Tuesday, November 17, 2009

Lenient Sentencing in White Collar Crime / Tax Crime Cases (11/17/09)

I have previously noted in this blog the lenient sentencing in the offshore financial account sentences to date (see here). The concept of lenient sentencing is a relative concept; lenient means relative to the Guidelines Sentence -- i.e., downward departures and variances from the Guidelines. Booker and its progeny seem to have encouraged lenient sentencing. Sentencing judges realize that they have considerable leeway to fashion an appropriate sentence and often find some reason, particularly in white collar crime cases (of which tax crimes are a subset), to depart downwards, sometimes significantly.

In a case decided yesterday, the Eleventh Circuit reminded sentencing judges (at least those in the Eleventh Circuit) that their discretion is not boundless in white collar crime cases. In United States v. Livesay, ___ F.3d ___ (11th Cir. 2009), the defendant was a player in the "massive accounting fraud conspiracy at Healthsouth Corporation." He participated in "an illegal scheme to artificially inflate HealthSouth’s earnings and to falsely report HealthSouth’s financial condition is at the heart of the fraud." Basically, he would manipulate various financial accounts via fraudulent entries to meet senior Healthsouth officials' earnings goals and the results of these manipulations were reported in public documents filed with the SEC.

Livesay pled to three counts: (i) conspiracy to commit wire fraud, securities fraud, and falsifying books and records; (ii) falsely certifying financial information filed with the SEC; and (iii) a forfeiture count related to count one. The Government's bargain in the plea agreement was (i) to recommend the 3 level reduction for acceptance of responsibility; (ii) recommend that he be sentenced at the low end of the Guidelines range; and (iii) recommend a 5K1 departure.

The sentencing pursuant to the plea then commenced a saga involving three appeals in total in which the sentencing judges (on the third time, the original sentencing judge recused himself) were fixed upon a sentence of probation and the Eleventh Circuit saw it differently and sufficiently differently to reverse. I will let you read the short summary of that saga in the opinion.

In any event, the Guidelines calculations all along was a range of 78 to 97 months (note that this is after the acceptance of responsibility reduction but before the 5K1 departure). The sentence on this third appeal was 5 years probation. The Eleventh Circuit reversed because it found the sentence unreasonable. In a prior opinion involving another defendant from the same conspiracy, the Eleventh Circuit had said that sentencing in white collar crime cases serves important deterrence goals and that "[a] sentence of probation for a high-ranking officer in a corporation where over a billion dollars of fraud was perpetrated on an unsuspecting work force and investing public is not reasonable." The Livesay court emphasized the deterrence factor in white collar crimes and has some good language which I do not cherry pick because the opinion is short and pungent and should be read.

I think this reaction of appellate judges to the deterrence factor is a trend that may well play out in sentencing for tax crimes, which I have noted are merely a subset of white collar crime. Indeed, the Guidelines raise deterrence as a principal factor in tax crimes sentencing. The introductory commentary at S.G. 2T1 says:
The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation’s tax system. Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws. Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators.
Of course, if the Government does not appeal a downward variance that does not serve the deterrence purpose, then the sentencing judges do have free rein. Presumably, the Government is not appealing the lenient variance sentences in the offshore financial account pleas. But those who have cases in the pipeline (or, for that matter, in the future) should be aware of this appellate trend to view such generous downward variances with skepticism. The trend, if it continues, will not go unnoticed by sentencing judges.


  1. So, where's the "KPMG" link? You know, the one where you might remind folks that the a group within the Tax Division of the DoJ, reportedly led by Kevin Downing at that time, tried to deny several KPMG employees their Constitutional right to legal counsel. Remember that the federal judge in New York was so outraged by this stunt that the charges were dismissed? Remember that one? So....where's the link?

  2. Anonymous,

    The conduct in question -- the prosecutors' pressure on KPMG to withdraw attorney fee support -- was committed by the attorneys within USAO SDNY. As I recall, the principal direct pressures on KPMG were by AUSA's Neiman and Weddle. I do not recall that Downing, a DOJ Tax attorney, assigned as a special AUSA to SDNY to assist in the grand jury investigation, surfaced as a principal or even a minor player in those direct pressures upon KPMG to withdraw fees. On the other hand, Downing was certainly part of the inquisition of KPMG personnel in which those KPMG personnel had to withstand investigative abuse or be fired and have attorneys fees withdrawn. He and the other prosecutors involved knew and did everything they could to exploit the fear of withdrawal of jobs and attorneys fees, a fear needlessly and unconstitutionally inflicted upon them by the prosecutors.

    Jack Townsend


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