February 03, 2010
Predicting the future in white collar sentencing
Posted by Miriam Baer

By way of White Collar Crime Prof Blog, I recently read an account of a sentencing of a securities dealer who received a relatively light sentence (five years’ imprisonment) for fraudulently marketing auction-rate securities, but who was blasted by Judge Jack Weinstein for, among other things, being part of an “industry beset by avarice that has been allowed to run rampant by regulators and negligent supervisors alike.”  Strangely, the Judge’s view of the industry seems to have worked in the defendant’s favor. 


Judge Weinstein (of Eastern District of New York fame) begins the opinion by saying:


On August 17, 2009, Eric Butler was convicted by jury verdict of all counts of a three count superseding indictment. His trial laid bare the pernicious and pervasive culture of

corruption in the financial services industry. The blame for this condition is shared not only by individual defendants like Butler, but also by the institutions that employ them, those who carelessly invest, and those who fail to regulate. Supervision is seriously negligent; greed and short-term gain are so enormous that fraud and arrogant disregard of others’ rights and of ethics almost encourage criminal activities such as defendant’s.


Despite the fact that the defendant allegedly was facing a substantial sentence under the (now advisory) United States Sentencing Guidelines, he was sentenced to a term of five years’ imprisonment (plus the standard three year term of supervised release) because:

[F]irst, defendant’s young child and loving wife suggest the desirability of defendant’s early presence at home, working and supporting his family economically and psychologically; second, a strong supportive network of extended family, friends, teachers, and potential employers, as well as defendant’s positive reaction to supervision since his arrest, indicate a high probability of rehabilitation. Supervised release will encourage rehabilitation; violation of supervised release will result in further incarceration.


Regardless of how one feels about white collar sentences for corporate offenders, I think it’s fair to say that Judge Weinstein is basically guessing here. 


Were Weinstein’s sentence based solely on expressive or retributive concerns (see Bernie Madoff), we wouldn’t have to get into the nasty business of prediction, but we would run into other problems.  Consider the outcry that would ensue had Weinstein explicitly based Butler’s reduced sentence on the “corrupt culture” in which he worked: “It’s not your fault.  You just worked with really bad people!”  Not exactly the best way to deter – or send a message to society.  So instead, Weinstein based the lesser sentence on predictions of recidivism.  Once you begin asking questions about likelihood of future crime, however, you clearly are entering a world of speculation. 

This problem is not restricted to criminal sentencing; it extends to any instance in which an institution imposes sanctions on others with an eye toward future conduct.  Judge Weinstein is guessing, but so does everyone else, including regulators and corporate compliance personnel.  The interesting question, then, is why we seem predisposed to tolerate error in some systems more than others.

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