Corporate Looters Feel Sting of U.S. Crackdown
With his prison pallor, oversize glasses and skinny arms poking from a wrinkled T-shirt, 63-year-old David Heath Swanson didn’t look like much of a threat.
But U.S. District Judge Sarah Evans Barker viewed him differently.
Unless he is incarcerated for a very long time, Swanson will return to a life of crime, Barker said in November as she imposed a 12 1/2 -year prison term. “He would go right back to it. He knows how to do it.”
Mafia don? Drug kingpin? No, CEO.
Swanson was among the first corporate chief executives convicted in the recent government crackdown on white-collar crime.
Like most prominent business figures brought to justice, Swanson is a nonviolent first-time offender, a University of Chicago and Harvard graduate who headed several agribusiness companies before he got caught looting one.
Now he is a prime example of a simmering legal conflict over how to treat these unusual convicts. Two decades ago Swanson might have had a shot at probation. Now, under much stricter sentencing guidelines, stiff penalties are the rule. Yet recent Supreme Court decisions have made those guidelines merely advisory, giving judges greater discretion.
As Barker told Swanson at his hearing, “The rules of the road have changed in no inconsiderable way.”
The upshot: longer sentences than in the past, to be sure, but also a rise in disparities from judge to judge or jurisdiction to jurisdiction. And even greater inconsistencies could well be in the offing, with landmark cases still to be heard involving business titans such as Enron’s Kenneth L. Lay and Hollinger’s Conrad Black, whose media empire included the Chicago Sun-Times.
Already, disparities have emerged as corporate-crime sentences have lurched from 25 years for WorldCom Inc. Chairman Bernard J. Ebbers to home detention and probation in the massive fraud at HealthSouth Corp.
At the federal courthouse in downtown Houston one judge sentenced a mid-level Dynegy Corp. accountant to 24 years, while another judge down the hall imposed 30 months on a senior Merrill Lynch executive involved in fraud at Enron Corp. The Dynegy sentence was overturned on appeal.
The differing outcomes follow a years-long debate that culminated in the punitive Sarbanes-Oxley legislation of 2002 -- and left doubts about the merits of jailing executives for decades.
“We’ve never figured out what we think about white-collar offenders,” said Douglas Berman, a law professor at Ohio State University who studies sentencing. “We’re not sure how we [should] judge them.”
Defense attorneys say they welcome at least the possibility of their clients getting a break. Sentences under the guidelines have become so lengthy that most departures will benefit defendants, predicted James E. Felman, a Florida criminal lawyer active in sentencing issues. “Judges will be going down more than up.”
In Swanson’s case, the lengthy sentence imposed Nov. 9 represented a limited reprieve. At his original sentencing on March 20, 2003, the same judge gave him 15 years, and Swanson has sat in prison ever since. But the U.S. 7th Circuit Court of Appeals in Chicago overturned her decision, saying she used the wrong guidelines and miscalculated Swanson’s financial penalty.
The ruling provided what the judge described as a rare opportunity to reconsider “how much punishment is needed” for a Midwest native who abused his top position at the farmer-owned Countrymark Cooperative Inc.
Not long ago most convicts in similar cases got off relatively easy. Before sentencing guidelines started going into effect in 1987, about 60% to 70% of those charged with federal economic crimes received probation, according to Frank Bowman, a law professor at the University of Missouri-Columbia.
The guidelines changed that, obligating judges to impose jail time for corporate offenses, but in much shorter measures than for drug trafficking and other federal crimes. As a result, some of the most notorious corporate criminals of the 1980s, such as Michael Milken and Ivan Boesky, served as little as two years in prison, while low-level drug dealers languished.
Judges noticed the incongruity and pushed for tougher punishment. Old assumptions about white-collar criminals were overcome, including the notion that they were unlikely to offend again, and that their fall in social stature was punishment in itself.
On Nov. 1, 2001, a major overhaul of the guidelines sharply boosted penalties for most economic crimes.
