sentencing-commissionAs previously reported on this blog here and here, the United States Sentencing Commission has proposed amendments to the widely criticized federal sentencing guidelines for economic crimes. On April 9, 2015, after hearing extensive public comment on the proposed amendments, the Commission voted to adopt an amended version of the Sentencing Guidelines which will take effect November 1st absent objection by Congress.

The changes are significant but not sweeping. Commission Chair Judge Patti B. Saris described the revisions as addressing “some problem areas, particularly at the high end of the loss table.” Despite objections by the Department of Justice and others that some of the amendments will create unwarranted leniency in the guidelines, the final amendments largely parallel those first proposed by the Commission in January.

Meanwhile, members of the defense bar argued that the changes do not go far enough in departing from an abstract numerical approach (measured by dollars and number of victims) when attempting to gauge culpability. James Felman, a defense attorney who co-chairs the American Bar Association’s criminal justice section and testified before the Commission, characterized the amendments as a “very meager response” to the problems endemic in § 2B1.1 of the Sentencing Guidelines, promising that “[w]e’ll keep lobbying the commission to do more.”

Objectors hoping to stop the changes before they become permanent may now take their concerns to Congress. The final amendments make changes in the following areas:

A.  § 2B1.1 cmt. 3(A)(ii): Intended Loss Defined

Appellate courts have disagreed over whether measurement of intended loss (the size of which is a factor in the Sentencing Guidelines) should be a subjective inquiry focused on the defendant’s intent or an objective inquiry focused on what harm could reasonably have been anticipated. The amended guidelines clarify that determining “intended loss” is a subjective inquiry to be measured by the harm “that the defendant purposely sought to inflict.”

B.  § 2 B1.1(b)(2): Victims Table

The Sentencing Guidelines include a series of tiered sentence enhancements (the victims table) that increase in severity based on the number of victims of an economic crime. This provision has been criticized as overly focused on the number of victims, regardless of the perpetrator’s role in harming them and the degree of individual harm.

As amended, the victims table incorporates whether the offense caused substantial financial hardship to multiple victims. The 2-level enhancement will apply if the offense involved 10 or more victims or mass-marketing, or if the offense resulted in substantial financial hardship to one or more victims. The 4-level enhancement will apply if the offense resulted in substantial financial hardship to five or more victims, and the 6-level enhancement will apply if the offense resulted in substantial financial hardship to 25 or more victims. Enhancements for schemes involving theft or opening of undelivered U.S. Mail (described in Note 4(C)(ii)) will begin at 10 rather than 50 victims.

A new section (4(F)) in the comments provides factors for courts to consider in determining whether substantial financial hardship occurred, including: bankruptcy, forced relocation, damage to credit worthiness, and loss of savings.

C.  § 2B1.1(b)(10)(C): Sophisticated Means Enhancement

The Sentencing Guidelines recommend an enhancement for crimes committed using “sophisticated means.” Courts have differed on whether the enhancement applies to defendants whose conduct involves high levels of planning, deception, and complexity or merely those who commit crimes that ordinarily require sophisticated means, such as complex interstate telemarketing-fraud schemes or accounting frauds.

The amendment requires consideration of the complexity of the offense or its concealment, providing examples such as the use of shell corporations and cross-border planning and execution. However, it also makes clear that only defendants whose own actions were sophisticated or caused the offense to be sophisticated should be subject to the enhancement. The Commission has rejected the position that a defendant’s co-conspirator’s sophisticated means could trigger the enhancement.

D.  § 2B1.1(b)(1): Fraud-On-The-Market Enhancement

Currently, the Sentencing Guidelines provide a formula for calculating enhancements in “fraud-on-the-market” cases based on the amount of losses incurred by investors (even those unintended by the defendant) who traded inflated or deflated securities on public markets because the defendant disseminated false or misleading information. The amendment provides courts with greater discretion to measure loss by using any method appropriate and practicable under the circumstances.

E.  Adjustments for Inflation

The Commission intends to adjust loss thresholds for sentencing by inflation for the first time since 1987. According to the DOJ, this could reduce fraud sentences by an average of 26 percent.

 

*Mark Harris is a member of the Board of Editors of the Federal Sentencing Reporter and a contributor to the treatise Practice Under the Federal Sentencing Guidelines.

