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
SUMMARY

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... (see full summary)

 
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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

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