. More broadly, there is an emerging bipartisan movement in the country favoring criminal justice reform, including measures to reduce skyrocketing sentences (particularly for non-violent offenders) and our enormous prison population.

Law professor Frank Bowman provided some compelling hearing testimony [PDF] tracing the history of the fraud guideline and demonstrating how various forces, both intentional and unintentional, have combined over the years to escalate the sentences in such cases dramatically. As he pointed out, given the large dollar values involved in some recent Wall Street frauds, it’s relatively easy for a white-collar defendant to zoom to the top of the sentencing table and end up with a recommended sentence of 30 years or even life in prison—on a par with sentences recommended for homicide, treason, or a major armed bank robbery.

DOJ’s resistance to virtually any amendment that might lead to lower sentences in economic crime cases appears short-sighted and runs the risk of looking reflexive. The Sentencing Commission has researched these questions [PDF] for several years, gathering input from all stakeholders. The proposals seem reasonable and justified, and in fact are more modest [PDF] than many had hoped.

It’s hard to see what criminal justice purpose is being served by the escalating sentences in fraud cases. The prospect of prison does have a powerful and important deterrent effect that is unique to criminal law. But for a typical business executive it’s hard to believe there’s much additional marginal deterrent value in a possible twenty or twenty-five year sentence as opposed to, say, a fifteen year one.

But the more important fact is that legal developments have rendered DOJ’s position in favor of higher guidelines sentences increasingly beside the point. It’s been ten years since the Supreme Court ruled in US v. Booker that the mandatory sentencing guidelines were unconstitutional and the guidelines must be advisory only. Later in Kimbrough v. US the Court made it clear that a judge is free to depart from the recommended sentence if the judge disagrees with a policy decision underlying the guidelines.

In this legal environment, DOJ’s push for higher guidelines looks like a struggle to keep the barn door closed when the horse left for greener pastures long ago. In the post- Booker/Kimbrough world, if judges believe a sentence called for by the guidelines is out of whack they will simply reduce it. For example, in the recent public corruption case involving former Virginia Governor Robert McDonnell, the judge called the recommended guidelines sentence of six to eight years in prison “ridiculous” and proceeded to sentence McDonnell to only two years.

There’s evidence that the same thing is already happening in fraud cases. According to the Sentencing Commission’s data [PDF], (see Table 10), judges sentence below the recommended guidelines range in about 21 percent of fraud cases (not counting those cases where the government itself requests a reduced sentence). But in the Southern District of New York, home to Wall Street and many of the big-dollar fraud cases, judges depart below the guidelines in a whopping 45.6 percent of such cases. It does no good for DOJ to continue to push for extremely high guidelines numbers only to have judges ignore the guidelines and impose the lower sentences that they feel are just and reasonable.

DOJ’s approach is worse than futile, it’s counter-productive. The more that judges come to regard the guidelines as calling for inappropriate sentences, the more comfortable they may become not following them. This could lead to more widespread departures from the guidelines not merely in fraud cases but in cases across the board, accelerating a deterioration in the force and influence of the guidelines that so far has been held relatively in check since Booker.

DOJ would be better served by deferring to the Commission’s expertise and to the growing consensus concerning excessive sentences in fraud cases. In truly extraordinary cases the government is always free to ask the judge to exceed the recommended guidelines sentence and depart upward. Such an approach could achieve DOJ’s goal of enhanced punishment in cases where it may truly be called for while still promoting greater overall respect for the guidelines in the average case.

Following the post-Enron hysteria of more than a decade ago, the pendulum appears to have swung too far in the direction of extreme sentences for fraud cases. We will have to await the final version, but it appears the new guideline amendments will represent a move back in a sensible direction. DOJ should embrace this development, not oppose it.



Randall D. Eliason is former chief of the Public Corruption/Government Fraud Section at the DC U.S. Attorney’s office and teaches white collar crime at George Washington University Law School. He writes about white collar crime on his blog, Sidebars.

Suggested citation: Randall D. Eliason The DOJ Opposition to the Proposed Sentencing Guideline Amendments: Fighting the Wrong Battles in Fraud Cases, JURIST – Academic Commentary, Apr. 4, 2015 http://jurist.org/academic/2015/04/Randall-Eliason-DOJ-oppositionto-sentencing-guidelines.php.