Judging Federal White-Collar Fraud Sentencing: An Empirical Study Revealing the Need for Further Reform

• Author: Mark W. Bennett, Justin D. Levinson, Koichi Hioki
• Position: His 23rd year as a United States District Court Judge in the Northern District of Iowa/Professor of Law and Director, Culture and Jury Project at the University of Hawaii William S. Richardson School of Law/Assistant Professor at Kobe University Graduate School of Business Administration
• Pages: 939-1000

939

Judging Federal White-Collar Fraud

Sentencing: An Empirical Study Revealing

the Need for Further Reform

Mark W. Bennett, Justin D. Levinson, & Koichi Hioki*

ABSTRACT: White-collar federal fraud sentencing has long been fraught

with controversy and criticism. As a result, the U.S. Sentencing Commission’s

intensive multi-year examination of sentencing for fraud crimes generated

tremendous interest among the Department of Justice, criminal defense

organizations, the academy, and a wide range of advocacy groups. In

November 2015, the Commission’s publicly announced proposed

amendments became law without Congressional change. These amendments,

while commendable in process and purpose, fall short of sorely needed reforms

that would serve to realign white-collar fraud punishments with legitimate,

empirically based penal justifications. This Article portrays the historical

tension between the Federal Sentencing Commission and federal judges,

presents the results of an original empirical study that demonstrates clearly

the continuing need for significant reforms, and includes specific

recommendations to reform the current sentencing scheme for these crimes.

I. INTRODUCTION ............................................................................. 941

II. A BRIEF HISTORY OF FEDERAL SENTENCING, JUDICIAL

DISCRETION, AND WHITE-COLLAR FRAUD

C

RIME

………………….

945

A. SENTENCING BEFORE THE SENTENCING REFORM ACT OF 1984

AND THE SENTENCING GUIDELINES ........................................... 946

B. THE SENTENCING REFORM ACT OF 1984 AND THE SENTENCING

GUIDELINES ............................................................................ 949

1. Introduction ................................................................ 949

*Mark W. Bennett is in his 23rd year as a U.S. District Court Judge in the Northern District

of Iowa. Justin D. Levinson is a Professor of Law and Director, Culture and Jury Project at

the University of Hawaii William S. Richardson School of Law. Koichi Hioki is an Assistant

Professor at Kobe University Graduate School of Business Ad ministration. The authors would

like to thank Krysti Uranaka for outstanding research assistance.

940 IOWA LAW REVIEW [Vol. 102:939

2. Pre-Koon and the Creation of the SRA and the

Guidelines .................................................................... 949

3. Koon, the PROTECT Act, and the Standard of

Review ........................................................................... 953

4. Booker Guideline Sentencing—the Current Federal

Sentencing Regime ..................................................... 954

5. The Overlay of Gall and the Booker Advisory

Guidelines .................................................................... 956

6. Summary ...................................................................... 957

III. A LOOK AT CURRENT FEDERAL FRAUD OFFENDER SENTENCING

DATA ............................................................................................. 958

A. OVERVIEW OF OFFENDERS’ SENTENCES UNDER THE U.S.

SENTENCING FRAUD GUIDELINES—2014 ................................. 958

B. OVERVIEW OF TRENDS FOR OFFENDERS SENTENCED UNDER

THE U.S. SENTENCING FRAUD GUIDELINE ................................. 959

1. Number of Fraud Offenders Increased ..................... 959

2. Average Guideline Increase Outpaces Minimum

Sentence Increase........................................................ 960

3. Amount of Loss Increased .......................................... 961

4. Average Guideline Minimum Exceeds Sentence

Length, Especially for Huge Offenders ..................... 961

5. Summary ...................................................................... 964

IV. THE EMPIRICAL STUDY .................................................................. 964

A. INTRODUCTION ....................................................................... 964

B. PARTICIPANTS ......................................................................... 965

C. MATERIALS ............................................................................. 965

D. STUDY LIMITATIONS ................................................................ 967

E. RESULTS .................................................................................. 968

1. Judges Regularly Sentenced at the Exact Bottom of

the Range ....................................................................... 968

2. Older Federal Judges Gave Shorter Sentences ........... 969

3. Federal District Court Judges (Marginal Significance)

Gave Longer Sentences to Jewish (vs. Christian)

Defendants; State Court Judges Gave Longer

Sentences to White (vs. Asian) Defendants ................. 969

4. State Judges Self-Reported More Retributive

Sentencing Philosophies ............................................... 970

5. Republican Judicial Appointees Were More

Supportive of Retribution, but Did Not Sentence

Differently ...................................................................... 970

6. Democratic Judicial Appointees Were More

Supportive of Mercy ...................................................... 970

2017] FEDERAL WHITE-COLLAR FRAUD SENTENCING 941

7. Protestant State Court Judges Report More Retributive

Sentencing Philosophy but Did Not Sentence

Differently ...................................................................... 971

8. Judges’ Mercy Philosophies, but Not Retribution

Philosophies, Predicted Sentence Length................... 971

F. DISCUSSION .............................................................................. 972

V. THE 2015 AMENDMENTS TO THE FRAUD GUIDELINE SECTION

2B1.1 AND THE CRITICAL RESPONSE ............................................ 973

A. INTRODUCTION ....................................................................... 973

B. THE 2015 PROPOSED CHANGES TO THE FRAUD GUIDELINE ....... 975

C. THE PUBLIC COMMENT PERIOD AND PUBLIC HEARING .............. 977

D. THE FRAUD GUIDELINE AMENDMENT SENT TO CONGRESS

ON APRIL 30, 2015 ................................................................ 978

E. ABA AND COMMENTATOR RESPONSES TO THE NEW FRAUD

GUIDELINE .............................................................................. 978

VI. OUR SUGGESTIONS FOR ADDITIONAL NEEDED REFORMS OF THE

NEW FRAUD GUIDELINE ................................................................ 980

A. INTRODUCTION ....................................................................... 980

B. TRIM THE FRAUD LOSS TABLE .................................................. 982

C. BUZZ-CUT THE FRAUD GUIDELINES SOCS ................................. 985

D. SIMPLIFY AND MODIFY THE VICTIM TABLE ............................... 986

E. ELIMINATE THE SOC FOR SOPHISTICATED MEANS ..................... 988

F. ADOPT A DEPARTURE FOR THE LACK OF PECUNIARY GAIN .......... 988

VII. CONCLUSION ................................................................................ 989

APPENDIX A .............................................................................................. 990

APPENDIX

B

............................................................................................... 995

I. INTRODUCTION

Let’s play an easy word-association game: “Bernie Madoff”—what comes

to mind? We think for most it is likely some form of “massive fraud scheme.”1



1. Mr. Madoff’s massive fraud scheme was described in the Government’s

Sentencing

Memorandum as follows:

Defendant conceived and orchestrated a multi-billion dollar Ponzi scheme by which he

defrauded thousands of investors, including individuals, non-profit organizations and for-

profit institutions, who placed money directly or indirectly with his registered

broker–dealer and, later, registered investment advisory firm, Bernard L. Madoff

Investment Securities (“BLMIS”). For more than two decades, Madoff solicited billions of