Sentencing by the Numbers? What the Future Holds for Marc Dreier

[WSJ Law Blog]

Wayne State law professor and LB contributor Peter Henning takes on the topic of calculating loss–federal style, at least–and how it might play out for New York lawyer Marc Dreier. Click here for previous Henning contributions.

Monday’s scheduled sentencing of disgraced attorney Marc Dreier for defrauding clients and investors of more than $400 million raises interesting questions regarding how much the amount of the loss should be factored into the punishment of a white collar criminal. The multi-billion dollar Ponzi scheme of Bernie Madoff resulted in a 150-year prison term, and in Dreier’s case the government is asking for nearly the same sentence, 145 years. (Click here for a previous LB post on the government’s filing.)

While the Federal Sentencing Guidelines call for life in prison for Dreier based largely on the amount of the loss, it is doubtful Dreier will receive anything close to that much prison time. The judge sentencing him is Jed Rakoff, who has been highly critical of the length of sentences under the guidelines, particularly in white collar crime cases. He wrote in United States v. Adelson about “the utter travesty of justice that sometimes results from the guidelines’ fetish with abstract arithmetic, as well as the harm that guideline calculations can visit on human beings if not cabined by common sense.” With words like that, Dreier has to be excited about who he drew for his case.

Under the guidelines, the amount of the loss plays the dominant role in calculating the recommended sentence in corporate fraud cases. For a loss of over $400 million, the guidelines put the sentence well above 20 years, and when other factors are added in the recommendation can easily reach life in prison. “Loss” is a typically slippery term that includes both “actual loss” and “intended loss,” and the judge is only required to make a rough estimate.

In a sentencing memorandum, Dreier’s defense counsel, Gerald Shargel, focused on the significant impact of loss on the sentencing calculation by pointing out that the loss enhancement is twice as high as any other in the guidelines, even for conduct related to terrorism. Shargel argues that because of the disproportionate impact loss has, Judge Rakoff should readjust the guidelines in a way that will lead to a sentence of 121-151 months.

Shargel’s requested sentence would put Dreier at the low end for similar frauds, such as Samuel Israel of Bayou Management (16 years), Steven Hoffenberg of Towers Financial (20 years), and Patrick Bennett of Bennett Funding Group (22 years). Even a 151-month sentence could result in Dreier serving less than 10 years if he participates in a substance abuse program while incarcerated, which knocks 12 months off the sentence, and receives the standard 15% credit for good time that takes another 23 months off. If he serves the final months in a half-way hour or home confinement, it’s not so bad for a multi-million dollar fraud.

The focus on loss in a corporate fraud case, like Enron or Worldcom, certainly magnifies the effect of the crime so that a defendant like Jeff Skilling or Bernie Ebbers gets saddled with every penny of the market drop in the company’s stock. Dreier’s crime, though, was much different from those cases. He perpetrated a fraud directly on his victims through falsified documents and face-to-face lies. While the harm caused to a company’s investors and employees from a CEO’s fraud is diffuse, Dreier’s crimes took money right out of the pockets of people who trusted him, including clients of his law firm. Judge Rakoff’s concern about “abstract arithmetic” may not work as well when actual victims will stand up in court.

As Dreier said in his letter to Judge Rakoff, “I expect and deserve a significant prison sentence.” It is unlikely he’ll receive Madoff time, despite the government’s request, but a sentence of at least 20 years would not be a surprise, even from a judge who does not trust the sentencing guidelines.