Finally, Some Justice for Jamie Olis

The sad case of Jamie Olis has been a frequent topic on this blog as an egregious example of the injustice that has resulted from the government’s increasing criminalization of business in American society.

Last night, after many months of waiting, Mr. Olis finally received some relief from his ordeal.

Although the Fifth Circuit declined to overturn his conviction, the Court did in this long-awaited opinion vacated Mr. Olis’ 24 year sentence and ordered U.S. District Judge Sim Lake to resentence Mr. Olis in accordance with Booker’s overall standard of reasonableness, including a recalculation of the amount of loss for which Mr. Olis should truly be held responsible.

Sentencing expert Doug Berman has more analysis of the Fifth Circuit’s opinion here and business law expert Larry Ribstein comments here.

Writing for the Fifth Circuit panel, Judge Edith H. Jones — who is one of the top appellate judges in the country on business issues — zeroed in on the main flaw in Judge Lake’s acceptance of the prosecution’s dubious theory relating to Mr. Olis’ sentencing.

As noted in this previous post relating to the Enron-related Nigerian Barge trial, the prosecution in Mr. Olis’ case misled Judge Lake regarding the proper method for calculating the market loss for purposes of Mr. Olis’ sentencing.

Indeed, at the time of Mr. Olis’ sentencing, the Justice Department had already taken the position before the Supreme Court in Dura Pharmaceuticals v. Broudo that the market loss calculation method that it was using in Mr. Olis’ case was not the proper method for calculating market loss.

Without noting that egregious contradiction, Judge Jones in the Olis opinion nonetheless criticizes Judge Lake’s acceptance of the government’s method of market loss calculation:

In this case, the district court, faced with a “cook the books” fraud, overemphasized his discretion as factfinder at the expense of economic analysis. Thus, the court elected to rely solely on the Heil testimony concerning the purchase and sale of UCRS stock as a measure of the loss caused by Olis’s offense. When Heil’s testimony was offered at trial to prove guilt, Olis’s counsel was not placed on notice that the same evidence might later pertain to the guidelines loss calculation. For that reason, other significant extrinsic causes of the UCRS loss were not explored, much less quantified, at trial. UCRS bought most of its Dynegy holdings at the top of the market. As Olis pointed out at sentencing, however, two-thirds of the drop in Dynegy’s price occurred either before the revelation of Project Alpha’s problems or more than a week after the announcement of the restatement of earnings caused by Project Alpha. Taken on the court’s own terms, a substantial portion of the entire loss on the UCRS investment in Dynegy, over $100 million, could not have been caused by Olis’s work on Project Alpha.

During sentencing, moreover, Olis offered the expert report of a Rice University expert, Professor Bala Dharan, which explored numerous forces at work on the Dynegy stock price during the relevant periods. The court refused to consider the report, criticizing the expert’s analysis of whether Olis could have “reasonably foreseen” the impact of his conduct on the stock market. As the court observed, the economist was arguably stretching his expertise into an improper legal conclusion, but his statements on this matter are separate from his economic analysis of price and market movements. Professor Dharan’s report demonstrates that Dynegy stock declined during the period covering Project Alpha in tandem with the stocks of other publicly traded companies in the energy marketing and trading business.

Further, Dynegy’s stock was negatively affected, even before the restatement of Project Alpha’s cash flow impact, by the company’s failed bid to acquire the faltering Enron. These factors and others cited in the report suggested that attributing to Olis the entire stock market decline suffered by one large or multiple small shareholders of Dynegy would greatly overstate his personal criminal culpability.

Because the district court’s approach to the loss calculation did not take into account the impact of extrinsic factors on Dynegy’s stock price decline, Olis is entitled to resentencing on this factor, subject to the principles just discussed.

If there has ever been a case in which the sentence should be reduced to time already served, this is the one.

Stay tuned for further developments.

