June 01, 2006
Overcriminalization
Posted by Ellen S. Podgor

The jurors heard the evidence and presented a thoughtful verdict that demonstrated a careful deliberation of the charges against Jeff Skilling and Ken Lay. This was not a technical accounting fraud case.  It was a simple case of - did Lay lie to people - and did Lay & Skilling participate in illegal activities that caused harm to many. The prosecution did an outstanding job of keeping the case simple despite the very technical nature of much of the evidence presented.

The questions as I see them are: 1)  what allowed the government to keep it simple, and; 2) should this be the standard used in cases with penalties that may reach levels never seen before in white collar cases. 

The government had an array of offenses available in its arsenal that were so broad that it is easy to fit just about any conduct.  For example, Ken Lay was convicted of one count of wire fraud, a statute predicated on the mail fraud statute, and a statute with a long history of being broad.  Chief Justice Burger went so far, in dissenting opinion, to call it "a stopgap device to deal on a temporary basis with the new phenomenon, until particularized legislation can be developed and passed to deal directly with the evil."  (Maze)

The problem with the possibility of giving enormous sentences to these two first-offenders is that despite the outcry to punish them, in the back of some of our minds is the question of whether they would have engaged in this conduct if they thought they might be facing criminal charges.  To so many in this situation, it is a business decision, albeit in many cases unethical, that triggers criminal statutes when the government feels the need to punish someone because of the harm suffered by so many. To some, however, the criminality is not apparent.  We all know what murder or burglary is, but how many really understand wire fraud.

Some may argue that punishing Lay and Skilling will serve as a deterrent of future criminality.  And there is some truth here, perhaps.  But my response is two-fold: 1) perhaps we could have prevented the conduct before it happened if there were clearer rules in place that were easily understandable by individuals who are not lawyers, and 2) could we accomplish the same deterrence with significantly lesser sentences.

I have some other suggestions, and they can be found on the white collar crime blog here.

(esp)

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Comments (6)

1. Posted by John Davidson on June 1, 2006 @ 7:42 | Permalink

How many understand wire fraud? I have spent 30 years defending against the statute and what scares me about the statute is that I have never meet a juror who didn't understand the statute. It's really pretty easy.

When I have read the standard charges [either or both: (1) departure from moral uprightness; or (2) facts before them] I have had more than one client see the need to plea guilty and for mercy.

Here is the citation. An oft-quoted formulation is that found in Gregory v. United States, 253 F.2d 104, 109 (5th Cir. 1958): "The aspect of the scheme to "defraud' is measured by (a) nontechnical standard. It is a reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general business life of members of society." Accord, United States v. States,488 F.2d 761, 764 (8th Cir. 1973), cert. denied, 417 U.S. 909, 94 S. Ct. 2605, 41 L. Ed. 2d 212 and 417 U.S. 950, 94 S. Ct. 3078, 41 L. Ed. 2d 671 (1974); United States v. Buckner, 108 F.2d 921, 926 (2d Cir.), cert. denied, 309 U.S. 669, 60 S. Ct. 613, 84 L. Ed. 1016 (1940).

If law professors and business schools taught morality first, none of this would problem.


2. Posted by Ellen S Podgor on June 1, 2006 @ 9:32 | Permalink

I could not agree more that the breadth of the statute makes it frightenly easy for the government to prove their case. But in throwing out a mail fraud conviction an 11th Circuit judge wrote - "Congress has not yet criminalized all sharp conduct, manipulative acts, or unethical transactions." (U.S. v. Brown).


3. Posted by Anon on June 1, 2006 @ 10:17 | Permalink

"The jurors... presented a thoughtful verdict that demonstrated a careful deliberation of the charges...."

How do we know that? It's not like there was a reasoned written opinion, and the post-trial jury interviews have been unremarkable.

I agree that the prosecutors did a great job making a case involving complex financial transactions and financial reporting, including GAAP compliancy, seem fairly simple.


4. Posted by Ellen S Podgor on June 1, 2006 @ 11:19 | Permalink

We may not agree with their reasoning, and we may think it premised upon faulty logic, but the fact they didn't do all "guilty" or all "not guilty" is an indication that the individuals on this jury studied the evidence and came out with different verdicts for different counts.


5. Posted by John Davidson on June 1, 2006 @ 12:36 | Permalink

Ms. Podgor writes

"I could not agree more that the breadth of the statute makes it frightenly easy for the government to prove their case."

The statute is no more broad than statutes against murder or theft.

Defend someone charged with murder and you will find its often pretty each for the government to prove their case.


6. Posted by Brian W Walsh on June 2, 2006 @ 16:32 | Permalink

Unlike on TV, in the vast majority of real homicide cases no real doubt exists that the victim died because of someone else's wrongful act. Thus we all would agree (I hope) that someone should be punished criminally for the victim's death.

But unlike any broadness in homicide or larceny statutes, the broadness of the mail and wire fraud statutes undermines the distinction between wrongs that should be punished criminally and wrongs that should be outside the scope of the criminal law. (For example, not every lie told by an adult should subject him or her to a possible criminal conviction.) In order for fraud to be punished criminally, the law traditionally held that the accused must have obtained the victim's property by intentionally misrepresenting a material fact upon which the victim relied.

Today, federal courts instruct juries that in order to be found guilty under the mail fraud statute, the accused must only have engaged in "any deliberate plan of action or course of conduct by which someone intends to deceive or to cheat another of something of value." The definition of "something of value" includes the value of the accused's own "honest" services.

Thus John Hasnas points out in his book "Trapped: When Acting Ethically Is against the Law" that the government no longer needs to prove that the accused 1) designed the scheme to obtain the property of another, 2) actually obtained anything or deprived anyone of anything, or 3) misrepresented any fact. (Hasnas at 32.) As the Fifth Circuit has put it, "all that is necessary is that the scheme be reasonably calculated to deceive persons of ordinary prudence and comprehension." (U.S. v. Townley)

Whatever broadness exists in homicide and larceny statutes is fundamentally different from the broadness in the federal fraud statues that Ellen Podgor pointed out.

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