Does an executive who helps defraud investors of, say, more than $100 million deserve prison time on par with murderers?
That's the question prompted by the 24-year prison sentence handed down last week to Jamie Olis, a former mid-level executive of Dynegy Inc.
In its efforts to crack down on white-collar criminals, the United States has beefed up federal sentencing guidelines. The stiff penalties send a message, prosecutors say, deterring others from trying similar schemes. But some experts suggest the new levels of punishment have gone too far.
However that debate plays out, experts say executives facing federal prosecution will be more inclined to cooperate in the wake of Mr. Olis's sentence.
"This is clearly a new stage in federal sentencing for business crimes - it's a preview of things to come in the other big-name cases," says Kirby Behre, an expert on sentences for corporate crime and a partner at Paul, Hastings, Janofsky & Walker in Washington, D.C.
Olis's long prison term is partly a result of harsher sentencing guidelines, which target fraud that causes more than $100 million in losses to investors. The US Sentencing Commission made those changes in 2001, before the wave of scandals that started with Enron. After that wave, in 2003, it added other penalties at Congress's request to take into account obstructionist factors such as document shredding.
But some experts warn that the revised guidelines are problematic because it's difficult to measure the effect of fraud on stock values. "It's not whether Aunt Nellie is out by $1,000 or by $1 million," Mr. Behre says. "How can you say anyone is truly responsible for the total amount of the stock dropping? There are so many other factors."
The Dynegy scheme, dubbed "Project Alpha," deceived investors by making a $300 million loan appear to be part of the company's cash flow. The court ruled that when the stock dropped after the scheme was revealed, large investors, such as the University of California's retirement plan, lost more than $100 million.
"The damage caused by false financial information being illegally reported to the marketplace can't be measured solely by how much corporate wrongdoers line their own pockets," said James Comey, a deputy attorney general and chair of President Bush's Corporate Fraud Task Force, in a statement after Olis's sentencing March 25.
Many experts say the federal sentencing guidelines, created in the 1980s, deserve credit for fixing a two-tier system in which judges often let white- collar criminals walk away with probation because they were from a "good family" or had done charitable work. "The guidelines basically said white-collar crime no longer gets white-collar time," says Paul Fiorelli, director of the Center for Business Ethics and Social Responsibility at Xavier University in Cincinnati. At the same time, the federal system eliminated parole. The most time off someone can get for good behavior is 15 percent of the sentence - 3-1/2 years in Olis's case.
David Gerger, Olis's lawyer for sentencing but not for trial, argues that the court should consider the fact that Olis did not enrich himself the way some high-level executives have been shown to do in other recent frauds. But the guidelines give judges little leeway.
"The sentencing system is broken," Mr. Gerger says in a phone interview. "It has not produced uniformity.... It deprives judges of discretion that they need to give fair sentences."
On Monday, Gerger requested that the judge reconsider the sentence, and he challenged the sentencing guidelines as violating the constitutional provision for a "separation of powers." Judges, not Congress, should determine sentences, he says. Olis plans to appeal the conviction.
Fairness, of course, is in the eye of the beholder. The federal guidelines suggest the same base-level sentencing range for second-degree murder as they do for defrauding investors of $100 million - 11 to 14 years. Many factors can move that sentence upward, such as prior criminal history. Olis, a first-time offender, was in the 24- to 30-year sentencing range because he was convicted of several additional counts of mail and wire fraud.
Crimes that can carry sentences lower than 10 years include sexual abuse and slave trading. Drug offenses that cause death or serious injury can carry penalties similar to Olis's 24 years.
It may be that after a crackdown on drug crimes in the 1980s, the Sentencing Commission felt it had to make sure white-collar punishments kept pace, Behre says.
But for some drug offenders and white-collar criminals, he adds, years instead of decades behind bars might be sufficient. "A harsh sentence is more of a deterrent, but I think you kind of cross that threshold in a case like [Olis's] at 10 or 12 years."
If white-collar sentences begin to look out of proportion, it would not surprise Paul Robinson, a University of Pennsylvania law professor who was involved in creating the sentencing guidelines but objected to their final form when they took effect in 1989.
There is a tendency to focus on the "crime du jour," he says, and it's rare that people look at the bigger picture and compare sentences for different kinds of crimes. Officials of the Sentencing Commission declined to comment.
But Olis's sentence may seem long because he did not accept a plea bargain, unlike many defendants in such cases. Two other Dynegy executives, including Olis's boss, cooperated with prosecutors and are expected to be sentenced in August to five years at most.
The potential for harsh sentences gives prosecutors much more leverage, but that's precisely what worries some observers.
Prosecutors aren't supposed to choose defendants or charges to make an example out of someone, but they often do, says Paul Rosenzweig, a senior legal research fellow at the Heritage Foundation in Washington. "We have a sort of antibusiness, populist mentality that is coming out in a demonization of business officials."
In the coming months and years, the public will have a chance to see whether accused executives choose to follow people like Andrew Fastow, the former chief financial officer of Enron, whose plea bargain is likely to result in a 10-year sentence - or take a chance at trial despite Olis's cautionary tale.