Corporate crime: longer time

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.

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