The U.S. Sentencing Commission voted unanimously yesterday to impose stiffer penalties on white-collar criminals who bilk large numbers of investors and hurt public companies.
Convicted criminals who harm more than 250 victims, those who "substantially jeopardize" the health of a financial institution or a publicly traded company, and people who break securities laws while serving as an officer or director of a public firm will face more prison time.
But the Justice Department promptly complained that the new guidelines do not go far enough, because the panel failed to crack down harder on lower-level offenders and failed to make it more difficult for white-collar criminals to avoid prison. The agency said it would ask Congress to pass legislation to assuage its concerns.
The changes will take effect for people sentenced after Jan. 24. Commission officials said they will affect up to 20 percent of the criminal convictions moving through the nation's federal courts. It could affect sentencing in high-profile cases, such as the one involving Adelphia Communications Corp., if its former chief executive, John J. Rigas, is convicted of charges that he looted millions of dollars from the cable TV firm.
The commission, which issues guidelines for all federal judges to follow when sentencing criminals, acted in response to a directive in the Sarbanes-Oxley Act, the package of corporate and accounting reforms Congress passed last year after scandals at Enron Corp. and WorldCom Inc. Judges have minimal leeway to depart from the guidelines.
In some cases sentences will nearly double, such as when an officer of a public company defrauds more than 250 employees out of $1 million or more. The officer, if found guilty, would face at least 10 years in prison, instead of about five years, said U.S. District Judge Diana E. Murphy, who heads the commission.
People convicted of shredding large numbers of documents will be sentenced to as many as three years in prison, instead of about 18 months, said a spokesman for the panel. Executives who sign off on corporate financial reports that they know do not comply with Securities and Exchange Commission rules could face a maximum sentence of 10 years in prison.
"Crimes in the suites will be treated either the same or more seriously than crimes in the streets," said U.S. District Judge Ruben Castillo, a member of the commission.
But Eric H. Jaso, a lawyer in the Justice Department's criminal division and a nonvoting member of the commission, said the agency was "disappointed and, frankly, frustrated" by the vote, because the panel did not impose tougher penalties for crimes from the highest levels of executive suites to smaller offenders.
Jaso said in an interview that the threat of stiff prison terms can induce lower-level criminals to testify against their bosses. In criminal investigations of potential fraud at Enron and WorldCom, prosecutors have charged lower-level employees and then secured their cooperation against higher-level executives.
"We need to be able to say to them, 'You're looking at jail time,' " Jaso said.
He said the Justice Department plans to work with Congress to produce legislation that will address that issue.
John R. Steer, also a member of the sentencing panel, yesterday proposed amendments supported by Justice that would expose criminals to prison for crimes that involve more than $50,000 in "serious fraud" cases, generally preventing judges from sentencing them to probation.
"When corporate criminals are sentenced to probation, it undermines peoples' faith in the criminal justice system," Jaso said in support of the change.
But other commissioners criticized the plan and asked for more time to review it. Steer withdrew the proposal, which will instead be offered up for public comment. It could be considered at the commission's April meeting.
The commission is still studying whether it should toughen sentences for brokers, dealers and investment advisers who commit fraud in the course of their jobs. It is also deciding whether to revise sentencing guidelines for corporations and other organizations.
Barry Boss, a Washington defense lawyer who advises the commission, said he fears that if the Justice Department ultimately wins out, important criminal justice policy, such as how smaller offenders should be treated, will end up being made for political reasons.
"That's what happened with the war on drugs," Boss said. Penalties for all offenses were stiffened dramatically. "What they wound up getting instead of kingpins were these very small players. We wound up making very bad policies because of the winds in the political climate."