18 thoughts on “Finally, Some Justice for Jamie Olis

  1. I was delighted to Judge Lake bench-slapped by the Fifth Circuit. Olis is almost certainly in line for a much shorter sentence, although a reduction to time served would surprise me.
    I think you misstate the case, when you refer to “government’s increasing criminalization of business in American society.” Olis’s crime was no mere ‘honest mistake’. He and his co-conspirators “cooked the books” at Dynegy. Fraud is an ancient crime, not just the latest trend. You refer to his “ordeal,” but don’t evince much sympathy for the people he defrauded.
    A fair complaint is the modern trend toward ridiculously long sentences, coupled with the use of “count stacking” to create many crimes out of one. Olis was convicted of wire fraud, mail fraud, securities fraud, and conspiracy to commit all of the above — all for one underlying offense.
    The old joke about white collar crimes is that “It’s impossible to commit just one.” Practically all frauds have an additional count of wire fraud or mail fraud, since one will almost certainly have picked up the telephone, sent an e-mail, or sent something by post. Doing any of those things creates a brand new crime, on top of the fraud you already committed.
    Conspiracy is meant to ensure that those who plan a crime without actually carrying it out do not evade punishment. But when the fraud comes to fruition, it is double-counting to charge the planning as a separate offense.
    Of course, the government’s angle is to scare defendants with the consequences of losing at trial, such that they plead guilty to a reduced set of charges. Olis’s two co-defendants did that. Their maximum sentence is five years apiece.
    The frightful consequences of going to trial no doubt induce some innocent people to plead guilty, to cut their losses and minimize their risk. However, I have not seen any evidence that the Project Alpha team were actually innocent. To the contrary, there was a real fraud here, although I agree (as does the Fifth Circuit) that Olis’s sentence was grossly disproportionate to the deed.

  2. Marc, I agree with you regarding the disproportionate nature of the Olis sentence and the troubling trend of stacking white collar criminal charges. More judicial intervention is needed to balance the excesses that are occurring as a result of that trend.
    As for Mr. Olis’ conviction, I agree with you that, based on Judge Jones’ rendition of the alleged crime, a fraud occurred. However, I would point out that Mr. Olis was convicted based primarily on the testimony of two witnesses who had copped pleas and it is my understanding that several witnesses who would have provided exculpatory testimony for Mr. Olis were fingered by the prosecution as targets of a pending criminal investigation so that they would be induced to take the Fifth Amendment and not testify in the Olis trial.
    This is not to say that Olis would not have been convicted had those witnesses been available to testify. However, I do know that the same prosecution tactic was used in the recent Enron-related Nigerian Barge trial and the result of those witnesses not testifying for the defendants in that case was that the transaction and the actions of the Merrill Lynch defendants relating to that transaction were badly mischaracterized to the jury. As a result, four men who literally wre simply doing their jobs are now unjustly imprisoned. Given that, I am not at all certain that Mr. Olis is not the victim of a similar prosecution tactic of not allowing the full story to be told to his jury.
    Thanks for your comments and for reading HCT.

  3. Tom,
    You and I have sparred in the past over the criminal prosecution of white collar crimes. I have yet to see you support any prosecution of any white collar crime at any level. As an attorney and not a prosecutor, this would make perfect sense as you seem to be using your blog to convince a potential jury pool that it is never appropriate to prosecute any individual for any white collar crime. In your mind, it is EVER appropriate to prosecute an individual for white collar crimes and, if so, can you give us an example of a prosecution you feel was justified?

  4. Charles, please don’t misunderstand my position regarding white collar crime.
    I do not have any problem whatsoever with prosecuting individuals who steal or embezzle money from a business. Similarly, a person who clearly commits fraud in connection with a business should be subject to prosecution. These are two examples of clear white collar criminal conduct that should be prosecuted.
    So, for example, Scott Sullivan certainly should have been prosecuted for cooking the books at WorldCom. Similarly, Andy Fastow should have been prosecuted for abusing his control of off balance sheet partnerships doing business with Enron to embezzle money for himself and his closest underlings.
    However, what I object to is the use of the overwhelming power of the state to criminalize agency costs, which are essentially the costs of poor corporate governance. If you examine each case in which I criticize a prosecution of a white collar case, you will see that undelying reason behind each critical remark.
    Again, thanks for the comment and thanks for continuing to read HCT.

