In a Manhattan federal courtroom on June 13, judge Robert Sweet sentenced Owen Li to probation for a fraud that cost investors up to $57 million.
The sentence was a jaw-dropper. Sweet had said he intended to send Li—the founder of Canarsie Capital, a unit of the infamous inside trader Raj Rajaratnam’s Galleon Group—to prison for five years. The federal sentencing guidelines recommend between six and a half and eight years in prison for fraud of this magnitude.
More breathtaking, at least for the lay person, is the idea that any court in 2016 would allow a hedge-funder who actually pled guilty to avoid jail. Americans have spent nearly eight frustrating years waiting for the denizens of Wall Street to be held accountable for the risk-taking orgy that produced an historic economic crisis. Very few have, in the public’s eyes, received justice. Americans have spent nearly eight frustrating years waiting for Wall Street to be held accountable.
But Sweet’s sentence actually typifies a broader dilemma for prosecutors in white collar crime. Sweet, still presiding at the age of 93, is part of a generation of federal judges who vocally rebelled against the strict and harsh federal sentencing rules of the 1980s and 1990s. Sweet and others—like judge Jack Weinstein of Brooklyn’s federal court, some of whose opinions on the matter I was fortunate to help draft as a young law clerk—were especially outspoken about drug cases, an area in which sentencing guidelines and mandatory minimums were tools wielded by politicians waging the war on drugs.
The efforts of trial judges who spoke out against those rules and unapologetically exploited their loopholes almost certainly influenced the Supreme Court’s 2006 decision to make the sentencing rules “non-binding”—freeing federal judges to exercise mercy and to respond to genuinely compelling individual circumstances.
Treating white collar criminals like “real” criminals was one of the founding principles of sentencing guidelines. Before the rules were adopted, it was far too common for judges to impose light or probationary sentences—along with those infamous terms of “community service”—on business offenders. And data showed that results in such cases depended far too much on the name of the judge and the geography of the courthouse.
The trouble is that sentencing is about people as much as it is about offenses. The sentencing guidelines were, for the most part, virtuously motivated. Like crimes should be treated alike. The trouble is that sentencing is about people as much as it is about offenses. And no two people are alike.
To seek equality for white collar crimes, sentencing guidelines were designed around dollar amounts—usually total “loss” to the victims. And yet, total loss in market value, especially in cases of publicly traded companies and large investment funds, is an even less satisfying measure of culpability than the drug weight measures used to determine sentences in narcotics cases. Too many factors, many of them matters of happenstance, can drive dollar loss up or down in a fraud case.
With each wave of corporate scandals in the 1990s and 2000s, Congress directed the drafters of the guidelines to make sentences harsher for the big fraud cases. In the aftermath of the Enron collapse, accountants were being sent to jail for years while leaders like Worldcom chief Bernard Ebbers were being sent away for decades. The federal guidelines in a big public company fraud case could reach life without parole, a sentence most states reserve for murder.
Now that sentencing law is no longer mandatory, the sentencing pendulum is swinging back in the opposite direction as those market-driven loss calculations lose some of their influence. Equality, it is now understood, is not a simple matter of adding figures on an Excel sheet—even when comparing one white collar criminal to another.
To seek equality for white collar crimes, sentencing guidelines were designed around dollar amounts—usually total “loss” to the victims. Owen Li, it turns out, was both typical and atypical. His fraud was driven by a recurring story in white collar crime: not the pure Ponzi scheme, but the legitimate money manager who lies to his investors when things start going south, convinced that he can quietly sort it out so that everyone will end up richer and none the wiser in the end. The lies, of course, only mount along with the losses. In the end, everyone is much poorer though perhaps a bit wiser.
Li, however, did something extraordinary when his jig was up. Long before he pled guilty, he had his lawyers call up the Securities and Exchange Commission and the Department of Justice and arranged for a full confession. He apologized deeply and genuinely to all his victims. He did everything he could to help recover a bit of their lost funds. He demonstrated, it seems clear, not regretful posturing but true remorse.
Sweet thought those particulars—perhaps as a matter of mercy, perhaps as a matter of encouraging others to do the same—merited an exceptional break. One can certainly quarrel with the extent of the mercy shown. But the decision to treat the case as unusual was arguably in the name of equality: If like cases are to be treated alike, different cases must be treated, on relevant dimensions, differently.
A few weeks ago, a federal judge in California sentenced the former CEO of a mortgage-brokering firm who stole $15 million from his business to eight years behind bars. The sentence did not make national headlines—it’s certainly not as dramatic as a hedge fund fraudster being spared prison. But on the whole, substantial prison terms for business crimes remain routine in federal court, even as the sentencing guidelines have become optional.
On what metric does one treat two cases “equally”? My gut tells me Li should have been sentenced to some prison but not as much as the California CEO. Guts differ, of course. But the idea that measuring out justice based on gains and losses in liquid investment markets will produce a kind of objective equality is an illusion. It’s easy to get angry at white collar crime; it’s far harder to find a just outcome for each individual convicted.
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