A Supreme Court decision could prompt white-collar criminals to challenge recent sentences made harsher by judges' consideration of factors such as how much investors lost as a result of corporate crimes.
Thursday's Supreme Court ruling did not invalidate federal sentencing guidelines, a controversial points-based system that sets out ranges of prison terms for specific crimes.
But experts said the ruling's legal rationale calls into question the practice by judges of increasing prison terms based on issues a jury never considers. Washington defense lawyers said clients have been calling for the past few days, asking how the court opinion affects them.
Sentences in the recent round of convictions for corporate crime have ranged from no time served to decades behind bars. Factors used by judges to come up with punishment include any record of a previous offense and the nature of the crime. Obstructing an investigation, for instance, as in the case of domestic entrepreneur Martha Stewart, carries a lighter sentence than cheating investors.
Now, some of the methods judges have used to come up with sentences may be off limits unless a jury is asked to weigh them.
"It's still very much up in the air," said Michael E. Horowitz, a Washington lawyer who serves on the U.S. Sentencing Commission, which drafts the guidelines. "It obviously raises some serious questions."
The ruling has left government and defense lawyers scrambling.
Prosecutors handling the case of four former Adelphia Communications Corp. executives on trial in New York have signaled they may react to the Supreme Court decision by asking that jurors, not the trial judge, consider factors that could result in longer sentences. Lawyers for Jamie Olis, who was recently sentenced to 24 years behind bars for his role in an accounting fraud, are reexamining their chances on appeal. The Justice Department has yet to issue widely anticipated guidance on the ruling for its 90-odd U.S. attorney's offices around the nation, which will help them decide how to apply the ruling in pending cases.
Criminal defense lawyers have seized on Olis as a prime example of how harsh sentencing guidelines have become. While former colleagues accepted deals to plead guilty, the former Dynegy Inc. accountant opted to defend himself in court against charges that he took part in a scheme to inflate cash flow from operations at the Houston company. Convicted, Olis drew the maximum sentence from U.S. District Judge Sim Lake, in part because of the amount of the fraud -- more than $105 million in losses suffered by the University of California retirement plan, a major Dynegy investor.
"The amount of loss is the driving factor in the guidelines," said Barry Boss, a defense lawyer at Cozen O'Connor in Washington. "Nothing else comes close to that."
Olis sought a reduction in his prison term based on his relatively low status at Dynegy and because of his difficult upbringing. Olis and his mother were abandoned in their native South Korea by his biological father, an American soldier, according to court papers. When they moved to the United States, his mother lived with an abusive man, and Olis and his siblings were put in foster homes. When his mother married another man, Olis was adopted by her new husband at the age of 10, his lawyer wrote.
Defense lawyers also stressed that Olis did not personally profit from the deal, nor did he approve financial statements Dynegy filed. But those pleas went for naught. The judge accepted a loss calculation offered by prosecutors, triggering a sentence of more than two decades -- a factor that under last week's Supreme Court ruling now might have to be presented to a jury for review. It's unclear whether the high court's decision is enough to persuade an appeals court to overturn Olis's sentence. Under the federal system, Olis must serve 85 percent of his prison term -- or at least 21 years. Olis, 38, has a young daughter.
"This case had a 19-year penalty for going to trial," said David Gerger, a lawyer for Olis. "If our system has become that harsh and rigid, then I fear that innocent as well as guilty people will feel they have to give up their right to a trial."
Indeed, prosecutors and defense lawyers said the easiest way to escape the rigid ranges prescribed in sentencing guidelines is for a defendant to cooperate. That way, judges have an unusual amount of room to credit defendants based on how valuable their help has been.
Take Timothy J. Noonan, the longtime president and chief operating officer at drugstore chain Rite Aid Corp. Noonan began helping prosecutors examine fraud and obstruction by top Rite Aid officials in 2001, tape-recording his co-conspirators before he had even signed a plea deal. When he was sentenced June 8, Noonan got no prison time at all, just two years' probation and a $2,500 fine -- several years less than the minimum guideline range allowed.
"It is not at all clear that there ever would have been a Rite Aid prosecution if Tim had not decided to offer his cooperation to the government," said David M. Howard, a lawyer for Noonan.
Former Rite Aid general counsel Franklin C. Brown, on the other hand, was convicted on 10 of 11 counts of conspiracy, false statements and obstruction of justice after a three-week trial in October 2003. No sentencing date has been set. But under the current guidelines, the 76-year-old Brown faces extra years behind bars for taking the case to trial and for testifying in his own defense.
"It is extremely unfair to defendants and defense lawyers because it tells them, you're going to be punished for litigating your case hard," said Stanford University law professor Robert Weisberg.
An ongoing prosecution at the Birmingham rehabilitation hospital company HealthSouth Corp. illustrates how important cooperating with the government can be. So far, federal judges in Alabama have not ordered prison time for nine HealthSouth executives who pleaded guilty to taking part in a $2.7 billion accounting fraud. Only one official, former assistant controller Emery Harris, has received a prison sentence. Harris's term was five months.
Experts said there are some consistent patterns in the way the large-scale corporate and securities fraud cases are being resolved. Citing the cases of Enron Corp.'s Andrew S. Fastow, Rite Aid's Martin L. Grass and ImClone Systems Inc.'s Samuel D. Waksal, Weisberg argues that most of the top players are getting close to a decade in prison, give or take a few years, provided they plead guilty. Grass was sentenced to eight years in prison; Waksal to seven.
But Stewart, her former stockbroker Peter E. Bacanovic and former Credit Suisse First Boston banker Frank P. Quattrone confront far shorter sentences, probably 10 months to less than two years, because they were convicted of obstruction-related offenses rather than frauds that resulted in losses to other investors. Bacanovic and Quattrone are more likely to be affected by the Supreme Court case because they could be eligible for sentence increases based on "abuse of a position of trust" or their "role in the offense." Quattrone also may face a tougher sentence if U.S. District Judge Richard Owen finds that he lied on the stand. Now it is not clear whether the judge could determine that alone or would have to involve the jury in the decision. All of the New York-based defendants, including Stewart, are coming up for sentencing in a particularly tough time and place for criminal defendants. Federal judges around the nation have been criticized for the frequency with which some of them hand out sentences below the guideline range, and the Justice Department has begun keeping score on judges' records.
In addition, the Southern District of New York, where the judge in the Martha Stewart case sits, is not known for generosity to defendants. While judges nationally meted out lighter sentences in 34.2 percent of all cases in 2002, the most recent numbers available, those in Southern New York did it only 25.2 percent of the time. And the Manhattan-based district is particularly hostile to requests for lower sentences based on reasons other than "substantial assistance" to prosecutors. Nationally, 16.8 percent of defendants ended up with lower-than-guideline sentences based on personal factors. In Southern New York, that figure was just 9.3 percent.
In Virginia, fewer than 4 percent of defendants got sentence reductions based on their personal situations.