Federal Court of Appeals Vacates Lenient White-Collar Sentence

The overriding directive of federal sentencing law is to impose a sentence that is sufficient but not greater than necessary to accomplish the goals of sentencing: that is, to reflect the seriousness of the offense, promote respect for the law, provide just punishment, deter crime, protect the public, and rehabilitate the defendant. 18 U.S.C. § 3553(a).

Usually, the trial judges who preside over criminal cases get the benefit of the doubt when it comes to what’s a reasonable sentence. After all, they’re the ones who can size up defendants and witnesses personally and weigh the evidence firsthand.

But last week, a federal court of appeals sent a case back for resentencing because it questioned the reasonableness of the trial court’s sentence. A jury had convicted the defendant of wire fraud, bank fraud, and conspiracy, and based on the $1.7 million loss, the federal sentencing guidelines called for a range of 57 to 71 months in prison. The prosecutor had asked for 30 months in prison, but instead, the judge sentenced the defendant to one day in prison, three years’ probation, and $1.7 million in restitution.

At first blush, a one-day sentence may seem unreasonable in the case of a $1.7 million fraud, but as usual, the devil’s in the details, and in this case, the details that follow come straight from the appellate court’s opinion.

The defendant was a 60-year-old accountant who got involved in a business venture to recycle tires. Auspiciously, he was referred to a guy whose Australian company could supply and install the necessary equipment, though inauspiciously, he didn’t know that the other guy had failed in nine prior tire-recycling ventures. The two men eventually formed a new company that was owned 81% by the defendant and 19% by another one of the other guy’s companies. Their new company then set out to build a tire-recycling plant, and to that end, it entered into a $2.3 million contract with the other guy’s supply company to provide the equipment and installation. To fund the $2.3 million, the defendant invested $300,000 of his own money, while the other guy invested $300,000 by agreeing to discount the price of his equipment by that much. Their joint company then obtained the $1.7 million balance through a small-business loan, and that’s where the alleged fraud took place.

To obtain the small-business loan, the defendant applied for a bank letter of credit in order to disburse the loan proceeds to the other guy’s bank in Australia, but in the application, he specified that if all of the equipment were not delivered in one shipment, the new company would not have to pay.

Sure enough, when the equipment arrived, it was missing the tire shredder, which was a vital piece, and the defendant was apparently so angry that he complained to Australian authorities as well as the FBI, the SEC, and the SBA’s Office of Inspector General. This prompted the FBI to open an investigation.

In the meantime, however, the other guy falsified a packing slip to show that the shredder would ship, and as a result, the bank honored the letter of credit and transferred $1.7 million to the guy’s bank.

When the money arrived, half of it immediately went to cover an overdraft of the supply company’s account, and the rest was appropriated by the other guy to pay other creditors. Poof! Just like that, the $1.7 million was gone, and the defendant lost his $300,000 investment in the failed venture.

Both men got indicted, but the government made a deal with the other guy, who testified against the defendant and got three years’ probation in return. The defendant went to trial and was convicted on four of ten counts. Among other things, the other guy testified that the defendant had told him to falsify the packing slip. Who knows. Perhaps that was part of the defendant’s master plan to lose $300,000.

At the defendant’s sentencing, the trial judge acknowledged that the defendant had “cut some corners in the heat of the moment,” but he also expressed his belief that the defendant did not go into the venture to rip someone off. By contrast, the judge was “offended to [his] very core” by the other guy’s conduct, whom he viewed as “by far the principal wrong-doer.”

Noting that the defendant, who had no criminal history, was now a convicted felon who would lose his accounting license, and noting further that the defendant had lost his own shirt in the ordeal and could not pay any restitution if he were sitting in prison, the judge imposed a sentence that he thought was sufficient but not greater than necessary to do the job.

But apparently, it wasn’t punishment enough for the court of appeals.