  5. The problem is one of legitimacy. Prosecutors, if for whatever reason are so motivated and have adequate resources, have the power both to distort the fact-finding process and to misconstrue the law that is to be applied to those facts, distorted or otherwise. Given that, how can any jury decision be trusted? Or any guilty plea for that matter? The criminal justice system is broken.

  6. True, but one that, from a lack of authority standpoint, is sufficiently egregious that few people have problems with criminalizing such conduct. On the other hand, the authority issues alone with regard to most prosecutions of agency costs render an objective verdict of guilt beyond a reasonable doubt impossible.

  7. Jamie Olis’ sentence reversed

    The Fifth Circuit reversed and remanded the sentence of Jamie Olis, a miscarriage of justice that I first wrote about here. Kirkendall, who has covered this from the beginning, and Berman’s sentencing blog, have the story. The court emphasized that

  8. Notice the footnote regarding the government assertion that alternative sentence should be based on the “amount of defendant gain” which is defined by them as Dynegy’s tax benefit from the deal. This is clear admission by the government that Olis did not gain personally but they still want him to serve time for the gain from the alleged fraud to his company… Wow- how screwed up is that? I want to know where are the high security cells for the Dynegy board who approved this type of deal with the intention of seeking gain to the company? I am surprised that the prosecutors don’t want him serving time for the gain that each shareholder made on Dynegy stock sales but oops! I guess that would be admitting that there were gains to shareholders as well as losses but well that wouldn’t help them make their point! Point being.. ummm…what was that again? Oh yeah- we’re right no matter how wrong we sound- so just go with it or else.
    What about any mention of the “unindicted co-conspirators” such as Dynegy’s CFO and head accountant who were absolutely key to the transaction and the alleged fraud but were never charged themselves? Sounds like 3 mid level people were running the whole show at Dynegy- controlling accounting and taxes and finance.. gee whiz.. Everyone including the appellate court are so hush hush about this very real problem of individual prosecutor-controlled disparity and selectiveness without regard to real culpability and the related games of witness/evidence suppression. All Olis really got was the right to resentencing which was blatantly obvious to any objective person so why did the government-leaning 5th circuit waste almost a year to render this opinion? I guess this is about as good as government work gets– certainly not the full picture but apparantly it’ll have to do. I hope the judge does the right thing and doesn’t just follow typical government form but I’m not holding my breath.

  9. Tom, I have never seen a shareholder resolution that says, “Please lie to us.” The authority issue is pretty plainly against you.
    What Jamie Olis did was a simple, plain crime. He wasn’t deprived of a defense–although as a recall he forget he could testify. It is important, however, that he be properly sentenced.
    A few days ago I saw an excellent presentation on corporate goverance at Washington U in St. Louis. Bainbridge, by the way, was smoked out of the water.
    The best paper was a presentation of Michael Jensen, at HBS, “on agency costs” and the dishonesty presently built into America’s public companies. You might want consider what is has to say before so quickly conclude that we shouldn’t be prosecuting false statements.
    Jensen, Michael C., Murphy, Kevin J. and Wruck, Eric G., ‘Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them,’ Harvard NOM Research Paper No. 04-28 (July 2004) and ECGI-Finance Working Paper No. 44/2004.
    As Mark Lanier famously said in the opening of the Merck trial, “It doesn’t take much practice to tell the truth.”

  10. I agree with FJO that the government’s proposed loss calculation was reprehensible. I don’t know what was worse: the prosecutors’ conduct, or the judge who fell for it. Indeed, in a footnote the opinion takes the government to task for persistently arguing unrealistically high loss calculations in these types of cases.
    That said, fraud is fraud, even if you can’t pinpoint the defendant’s gain. Presumably Olis did the deal because he hoped it would advance his career. According to the reading I’ve done, material information was concealed from Dynegy’s board and other senior execs, and their approval of the financials was based on a misrepresentation of the facts.
    I am not sure why it took the 5th Circuit so long to turn out this opinion. Doug Berman over at Sentencing Law & Policy pointed out that the Court provided the trial judge with considerably more guidance than strictly necessary. Once they had determined there was a Booker error, they could have remanded on that ground alone. By providing as much detail as they did, the panel made it a lot harder for Judge Lake to throw the book at Olis again.

