Questions over jail time for white-collar crime

By Andrew Ross Sorkin
September 17, 2005
The New York Times

On Monday morning, L. Dennis Kozlowski, the former chief executive of Tyco, will learn his fate. Kozlowski, who has been convicted of grand larceny, falsifying business records, securities fraud and other charges, is to be sentenced in New York Supreme Court. He faces a maximum prison sentence of 30 years.

Recent lengthy sentences for white-collar crimes have been seen, by some, as desperately needed deterrents after a deluge of corporate scandals. But the sentencing of Kozlowski, 58, comes at a time when a number of lawyers, including former prosecutors, are questioning whether such sentences are justified.

Bernard Ebbers, the former chairman of WorldCom who was convicted of masterminding an $11 billion accounting fraud that bankrupted the company, was sentenced to 25 years in prison. Because Ebbers is 63, some have contended that the sentence amounts to a life term. Shortly before, John Rigas, the 80-year-old founder of Adelphia Communications, was sentenced to 15 years in prison for his role in looting and hiding debt, in a scandal that bankrupted the cable-television company.

"You have to ask yourself whether the proof in these cases warrants such a sentence," said Otto Obermaier, a former U.S. prosecutor who worked on white-collar crimes from 1989 to 1993. Unlike Ebbers or Rigas, Kozlowski - along with Mark Swartz, Tyco's former chief financial officer who was convicted of the same set of crimes - is being sentenced in a state court. As a result, the judge in the Tyco case, Michael Obus, may have more latitude in his sentencing than U.S. judges, who have a strict set of guidelines to follow.

No lawyer is suggesting that white-collar criminals should not serve time. The question in legal circles has become what is appropriate for white-collar crimes in a post-Enron world? Jonathan Simon, a professor of law at University of California, Berkeley, said: "The most obvious comparison for the emerging attitude toward white-collar criminals is the harsh punishment we give to people involved in the drug trade. But both represent increasingly irrational and inhumane levels of punishment."

The main argument for imposing lengthy sentences is that they serve as a warning to other executives. After Ebbers's conviction in July, Alan Hevesi, the New York state comptroller and court-appointed lead plaintiff in the WorldCom securities class action, said it was "important to send a strong message" because of the billions of dollars and thousands of jobs that were lost as a result of the fraud.

Yet Simon, for one, said he had doubts about whether an especially long sentence worked as a significantly greater deterrent to potential white-collar criminals than shorter periods. He said that "it would be far more effective to impose a lot of short sentences on a wider group of offenders rather than the example model of harshly punishing a few celebrity cases while most potential offenders know that they are unlikely ever to be caught and punished."

Still, some prosecutors and lawyers suggest that lessons that were supposedly learned during the crackdown on corporate crime in the late 1980s did not stick, in part because the sentences were too lenient. Michael Milken was sentenced to three and a half years and served less than two.

Lawyers for Kozlowski and Swartz are expected to emphasize on Monday how different their cases are from those of Enron, WorldCom and Adelphia, companies that were forced to file for bankruptcy protection as a result of the crimes. Tyco never filed for Chapter 11 bankruptcy protection, and its underlying business was relatively unaffected. The two Tyco officials were convicted of stealing about $150 million by paying themselves unapproved bonuses and conspiring to keep the thefts secret.

In addition to determining a sentence, Obus is expected to make Kozlowski and Swartz disgorge the money they stole. Prosecutors may also seek to have the men pay hundreds of millions of dollars that they say shareholders lost as a result of falsified business records and the hiding of information from investors, as well as possibly millions of dollars in fines.

The original article (which first appeared in the New York Times) can be found here.

Labels: Dennis Kozlowski, Enron, Tyco