Thursday, April 2, 2009

Sentencing Review - The Larson Case

Yesterday, Judge Kaplan imposed sentencing for the three convicted defendants in United States v. Larson (USDC SDNY No. S1 05 Cr. 888 (LAK)), the remnant of the infamous United States v. Stein, 541 F.3d 130 (2d Cir. 2008). These cases involved the KPMG-related shelters, principally the BLIPS shelter (a variation of the Helmer shelter extrapolations at the core of a lot of the acronymic shelters the Government imagines to have been so abusive).

Yesterday, also, Larry Campagna and I covered the Sentencing Guidelines in our Tax Fraud and Money Laundering Class at UH Law School. In this blog, I use the Larson sentencing and the reports that I have received to reinforce some of the aspects of sentencing that we covered in the class. I focus principally upon the Guidelines calculations although I start and end with Booker. And, the points I make here only address the items I have selectively gleaned from the reports I have to date. I am sure I will have to refine them, so offer these as a quick discussion that might be helpful particularly to the class members because of last night's discussion.

1. Booker. Booker and its progeny establish that the Guidelines are advisory only. The Guidelines calculations must be made, and the calculations must be considered. But they are no longer controlling.

2. Tax Loss. The principal Guidelines driver -- at least the key starting point -- for financial crimes is the base offense level determined on the dollar amounts involved in the crime. In tax crimes of the type charged, the base offense level is determined under SG §2T1.1.(a)(1) by looking to the tax table at SG §2T4.1. The table requires that the judge determine the amount of the tax loss. (Other discussions of tax loss in this blog may be reviewed by clicking the label below.) Students from the class will recall that we talked about how that loss is determined and that the loss can include not only the loss for the year(s) of conviction, but the loss for relevant conduct outside the years of conviction. Relevant conduct includes noncharged conduct, conduct outside the statute of limitations for prosecution, and even acquitted conduct. Because of the mass size of the tax losses in Larson (over $1 billion) in the period of conviction, Judge Kaplan easily found that the tax loss exceeded $100 million. Why he found that particular number is not readily apparent but gather it was tied to the minimum amount he felt necessary to peg the defendants at the highest offense level under the tax table. For reasons I note below, that maximum amount under the 2000 Guidelines (which he used for his calculations) was $80 million with a maximum offense level of 26. In 2001, the maximum amount was increased to $100 million for an offense level of 32. In 2003, the maximum amount was $400 million with an offense level of 36. Since the lower offense level produces the more favorable sentence, making the calculations under the 2000 Guidelines generated the best Guideline calculation for the defendants. (I will return to this in discussing ex post facto considerations below)>

2. Sophisticated Means. SG §2T1.1.(a) provides a specific offense characteristic upward adjustment for either failing to report the income of criminal activity or for use of sophisticated means in the tax crime. The tax crime itself is not the criminal activity that would result in this adjustment and, in any event, there was no proof of a failure to report the income from hawking the shelters. As to sophisticated means, we discussed last night how minimal the level of sophisticated means required for this upward adjustment to the offense level under SG §2T1.1.(a). See Text pp. 327-328. It is reported that Judge Kaplan specifically pointed to the loan documents, representation letters (wherein, in part, the investors attested to their supposedly nonexistent "profit motive"), and opinion letters and other steps to conceal the scheme through a vast smokescreen. This appears to have been a no-brainer adjustment.

3. Organizers and Leaders Adjustment. Judge Kaplan found Messrs. Larson and Pfaff to be organizers and leaders under SG §3B1.1.(a) requiring a 4 point increase in the offense level. He rejected their argument that, because KPMG could have stopped the sale of the shelters, that power to stop prevented them from being the organizers and leaders. Not so under the facts.

4. Guidelines Calculations. Judge Kaplan announced his Guidelines calculations under the 2000 Guidelines were:

Larson & Pfaff: 121-151 months
Ruble: 97-121 months (The PSR apparently recommended 5 years for Ruble.)