  11. John, why if Olis clearly committed fraud did the government feel compelled to control tightly the witnesses who testified during the trial? Why wouldn’t the government — with such a clear case of fraud — want the jury to hear from all witnesses who knew facts relating to alleged criminal acts, and not just from people who had copped pleas to avoid the draconian sentence that Olis received?
    Olis’ trial counsel’s decision not to have him testify was a clear tactical mistake. But it certainly doesn’t make it any more likely that Olis was actually involved in a crime.
    Finally, quoting Mark Lanier commenting about the truth — at least as it relates to Merck and Vioxx — does not bolster your argument.

  12. Tom, you ask, “Why if Olis clearly committed fraud did the government feel compelled to control tightly the witnesses who testified during the trial?”
    Tom, my off the cuff answer is that they had bad lawyers. I have had a client testify in other cases, while under federal indictment. But, then, he didn’t need any practice to be able to tell the truth.
    My own 2 cents is that really the problem is a different one. As the HealthSouth case shows, the real sin of the government is that it charges too few people. After giving people an undeserved pass, I suspect its hard for prosecutors to think much of such people showing their gratitude by testifying for the government.
    Too me, I would rather have a defense based on selective prosecution than worry about the way you pitch the problem.

  13. Interesting Mark.. What reading have you done to come to this conclusion that the motive must have been advancement and the board and senior execs were kept in the dark? News articles perhaps? Press releases perhaps? Or did you go a step further and read the actual plea agreements swearing to all of the sordid details that are parroted back in a court of law. All of which are substantially based on prosecutor allegations you realize and so since they are in print, they must be true? Are you one of those, ‘if the jury convicted or if they swore to it, then he must be guilty’ type people? Therefore, since the jury acquitted Scrushy, he must have been innocent.. or are you one of the many who seem to want it both ways? Do you recall in your reading on this case that partners at a top nationally recognized law firm were also called co-conspirators by the government, and a top banking executive and heads of various specialized departments at Dynegy…In your assesment they were all “presumably” just trying to get to that next rung in the corporate or firm ladder so, hey, let’s commit a crime that could put us away for life and that we receive absolutely no personal compensation for and maybe my boss will promote me next year. Hmmm…. how dumb would they all have to be? How would you like to be held responsible for the decisions and advice of a wealth of various highly regarded experts on your team who are so sure of the answer but when accusations start flying, you are standing solo and all of those people are now unindicted co-conspirators who won’t testify but their work and their words can all be interpreted in the worst possible light and against you? By the way, did you pocket a few million to cover the costs of this complex defense-no? Using truth and common sense as your weapons against prosecutors’ immense power is a losing battle as the Olis family can tell you. Couldn’t ever happen to you? Don’t be so sure. Sorry Mark- I recognize that you seem to be sympathetic to Olis’ plight but you also believe this was a correctly conducted trial by the government and a proper conviction by the jury and you are just plain wrong in that regard.

  14. Tom,
    The comments of FJO are past me. Jones, a darling of the vast right wing conspiracy, makes it plain it wasn’t even close on the evidence. I realize that to the authoritarian personality the facts never matter, but so that the less interested reader is fully informed here are the facts.
    First, Olis had every opportunity to defend but forgot to testify.
    Second Judge Jones wrote, “The Governmentís proof indicated that Olis, Foster, and Sharkey intentionally concealed the parent level hedge and tear-ups from Jim Hecker, the Arthur Andersen partner responsible for signing off on Dynegyís SEC statements, in order to obtain the desired accounting treatment of the transaction.” She goes on to write, “Olis contends, almost perfunctorily, that the evidence does not support his conviction”
    Olis asserts that the evidence demonstrated that everyone working on Project Alpha, including Arthur Andersen accountants,knew that the bank owners of ABG Gas were fully hedged against the
    risk of loss from variable gas prices. Olisís boss Foster, testified, however, as a star prosecution witness and co-indictee, that he and Olis wrongly agreed to the tear-ups and the parent hedge and hid them from Arthur Andersen. Jim Hecker, an audit partner at Arthur Andersen, testified that he advised Dynegy against tear-ups, and Dynegy subsequently did not reveal this aspect of Project Alpha to him. A reasonable jury, basing its
    conclusion on the testimony of Foster and Hecker, together with the incriminating emails among Olis and his co-indictees and a wealth of other evidence, could easily have found Olis guilty beyond a reasonable doubt of all the charged crimes.

