Long White-Collar Crime Sentences: Do They Really Deter?
Federal prosecutors requested a 385-year sentence for Lee B. Farkas, for his role in a complex bank fraud. In their memo, the federal prosecutors noted, "Sentencing him to the maximum penalty allowed by law will send the most forceful and unequivocal message to senior corporate executives that engaging in fraud and deceit in order to pump up your company or line your own pockets is unacceptable and will have severe consequences."
According to Peter Henning, a Wayne State law professor, in a blog for the New York Times, this sentence is a continuation of the development of increasingly long sentences being handed out to white-collar defendants.
The trend began with the sentences of Jeffrey Skilling of Enron, Bernard Ebbers of WorldCom, and reached new heights with the unprecedented 150-year sentence received by Bernard Madoff.
Farkas, who received a 30-year sentence, is one of the more recent recipients of this development.
Others include Marc Dreier, a former New York lawyer, who received a 20-year sentence for a $700 million hedge fund fraud. Scott Rothstein, a Miami lawyer, received a 50-year prison term for his $1.4 billion fraud.
The courts, prosecutors and the public are understandably unhappy with the events of the last several years. Starting, perhaps with the demise of Long-Term Capital Management — with only the intervention by the Federal Reserve staving off a collapse of the global economy — through Enron and WorldCom, followed by the Bear Sterns, Lehman Brothers, Madoff, Countrywide Mortgage and seemingly the entire U.S. real estate market, overconfidence and wrongdoing has transmuted gold into dross.
The parade of horribles never seems to stop. Longer and longer prison sentences have been standard in the criminal justice system, especially in the "war on drugs," where the deterrent value seems limited.
Professor Henning argues that these lengthy white-collar sentences will send no message because no one is listening.
He argues that future offenders will distinguish themselves from someone like Farkas, who worked for a smaller bank and did not have the same credentials. In addition, they will likely argue that they are looking out for the interests of their shareholders, doing whatever is necessary to save their company.
The Latest Sentence
On October 13, 2011, Raj Rajaratnam, who was convicted of securities fraud and conspiracy, was sentenced to 11 years in prison, which is the longest prison sentence ever for insider trading.
The prosecutors sought a sentence between 19 and 24 years. They claimed he deserved such a lengthy sentence because of his "brazen" actions and the fact that, "There is no one who is Mr. Rajaratnam's equal in terms of the breadth and scope of his insider trading crimes."
The judge declined to impose such a sentence, in part due to Rajaratnam's declining health and his charitable good deeds.
As Congress has responded to each new scandal or crisis with legislation creating ever-longer sentences, the states have likewise been moving the goalposts back. As a result, more and more state budgets are being consumed by their criminal justice systems.
The Pew Center, in a report entitled, One in 31: The Long Reach of American Corrections, noted, "Last year [corrections] was the fastest expanding major segment of state budgets, and over the past two decades, its growth as a share of state expenditures has been second only to Medicaid."
The struggling economy has left many states with budget shortfalls. According to the Pew study, state corrections costs now top $50 billion annually; New York's Department of Correction Services has requested a budget of $2.9 billion for 2011.
The Pew report note this is not accidental and is not even caused by "spikes" in criminal activity. They put it this way, "It was the result of state policy choices that sent more people to prison and kept them there."
Given the high-profile of defendants like Farkas and Rajaratnam, and the dollar value of their crimes, it seems unlikely those policies with regard to many of the white-collar crimes will change anytime soon.