Although not indicated in the reports of the sentencing hearing I received, I assume Judge Kaplan got there by using the top offense level in the 2000 Guidelines (26, as noted above) and then adding upward adjustments for sophisticated means (which is +2 (actually called sophisticated concealment under the 2000 Guidelines, with the verbiage change to sophisticated means introduced in the 2001 Guidelines)) and organizer and leader (+4). The total offense level is then 32 which, at a criminal history level of 1, produces a sentencing range under the 2000 Guidelines Sentencing Table in §5, Part A, of 121-151 months which is the caluclation he made for Larson & Pfaff. (It is not clear to me why Ruble's calculations would be less.)

5. Guidelines Ex Post Facto Detour. For the benefit of the class, I take a slight detour here to explain why the calculations were made under the 2000 Guidelines. Prior to Booker, the courts held that, where (as in the case of the SG Tax Table), the sentencing calculation is more lenient at the time of the convicted conduct than under the Guidelines in effect at sentencing, the earlier more lenient version of the Guidelines must apply in order to avoid constitutional ex post facto problems. The Government took the position in Larson that Booker renders ex post facto concerns moot and the 2008 Guidelines must be applied. Using Judge Kaplan's methodology, the 2008 calculations (assuming that the loss would have exceeded the $400 million maximum) would have increased the base offense level to 36, a full 10 level increase over the 26 produced under the 2000 guidelines. The result under the 2008 Guidelines with the same 6 level increases Judge Kaplan applied for Messrs. Larson and Pfaff would be an offense level of 42 with an indicated range of 360 months to life at the same criminal history level of 1. At least one court has accepted that position that ex post facto is irrelevant under Booker so that the current Guideline calculation is required; some have not. (See my discussion here.) Judge Kaplan stated that he did not decide that issue, although as noted above he did make the calculations he announced under the 2000 Guidelines. I think he used the more lenient Guidelines because, ultimately, he determined the sentence he felt was fair under Booker and likely would have reached the sentence whichever set of Guidelines applied.

6. General Booker-Type Considerations. Before imposing sentence, Judge Kaplan said that the government’s submission in effect asked for life sentences, given the ages of these defendants, and while age is discouraged under the Guidelines as a factor, he was not bound by the Guidelines under Booker. He said the Government's insistence of a tax loss on the claimed $1+ billion and sentence within or near the current Guidelines lacked perspective. (I infer that he meant lacked judgment; of course, good judgment seemed to have been a large and systemic problem for the Government in earlier phases of this case.) He also said that while these were crimes of greed by people who didn’t need to be greedy to be well off, no victims were injured a la the Madoff case, and no financial institutions were destroyed. He also said that these crimes should not be punished to the same extent as crimes of violence. He also said that the sentence should not be affected by the Government conduct that resulted in dismissal of the 13 other defendants.

7. Sentences Imposed. Judge Kaplan imposed Booker sentences as follows:

Larson 121 months (note that this is at the bottom of the 2000 Guidelines calculation)
Pfaff 97 months (this is below the 2000 Guidelines calculation)
Ruble 76 months (Unsure how this fits into the 2000 Guidelines Calculation)

For background on this, Larson and Pfaff worked the concept creation / development and financial side of the shelter and Ruble was the lawyer who prepared the cookie-cutter legal opinions for the clients brought to him by KPMG and perhaps in isolated cases by others. Pfaff's sentence was clearly outside Judge Kaplan's Guidelines range calculation. Larson's is at the bottom of the calculation range, and appears to have been based on Larson's personal use of offshore trusts that the Judge believed was used to put money outside the grasp of the Government. I do not know and have not heard why Ruble's conduct was found sufficiently less offensive to just the significantly lower sentence.

8. Judge Kaplan's Miscellaneous Comments. Judge Kaplan did not view the imposition of Booker sentences which are light even compared to the 2000 Guidelines as inappropriate, and it is clear that he took seriously the statute's admonition to craft an appropriate punishment to fit the crimes. Some choice comments as reported:

- the crime being punished was "so raw, so brazen, so outrageous" that it was clearly criminal.
- the defendants were convicted on the basis of a jury charge on economic substance that called "all the close ones for the defendants" (this is sel-serving.)
- the sentence he imposed addressed the need for deterrence adequately.

No comments:

Post a Comment

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.