  15. John, my understanding of Olis’ main objection regarding his conviction is that exculpatory testimony from other witnesses involved in the transactions was effectively suppressed by the government through fingering the favorable witnesses toward Olis as targets of an ongoing criminal investigation, thereby prompting those witnesses to take the Fifth and decline to testify.
    Thus, my understanding — and I did not attend the trial so do not know this for a fact — was that the only incriminating testimony regarding Olis came from the two Dynegy employees who copped pleas. Hecker’s testimony apparently was not incriminating of Olis and that apparently was one of the primary reasons that Olis’ trial counsel decided not to put Olis on the stand. Turned out to be a bad decision.

  16. It would be comforting to be able to cite the facts set forth in the appellate decision as proof that Olis was actually guilty of a crime. But that misses the point of the criticisms of prosecutorial power, which is that prosecutors have the power to distort both the facts and the law considered at trial. If this is true, then the record on appeal would similarly be distorted.
    And for proof that this is true? Consider the Andersen and Olis appellate decisions, both of which corrected distortions of the law. Unfortunately, these same appellate courts, as well as the defendants’ appellate counsel, are stuck with the distortions of fact.

  17. John- Strangely, I agree with you in part- the part in your previous comment stating that the government’s “sin” is not charging everyone that they call co-conspirators and instead are selectively giving a free pass to people that you say are ungrateful and undeserving. I would bet that Olis would be home with his family right now if the government had charged all of his alleged co-conspirators and required everyone to tell their story to the jury and tell the “unpracticed” truth. Instead they manipulate and strategize and hide and threaten and why? Why not charge everyone and let everyone have equal access to discovery and let everyone have equal access to defense dollars (instead of strong-arming companies to cut their employees off from paid defense before they are even officially charged many times)? Why not have one big trial- it’s cost effective for government and time efficient for the courts- and let the truth come out in a confusing jumble as most truth is when out of multiple people’s mouths- and let the jury decide what is most believable? NO instead the accusations are broad and those charged are few and low level- the story from the government is funneled through key witnesses who all have an interest in claiming they didn’t know and to point to the defendant. If everyone accused as a co-conspirator were sitting there to defend their actions, they would have all likely gone home and prosecutors know it. That is where their strategy is so critical and their power is so dangerous to all of us. A prosecutor’s job should be about truth, not about winning at all costs but some of them don’t seem to accept that.
    In regard to the 5th circuit opinion, don’t overlook that Jones specifically states that her summary of the facts is not full and is described “in the light most favorable to the verdict”. Geez- Do you really think all of this at this level of a complex business conspiracy case is as straightforward as just tell the truth and the jury will believe you especially in the anti-business environment we are in post Enron collapse? Do you actually call the accused’s ability to stand up and say he is innocent a real chance at a full defense when prosecutors are playing these types of games with people’s lives? A murder conspiracy is easy- everyone gets it- everyone knows how it works. An alleged financial fraud of this proportion means attorneys, bankers, accountants, finance specialists, tax specialists, business structure specialists all working together, relying on each other to know their jobs. And if the government version were true, all had to agree and intend to suddenly become criminals by committing a massive fraud. Yet the government chooses to push on one mid level guy and makes him take the hit for all of those higher level specialists and co-conspirators and effectively threatens those co-conspirators to keep them from speaking up. WHY? However you choose to answer that question, I would not expect it to give you any comfort.

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