As readers of this blog know, I believe that the recent prosecution and conviction of Martha Stewart is an injustice.

The result of that injustice is equally disturbing.

As American Enterprise Institute scholar John R. Lott notes in this article, Ms. Stewart’s sentencing reflects a system that is so badly out of whack that it penalizes wealthy people far more than poorer people who commit the same offense:

Before the 1987 [sentencing] guideline, judges could sentence two criminals who’d committed the same crime to vastly different sentences: Ms. Stewart could have been let off with simple probation or given more than 10 years. But judges were rarely that arbitrary. In fact, denying judges discretion has made penalties less, not more, equal.

The reason is simple: the justice system imposes many types of penalties on criminals, but the sentencing guidelines only make sure that the prison sentences are equal. Beyond prison, criminals face financial penalties that largely depend on the criminal’s wealth. In addition to fines and restitution, white-collar criminals face the loss of business or professional licenses and the ability to serve as an executive or director for a publicly traded company.

Using Ms. Stewart’s case as an example, Mr. Lott notes that those extra penalties for the wealthy are substantial, such as Ms. Stewart’s responsibility for the losses that investors in her company suffered as a result of her conviction:

I cannot say it better than Mr. Lott’s conclusion:

It is hardly ever fashionable to defend the wealthy–let alone wealthy criminals. Yet the gap in punishment is so enormous it is impossible to ignore. If fairness means that two people who commit the same crime should expect the same penalty, the current system is not merely unfair, it is unconscionable.

The decisions are coming down fast and furious from the various Circuits Courts of Appeal in regard to the recent Supreme Court Blakely decision, which was noted in these earlier posts. Professor Berman over at Sentencing Law and Policy is keeping up with it all. Check out the developments.
And, as usual, Professor Ribstein is insightful regarding the meaning of these developments on the sad case of Jamie Olis, in particular, and on politically-motivated Congressional initiatives to increase criminal penalties on business criminals, in general.

This NY Times article reports on the recent chapter 11 bankruptcy filing of the Archdiocese of Portland, which is the first archdiocese in the nation to file for bankruptcy protection because of the large sums that it owes as a result of sexual-abuse claims.
The bankruptcy filing raises an interesting legal issue: For purposes of federal bankruptcy law, are the assets of a Roman Catholic parish assets of the diocese or of the individual parishes? If all parish assets are counted as assets of the diocese, then the diocese’s assets would be valued at about half a billion, more than enough to pay the $25 million or so in pending sexual abuse claims. On the other hand, if the diocese’s assets do not include those of the individual parishes, then the diocese’s bankrupcy estate would be valued at a much more modest $50 million, which would make full payment of sexual abuse claims more problematic. The argument that the assets belong to parishes is based on church law that is much older than United States law. However, the only actual corporate entity is the diocese, which the bishop manages and represents.
University of San Diego Law Professor Thomas Smith — who runs a very good blawg called The Right Coast — observes that the diocese’s bankruptcy filing is the result of the “political economy of child abuse:”

This all relates to what you might call the political economy of child abuse. A principal reason why the Catholic Church is singled out as a hotbed of child abuse, when there is no good reason to think priests abuse children any more frequently than Protestant pastors, Mormon bishops or Communist summer camp commisars, is that the organization of the Church makes it a much more desirable target for plaintiffs’ lawyers. If each parish were a separate corporation, the course of this scandal would have run very differently. Mysteriously, shallow pockets are must less prone to the evils policed by lawyers.

My sense is that the bankruptcy courts will look for guidance from prior non-bankruptcy liquidations of parishes in addressing the legal issue that Professor Smith raises.

This LA Times article is the best analysis that I have seen to date regarding what occurred in the sad case of former mid-level Dynegy accountant Jamie Olis that resulted in the absurd 24 year sentence for Mr. Olis.
In November, 2003, a Houston jury found Mr. Olis guilty of helping cook the books at Dynegy, a Houston-based pipeline company that tracked Enron’s course into online power trading before that entire industry went bust as a result of Enron’s collapse. Mr. Olis was convicted of a battery of charges — conspiracy, securities fraud, mail fraud and wire fraud — related to an accounting scheme called Project Alpha, which attempted to mask $300 million of debt as revenue.
U.S. District Judge Sim Lake — who is presently handling the criminal case against former Enron chief honchos Kenneth Lay, Jeffrey Skilling and Richard Causey — handled Mr. Olis’ sentencing. Under the sentencing guidelines, several factors — including the skills required to perpetrate an accounting sleight-of-hand, the number of victims and a defendant’s criminal history — contribute to the length of a prison term for a white-collar criminal. However, the most significant factor in determining a sentence in a corporate fraud case is the monetary loss and — as all business litigators know — proving financial loss is far from an exact science.
Indeed, even the government expert on financial loss upon whom Judge Lake primarily relied acknowledges that he did not testify that Project Alpha caused the amount of monetary loss that Judge Lake used in sentencing Mr. Olis:

At Olis’ sentencing, Lake put the loss at a minimum of $105 million. He based that finding on his view of losses suffered by the University of California, a major Dynegy shareholder and lead plaintiff in a class-action lawsuit against the company.
During the trial, Jeffrey Heil, a former university investment official, testified that the UC system had lost a little more than $100 million on its Dynegy investment.
But in a recent interview, Heil made clear that he was not sure the punishment meted out to Olis was fair, considering the much lighter sentences given to senior corporate officers who have cut plea agreements in other cases.
“This doesn’t make a lot of sense,” said Heil, who served as UC’s co-head of investments until January 2003.
Yet Heil, who now works for the Doris Duke Charitable Foundation in New York, acknowledged in the interview that he couldn’t place a dollar value on the UC losses tied specifically to Project Alpha.
It was not a number he was asked to single out at trial.
“To be truthful,” he said, “I wouldn’t have known the figure.”
Notably, Heil never testified that Project Alpha cost the university system more than $100 million. Rather, he told the court that UC lost that amount during its overall period of owning Dynegy stock in 2001 and 2002, a time when the shares dropped for any number of reasons: the market-rocking Sept. 11, 2001, terrorist attacks; Enron’s spectacular collapse, which dragged down the whole energy sector; Dynegy’s ill-fated attempt to acquire Enron; and the California energy crisis, which raised fears of a broad regulatory clampdown.

Consistent with the Justice Department’s current penchant for criminalizing business, the Olis prosecutors actually attempted to prove that public disclosure of Project Alpha caused a much greater loss:

The government urged Lake to figure investors’ losses at more than $500 million — and perhaps twice that amount — based on the hit taken by all shareholders, not just the university. Prosecutors submitted a consultant study that considered the entire decline in Dynegy’s market value and attempted to screen out factors unrelated to Project Alpha.

The defense countered that it was impossible to accurately separate the losses tied to the fraud, given the array of pressures bearing down on Dynegy.
In the end, Lake sought to simplify the matter by focusing on UC’s investment alone.

Meanwhile, in the wake of the Supreme Court’s recent Blakely decision, Houston-based criminal defense lawyer David Gerger has filed a motion asking for his client to be released pending appeal because, lacking the jury’s endorsement of the $100-million-plus loss that the Blakely decision appears to require, Olis’ sentence should be no longer than six months.