Chair Murphy called the meeting to order at 2:06 p.m. in the Commissioners Conference Room.
The following Commissioners and staff participated in the meeting:
Diana E. Murphy, Chair
Ruben Castillo, Vice Chair
William K. Sessions, III, Vice Chair
John R. Steer, Vice Chair
Sterling Johnson, Jr., Commissioner
Michael E. O’Neill, Commissioner
Edward F. Reilly, Jr., Commissioner Ex Officio
Eric H. Jaso, Commissioner Ex Officio
Timothy McGrath, Staff Director
Charles Tetzlaff, General Counsel
Judith Sheon, Special Counsel
The following members of the Practitioners Advisory Group participated:
L. Barry Boss, Esquire (Co-Chairman), Asbill, Junkin, Moffitt & Boss,
James Felman, Esquire (Co-Chairman), Kynes, Markman & Felman, P.A.
Alan J. Chaset, Esquire, Law Offices of Alan Chaset
Carmen Hernandez, Esquire, Defender Services Division
Patrick A. Mullin, Esquire
Mary Price, Esquire, Families Against Mandatory Minimums
Lyle Yurko, Esquire, Yurko & Owens P.A.
The following member of the Probation Officers Advisory Group participated:
Cathy A. Battistelli (Chair), U.S. Probation, First Circuit
Chair Murphy started the meeting by welcoming members of the Practitioners Advisory Group (PAG) and the Probation Officers Advisory Group (POAG). She stated that the Commission is always very appreciative of the input it receives from the PAG and the POAG. Chair Murphy added that this year, the Commission shared potential amendment proposals with each group prior to publication in the Federal Register in order to facilitate early input from each group. The Commission heard first from the PAG and then from the POAG.
Practitioners Advisory Group
James Felman stated that the PAG would focus primarily on Commission proposals related to the Sarbanes-Oxley Act of 2002 (the “Act”). Mr. Felman stated that the PAG suggests no changes be made regarding penalties for corporate crime. Further, he stated that the PAG believes that there should be no additional changes to the loss table. He said that the PAG disagrees with the recommendation by the Department of Justice that sentences at the low end of the fraud loss table, those with a loss amount less than $70,000, be increased. Mr. Felman pointed out that although the recent amendments to the loss table decreased sentences for offenders with loss amounts at the low end of the table, the only range with lower sentences would be those offenders in the $2,000 to $5,000 loss amount category. He said that in every other area, the new amendments increased penalties. He gave the Commission a loss table comparison chart illustrating the impact of amendments made to the loss table since the inception of the guidelines.
Mr. Felman cautioned the Commission against making changes to the penalties for white collar crimes at this time because we do not yet have any data on the impact of the 2001 economic crime amendments. He suggested in particular that there is little evidence to show that a change should be made to the loss tables. Thus, he stated that the PAG believes the Commission should delay any amendments in this area until it has had an opportunity to study the impact of the 2001 amendments and the changes that were made to the loss table.
Mr. Felman addressed specific directives to the Commission contained in the Act. He stated that the PAG believes that recent amendments to the guidelines for fraud already meet the directives in the Act. Specifically, the 2001 amendments included a four level increase for offenses involving more than 50 victims, and the 1998 amendments added a specific offense characteristic for the use of sophisticated means. Mr. Felman stated that the kinds of offenses contemplated by the Act would involve sophisticated means and more than 50 victims; thus both of these adjustments would apply. Mr. Felman stated that this would result in an eight level increase over the offense level derived from the amount of loss. He stated that it also would be a fair assumption that the sort of offenders Congress considered in creating the Act would be those in charge of more than five people. This would render the defendant subject to an additional four level increase for role in the offense. Therefore, the sort of offenders contemplated by the Act are already subject to a 12 level enhancement under the current guideline scheme.
Mr. Felman then explained PAG’s view that offenders subject to such a 12 level enhancement under the existing guidelines will receive appropriately severe sentences for their loss amounts and aggravating conduct. He described what the sentences would be for increasing loss amounts for an offender in criminal history category I, if the Commission makes no changes to the guidelines: a loss of $30,000 will result in a sentence of over five years; a $200,000 loss results in a sentence of over 10 years; a $7 million loss will result in a sentence of over 20 years; and a $50 million loss will result in a range of 30 years to life. Mr. Felman stated that the numbers are not significantly different even without the 4 level enhancement for managerial role.