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Photo of Mark Harris Mark Harris

Mark Harris is a partner in the Litigation Department, co-chair of the Appellate Practice Group, and a member of the Securities Litigation and White Collar Defense & Investigations Groups.  He represents institutional and individual clients in both civil and criminal litigations.

Mark is…

Mark Harris is a partner in the Litigation Department, co-chair of the Appellate Practice Group, and a member of the Securities Litigation and White Collar Defense & Investigations Groups.  He represents institutional and individual clients in both civil and criminal litigations.

Mark is a former clerk to U.S. Supreme Court Justices John Paul Stevens and Lewis Powell, Jr., and Judge Joel Flaum of the U.S. Court of Appeals for the Seventh Circuit. Mark subsequently served as an Assistant U.S. Attorney for the Southern District of New York, during which he prosecuted a broad spectrum of federal crimes, including health-care fraud, financial fraud, and corporate embezzlement, and tried a number of jury trials and argued before the Second Circuit.

Mark has handled dozens of cases in the U.S. Supreme Court and other appellate courts in a variety of areas spanning criminal law, patent, copyright, labor relations, and administrative law, including:

  • Representing Biosig Instruments before the U.S. Supreme Court and the Federal Circuit, in a case that redefined the standard for patent definiteness and upheld the validity of Biosig’s patent.  He was named The American Lawyer’s Litigator of the Week for that result.
  • Obtaining reversal of the trial conviction of a former Gen Re executive in the Second Circuit.

  • Persuading the Second Circuit via a petition for interlocutory review and merits brief to vacate a class-certification order entered against Sprint Corporation.

  • Successfully representing electronic publishers before the U.S. Supreme Court in Reed Elsevier Inc. v. Muchnick, which Managing Intellectual Property Magazine named the 2010 “U.S. Copyright Case of the Year.”

  • Successfully representing an employer before the U.S. Supreme Court in 14 Penn Plaza LLC v. Pyett, which overturned 35 years of precedents concerning the enforceability of arbitration clauses in labor agreements.

Mark has handled numerous matters involving securities fraud, tax evasion, insurance fraud, and a variety of financial crimes. Significant representations have included the following:

  • John and Timothy Rigas, principals of Adelphia Communications Corp., at their resentencing and before the Second Circuit.
  • The president of a major international company whom federal authorities sought to extradite for tax offenses allegedly committed in the United States.

  • The former CEO of Princeton Economics International, whose release Mark helped win from the longest term of federal civil contempt in U.S. history.

  • An investor charged with securities fraud involving the conversion of a mutual savings bank to a capital stock bank.

Since 1996, Mark has been a member of the Board of Editors of the Federal Sentencing Reporter and a frequent contributor. His work on behalf of non-U.S. clients was featured in the American Lawyer’s 2006 Litigation supplement. He has lectured on both criminal law and appellate practice before the International Bar Association, the National Association of Criminal Defense Lawyers, PLI, and the ABA Sections of Litigation, Criminal Law, and Employment and Labor Law, and has been interviewed by Bloomberg Radio, the National Law Journal, WINS AM-1010, Law360Legal Times, and other news organizations.

He also serves on the Board of Trustees of the National Museum of Mathematics.

Photo of Phillip Caraballo-Garrison Phillip Caraballo-Garrison

Phil Caraballo is a senior associate in the Litigation Department, where he also represents the Litigation Department on the Associate Council. His practice focuses on white collar criminal defense and corporate investigations, appellate litigation, and complex civil litigation at both the state and…

Phil Caraballo is a senior associate in the Litigation Department, where he also represents the Litigation Department on the Associate Council. His practice focuses on white collar criminal defense and corporate investigations, appellate litigation, and complex civil litigation at both the state and federal levels.

As a member of the White Collar Defense & Investigations Group, Phil represents clients in prosecutions involving a broad array of federal and state crimes, including insider trading, racketeering, tax evasion, money laundering, and antitrust charges. He frequently guides corporate clients through internal investigations conducted in cooperation with law enforcement and regulatory agencies, and internal investigations and due diligence processes focused on resolving potential anti-corruption issues under the FCPA.