White Collar Crime Alert

www.BlankRome.com April 2004 No. 2

Judges Increasingly Impose Harsh Prison Sentences for White Collar Offenses and Reject Guilty Plea Agreements Viewed as Too Lenient

Three recent white collar A federal judge in Pennsylvania white collar financial crimes criminal cases seem to offer proof rejected a guilty plea agreed to by involving public companies than positive of the federal judiciary’s the former chief executive officer in the past. toughening stand on financial of Rite Aid Corporation. In that Since the inception of the crimes involving public companies. case, the defendant pleaded guilty federal Sentencing Guidelines in Following an accounting to two conspiracy counts related 1987, the federal judiciary has fraud trial in which the jury to accounting fraud and agreed to struggled with their impact on a returned a guilty verdict, a federal serve a maximum of eight years in sentencing court’s discretion to judge in sentenced a prison. In rejecting the plea agree- tailor appropriate punishment. former , Inc. executive to ment, United States District Typically, a sentencing court a term of imprisonment in excess Court Judge Sylvia Rambo noted chafed at the rigidity of the guide- of 24 years. That sentence far sur- that sentencing guidelines called lines tying its hands and requiring passed prison terms imposed for a sentence of between nine a harsher sentence perhaps than upon other executives who had and ten years, and that an eight- the court would otherwise pleaded guilty to similar offenses. year sentence was therefore insuf- impose. Prosecutors, on the other A federal judge in Houston ficient. In light of that conclusion, hand, benefited by obtaining rejected an agreed-upon sentence the defendant would be permitted tougher sentences regardless of a that was part of a plea agreement to withdraw his guilty plea and court’s view that a shorter period struck between the government proceed to trial (where he could of incarceration is appropriate. and Lea Fastow, wife of ex- face a longer sentence if convict- Unless the prosecutor moved for Corporation chief financial officer ed), or enter into a new guilty plea a downward departure, the court Andrew Fastow. The plea agree- agreement providing for a longer and the defendant were stuck with ment called for a ten-month sentence. the offense level calculation. sentence, which was within These three cases illustrate the Historically, the Sentencing applicable sentencing guidelines increasing tension among the Guidelines placed a premium on range. Rather than accept what- sentencing court, federal prosecu- early cooperation and a penalty ever sentence the judge deemed tors, and defense counsel in white for going to trial. Prosecutors appropriate, Fastow withdrew her collar financial criminal cases. relished the “carrot and the stick” guilty plea and now faces trial on Under new and enhanced of the Sentencing Guidelines and charges of conspiracy and filing sentencing guidelines, federal used them to their full advantage. false tax returns. judges are imposing longer sen- At least until now. tences on defendants convicted of

© 2004, BLANK ROME LLP. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome LLP. The information contained herein is abridged from legislation, court decisions and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Blank Rome LLP • One Logan Square • Philadelphia, PA 19103 WHITE COLLAR CRIME ALERT

ostensibly to save the cost of a impose the recommended protracted trial. It is also possible sentence. If the Lea Fastow and that there were problems in the Rite Aid pleas become the rule case that persuaded the Govern- rather than the exception, then ment to take the “bird-in-hand.” defense counsel will have com- Regardless of the reasons, both pany in the person of the prose- prosecutors took the extraordi- cutor in facing uncertainty before nary path of entering a binding the court. What had been virtually plea agreement with high profile the exclusive province of the pros- defendants in high profile cases. ecutor under the Sentencing The Dynegy sentence is not a Why are these recent develop- Guidelines is being reclaimed by true departure from expected ments significant? Because the the courts and has implications practice even though the lengthy sentencing courts said “No!” not just for defendants, but for term of incarceration is unprece- What do the Lea Fastow and Rite the prosecutor, as well. „ dented. Long before the Sen- Aid cases presage? For defendants tencing Guidelines were enacted, in these types of cases, the stakes sentencing judges “rewarded” have been increased exponen- guilty pleas and penalized defen- tially. It is rarer than rare that a The purpose of this Alert is to identify selected dants electing to go to trial. The prosecutor will agree to a binding developments that may be of interest to read- Sentencing Guidelines simply “C” plea, as they are known. And ers. The information contained herein is codified this practice. In Dynegy, it is just as rare for a sentencing abridged and summarized from various sources, the accuracy and completeness of the sentencing judge had an unre- court not to go along with the prosecutor’s decision. In the past, which cannot be assured. The Alert should not pentant defendant convicted of be construed as legal advice or opinion, and is when defense counsel managed to multiple counts of fraud involv- not a substitute for the advice of counsel. If ing millions of dollars and injury persuade the prosecutor to recom- you have any questions, please contact Jane F. to the investing public. mend a particular sentence under Barrett ([email protected]) at (202) The Rite Aid and Lea Fastow the non-binding provision of Rule 944-3000, Alan M. Lieberman cases are significant departures. In 11 (known as a “B” plea), there ([email protected]) at (212) 885- both of those cases the prosecutor was some degree of comfort 5335, or Matthew D. Lee (lee- [email protected]) at (215) 569-5352. struck a plea bargain under Federal knowing that the court would Rule of Criminal Procedure 11(c)(1)(C), which means that the prosecutor reached an agreement Office Locations 1620 Pond Road ...... Allentown, PA 18104 ...... (610) 706-4300 with defense counsel as to the sen- 250 W. Pratt Street ...... Baltimore, MD 21201 ...... (410) 659-3939 tence to be imposed which was 1200 N. Federal Highway ...... Boca Raton, FL 33432 ...... (561) 417-8100 binding on the court. If the court 210 Lake Drive East ...... Cherry Hill, NJ 08002 ...... (856) 779-3600 determined not to impose the 201 East Fifth Street ...... Cincinnati, OH 45202 ...... (513) 362-8700 agreed-upon sentence, the defen- 1400 N. Providence Road ...... Media, PA 19063 ...... (610) 891-7800 dant would have an absolute right 405 Lexington Avenue ...... New York, NY 10174-0208 ...... (212) 885-5000 to withdraw his or her plea. One Logan Square ...... Philadelphia, PA 19103-6998 ...... (215) 569-5500 The prosecutor in the Lea 200 W. State Street ...... Trenton, NJ 08608 ...... (609) 278-2320 Fastow case struck the binding 600 New Hampshire Avenue, N.W...... Washington, DC 20037 ...... (202) 772-5800 1201 Market Street ...... Wilmington, DE 19801 ...... (302) 425-6400 agreement for ten months as part of the deal for her husband’s guilty plea and cooperation. The To be added to or removed from any or all Blank Rome newsletters or similar mailings, please call 215-988- Rite Aid prosecutor entered the 6933 or use the online form at http://www.blankrome.com/publications/newslogin.asp. binding agreement in that case

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