Mr. Felman then set forth PAG’s views on the impact of the Commission’s proposed amendments on these sentences. He stated that the proposed cumulative upward adjustment where the offense substantially endangers a publicly held or otherwise large corporation would result in a managerial defendant receiving a 5 year sentence for a $5,000 loss, a 10 year sentence for a $70,000 loss, a 20 year sentence for a $1 million loss, or a 30 year sentence for a $2.5 million loss. He stated that the numbers are similar for defendants without an enhancement for a managerial role. Mr. Felman stated that if the Commission also adopts the proposed cumulative upward adjustment for offenses involving more than 250 victims, zero loss results in a 5 year sentence, a $30,000 loss results in a 10 year sentence, a $400,000 loss results in a 20 year sentence, and a $2.5 million loss results in a range of 30 years to life. Mr. Felman added that for a defendant to receive life imprisonment, without any role adjustment at all, there would only need to be a $20 million loss.
Mr. Felman stated that the PAG brings these figures to the Commission’s attention not to undermine the seriousness of the offenses, but to compare them to other serious offenses. He stated that, in his practice, the worst offenders are those who target elderly people. Mr. Felman stated that if the Commission adopts the proposed changes, the offenders who seek vulnerable elderly victims to defraud will receive a lower penalty in comparison to the CEO who decides to recognize profit on a transaction a few days late so that the financial statement looks better.
Mr. Felman stated that the PAG believes history will look at a decision to adopt these enhancements as the moment in time when a new experiment in incarcerating first time nonviolent offenders began. He stated that this decision should not be made lightly, and what is being contemplated will have a staggering impact. Mr. Felman stated that he believes better measures of culpability for differentiating among criminals are lost if every corporate fraud case, especially those at the low end of the loss table, receives a significant prison sentence.
Vice Chair Castillo queried the PAG members about what they thought were better measures of culpability. Mr. Felman responded that he believes the better measure of culpability is tied to whether the defendant actually received money or benefit, whether the defendant tried to get any monetary gain, and how much. He stated that the guidelines do not take this into account. He said that loss is where the sentencing calculation should start, but whether the defendant actually gained any money is very important. Mr. Felman added that cumulative adjustments for high amounts of loss and multiple victims could result in double counting because the two often go hand in hand.
L. Barry Boss stated that the DOJ suggests increasing penalties at the low end of the loss table. Mr. Boss stated that in urban areas, the receipt of a prison sentence might be the only possible deterrent; however, in small towns, the mere fact of being charged federally carries great stigmatization and deterrent effect. He asked the Commission to balance white collar penalties nationwide so that a deterrent effect through stigmatization is still an option in smaller jurisdictions, even if the ultimate sentence is lower nationwide.
Mr. Felman stated that the PAG suggests making the proposed two level enhancement if the defendant is an officer an application note in the abuse of trust guideline. Mr. Felman also stated that the PAG has expressed some structural concerns about the proposed adjustment to §2J1.2 if the offense results in a substantial interference with the administration of justice. Vice Chair Steer clarified that the Commission’s drafting staff will reorder the proposal such that the structural issue raised by the PAG might be addressed. Vice Chair Steer stated that the intent of this proposal is that it does not necessarily have the dire result of the existing guideline enhancement.
Vice Chair Sessions asked the PAG members present whether they would prefer an option that considers the totality of the circumstances for applying the enhancement for endangering a publicly held company. Mr. Felman responded that he had not had a chance to consider such an option, but suggested that this might be a vague standard that would result in some disparity. Mr. Felman concluded that the PAG would prefer to have a totality of the circumstances approach, but this might create very difficult proof problems, requiring the use of expert testimony.
Commissioner O’Neill asked whether the PAG believed that the current penalty levels for corporate fraud are sufficiently high and whether the penalties that are currently assigned to the specific type of offender contemplated by the Act are sufficiently high.
Mr. Felman and Mr. Boss stated that the current penalty levels are sufficiently high and that the Commission should have data on the most recent amendments before making additional changes.
Mr. Felman stated that if the Commission changed the current penalty structure, this might result in sentences that are so high that prosecutors and judges manipulate the guidelines in order to get around the numbers. For example, Mr. Felman suggested that this could result in an increase in substantial assistance departures. Lyle Yurko analogized this to what he believes has happened in drug cases with significant penalties.
Vice Chair Sessions asked the PAG’s position on an issue for comment on whether the Commission should reevaluate loss, perhaps basing loss on changes in the market capitalization of a corporation, or changes in the value of corporate assets, or some other economic effect. He suggested that this might lead the Commission down the road of reassessing the definition of loss. Mr. Felman responded that the Commission should wait and study the cases that are being decided under the most recent amendments.