Then Enron Corp. collapsed. Within a few months the vast scope of corporate fraud during the dot-com boom became apparent, and the public outcry led to still another sharp boost in penalties as of 2003. “We’ve had inflation of epic proportions here,” Felman said. “It’s extraordinarily harsh.”
The guidelines provide numerical formulas that prescribe certain amounts of prison time for crimes involving certain quantities of drugs, for instance, or certain levels of financial losses.
In many corporate cases, the loss calculation makes all the difference. For a criminal such as Ebbers, held accountable for an astronomical $2.2 billion in losses, even a 25-year sentence represented a significant break from the guidelines. The 11-count indictment of Black, who once controlled the Hollinger International media empire, alleges losses of more than $80 million -- fraud on a scale that if proven would draw a stiff sentence under the guidelines. Black has said he is innocent.
Yet the numbers in such cases can be slippery, based on how much a stock declined or on the value of deals that blended fraud with legitimate business purposes. “You really can’t judge the culpability based on the stock market response, or data on economic loss associated with a crime,” said John C. Coffee, Columbia University law professor. “Lots of other factors could have caused the loss.”
In addition, the mere prospect of lengthy sentences creates enormous leverage for prosecutors seeking cooperation, resulting in plea bargains that appear to vary even more than sentences imposed after trials. In the Enron case, prosecutors knocked six felony counts down to one misdemeanor after a judge balked at the light sentence they had sought for the wife of finance-chief-turned-star-witness Andrew M. Fastow.
To some, long prison stretches for corporate crooks make good sense, providing a necessary deterrent and reflecting damage done in lost jobs and ruined retirements. Severe penalties also reflect the difficulty of bringing complex cases against targets who can afford vigorous defenses.
Even the former brother-in-law of Indiana’s Swanson thinks crooked executives are treated too gingerly.
“White-collar crimes are real crimes with real victims,” said Jim Breitinger, an Internet publisher. “It’s a travesty that the perpetrators of these crimes have so much money they tend to get off relatively lightly.”
Swanson, however, deserves leniency because the government exaggerated the losses associated with his conduct, he added, and Swanson’s lawyer, Chicago’s William Theis, has said he will appeal the latest sentence.
The Swanson case illustrates how high-level executives raise uncommon issues in a court system where defendants overwhelmingly hail from the economy’s bottom rungs.
While Swanson’s supporters see a victim of the times, Judge Barker sees a danger to society. During the November hearing she described him at turns as pitiable, devious, deluded and impressively intelligent, but ultimately, she said, “I see a man who finally got cornered by the magnitude of his own wrongdoing.”
He reveled in “the intrigue and the excitement and the sheer fun of it,” she said. “Even though you think he would have learned even at this point to turn away from this, he would find his way back to it.”
Barker presided over Swanson’s 2002 trial, in which a federal jury convicted him of sweeping fraud, money laundering and tax evasion stemming from his 1996-97 tenure at Countrymark.
Swanson aggravated matters by jumping bail on the eve of his first sentencing. After federal marshals dragged him back from the luxury hotel in Seattle where he had holed up, the judge greeted him with, “Long time no see,” and gave him 15 years.
At the time she ordered him to forfeit more than $50 million -- reflecting the total value of property involved in Swanson’s crimes, even though he skimmed only a portion for himself. It was one of several numbers the appellate court questioned. In November, she kept the loss figure at $6.7 million, but sharply reduced the amounts he must pay in forfeiture and restitution.
Her decision to impose a 12 1/2-year sentence within the recalculated guidelines reflects the continued importance of those formulas. Even though judges have more freedom to depart from them, the appellate court still encouraged Barker to use them, then explain the reasoning behind whatever sentence she applied.
“It seems to me the factors that were so influential to begin with haven’t been diluted,” Barker said at Swanson’s hearing.
“What was portrayed at the trial was a huge fraud, huge in its scope, huge in its money, huge in its victims,” she said.
As a consequence, she said, “The sentence that I’m needing to craft here is one that reflects this seriousness. It has to be one of those decisions that says to other CEOs ... [that] penalties are just as great for these kinds of crimes as they are for the other most serious crimes in our society.”