Chair Murphy noted Congress gave the Commission emergency amendment authority and asked what action PAG would recommend that would be responsive to the Act. Mr. Felman stated that the PAG suggests that the multiple victim adjustment should be an encouraged upward departure and that the adjustment for endangering a public company should be an alternative to the multiple victim upward adjustment. He stated that the two adjustments should be in the alternative because the endangerment of a publicly held company is essentially a surrogate for the multiple victim adjustment. The PAG believes this will effectively and sufficiently respond to the directives contained in the Act and result in more than sufficient deterrence and punishment for these types of cases. Mr. Boss added that the PAG does not object to increases at the high end of the loss table and believes that such increases are consistent with the directives from Congress.
Carmen Hernandez stated that the PAG is aware of the emergency nature of the directives in the Act. Ms. Hernandez asked that the Commission proceed with any amendments very cautiously because emergency amendments generally become permanent amendments; thus, she stated that the PAG believes a cautious approach will prevent unintended consequences.
Mr. Felman thanked the Commission for the opportunity to present the PAG’s views. Chair Murphy stated that the Commission greatly appreciated their input.
Probation Officers Advisory Group
Cathy Battistelli, Chair of the POAG, presented the group’s views on proposed amendments in the corporate fraud and campaign finance areas. She expressed appreciation for the opportunity to speak to the Commission.
Regarding corporate fraud, Ms. Battistelli stated that the POAG supports a change to the loss table at the low end. She stated that, in her experience, some state defense attorneys lobby to have their clients charged federally in order to secure a lighter sentence than they would receive in the state system. Thus, the POAG supports increasing penalties for crimes at the low end of the loss table but has some concerns about exposing non-corporate criminals, such as an elderly person who defrauds medicare, to those same base offense levels.
Ms. Battistelli stated the POAG prefers having the multiple victim adjustment in the guideline, rather than as a departure provision because probation officers general prefer the clarity and force of a guideline over a departure provision. Vice Chair Sessions asked whether the POAG had an opinion on the PAG’s assertion that an upward adjustment for multiple victims could result in double counting when there was also a high loss amount. Ms. Battistelli responded that she did not believe this would always be true because a defendant might defraud many victims of relatively small amounts of money. She added that in those rare cases where double counting was implicated, the court could consider a downward departure.
Ms. Battistelli stated that the POAG prefers simple definitions and examples in the guidelines. She stated that there are some areas in the proposal that could be confusing to probation officers who do not have the means necessary to locate definitions contained in various statutes such as the Securities Exchange Act of 1934. She stated that not all probation officers have access to a complete criminal code set or to Westlaw. Thus, the POAG would prefer that the definition be provided in the guideline, rather than by reference to another statute.
Ms. Battistelli stated that the POAG supports the enhancement that avoids a probation officer having to determine whether the offense endangered the financial solvency of each individual victim. She stated that this would be difficult, if not impossible, to determine. Ms. Battistelli stated that the POAG also supports the enhancement if the defendant is a corporate officer. She reported that the POAG could not reach consensus on whether this should apply to registered brokers, and ultimately suggests that the Commission leave that determination for a Chapter Three adjustment. Ms. Battistelli reported that the POAG supports the proposed enhancement for destruction of evidence. For consistency, the POAG suggests that this be added to the perjury guideline as well.
Regarding the campaign finance proposal, Ms. Battistelli stated that while the POAG has very little experience in this area, it does support a stand alone guideline for such offenses. The POAG suggests a base offense level of 8 and believes this is in line with illegal payments to public officials.
Chair Murphy asked whether the POAG has had much experience in applying the economic crime amendments that became effective on November 1, 2001. Ms. Battistelli stated that most probation officers have not yet used the new guidelines due to ex post facto issues.
Ex Officio Commissioner Jaso clarified that the POAG’s position on increasing sentences at the low end of the loss table was based on the guidelines as they were before 2001. Ms. Battistelli responded that this was the case, and added that the POAG has traditionally believed that white collar offenders needed harsher sentences.
Commissioner O’Neill asked whether the POAG supported an increase in white collar sentences on the basis of potential deterrence or to bring the white collar sentences more in line with the severity of other crimes such as drug sentences. Ms. Battistelli responded that the POAG supported an increase based on both of these notions. She stated that most probation officers have a problem with seeing young drug offenders being sent to prison for long periods of time while white collar offenders with all the apparent advantages in life are not receiving high sentences.
Vice Chair Castillo questioned Ms. Battistelli on what sorts of offenders the POAG would consider white collar offenders. Ms. Battistelli responded that it would depend on the crime committed and reason for committing the crime and on whether the crime committed was fraud or theft. She stated that she viewed an offender who steals checks differently from an offender who embezzles a large sum of money. Ms. Battistelli stated that downward departures can play an important role in differentiating between these kinds of offenders.
Ms. Battistelli thanked the Commission for the opportunity to come before it.
Chair Murphy thanked Ms. Battistelli for presenting the POAG’s views. The meeting was adjourned at 3:15 p.m.