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Sentencing Mayhem in Dynegy Case

On Thursday, a Federal judge sentenced former Dynegy accountant Jamie Olis to 24 years in prison for mis-classifying a loan as recurring income. Prosecutors said that Olis and his colleagues knew their accounting was improper, and that they concocted the scheme to artificially inflate Dynegy's stock price.

The sentence was one of the harshest ever handed down for a white collar crime. Most observers agree it is far too harsh. Olis had no prior criminal record. Unlike more highly publicized defendants from Enron, WorldCom, Adelphia, or Tyco, he did not commit the fraud to line his own pockets. He also wasn't a CEO, or even a CFO; he was just a mid-level executive in the accounting department.

Now, I don't mean to minimize the seriousness of Olis's fraud. Olis knew that he was violating accounting rules, and he did it to mislead investors about Dynegy's true financial condition. But at 24 years, Olis's sentence was more serious than a rapist or a bank robber would face. And we're not exactly soft on rapes and robberies these days. Twenty-four years is probably, by a factor of ten, more excessive than necessary to meet the public's legitimate penological interest in deterring crime and meting out punishment.

As a point of comparison, Andrew Fastow, who presided over a virtual crime wave at Enron and lined his pockets with tens of millions of dollars, is expected to be sentenced to just ten years. In the 1980s, junk bond king Michael Milken served under two years for a long-running fraud that ran into the multi-billions. I wouldn't say that Milken got off easy. He was also fined something like $500 million and banned from his profession for life.

In contrast, Olis's crime seems almost petty. He caused a single $300 million loan to be wrongly booked as income. Yes, of course it was wrong, but Olis's one-time accounting trick was comparatively small beans. Is this isolated mistake, willful and fraudulent though it was, sufficient justification for locking up Olis, 38, until he is a senior citizen? (Under the Federal system, which has no parole, Olis must serve at least 85%, or 20 1/2 years, of his 24-year sentence.)

Olis ran afoul of several pernicious trends over the last several decades that have turned criminal sentences into a Draconian farce. First, he had the poor judgment to reject a plea bargain. (His two fellow-conspirators pleaded guilty to reduced charges, and are expected to be sentenced to under five years apiece.) Given that the jury took only about two hours to return a verdict against Olis, this was evidently not a close case. Olis's decision to take his chances has cost him dearly. Nowadays, the difference in the consequences between a plea bargain and a jury verdict are so vast that even those who sincerely believe they are innocent are routinely advised by their lawyers to plead guilty. The risk they face is just too great. One must question the competence of Olis's representation, in that his lawyer rested without calling a single witness.

Second, the Federal laws that govern white collar crime allow prosecutors to stack up the counts, so that one crime becomes half-a-dozen. Olis was convicted of conspiracy, securities fraud, mail fraud, and three counts of wire fraud. This is despite the fact that he, in fact, committed only one actual crime. Yet, Federal law allows prosecutors to charge Olis for planning the fraud (conspiracy), committing it (securities fraud), sending a letter (mail fraud), and using a phone, fax, or e-mail (wire fraud).

As the old saying goes about white collar crime, it's impossible to commit just one. Prosecutors routinely play this game, expecting to bully defendants into pleading the case down to just one count. But when they don't reach a deal, the defendant finds himself facing multiple charges for what is actually just one crime. Here again, Olis would have been better off committing a murder, which is a much more serious offense, but one that doesn't offer prosecutors the opportunity to pile on.

Third, Congress about twenty years ago revoked most of trial judges' traditional discretion to match sentences to offenders, transferring it instead to the U. S. Sentencing Commission, a blue-ribbon panel of bureaucrats that developed reams of mathematical sentencing formulas that judges were required to follow more-or-less robotically. Judges were allowed to deviate from the Commission's formulaic guidelines only in limited circumstances. Judicial discretion has become even more limited recently, thanks to further Congressional action that even Chief Justice William Rehnquist, not exactly known as a coddler of criminals, decried as overly harsh. Judges now routinely announce their displeasure with the sentences the Commission's formulas saddle them with, as did the judge in Olis's case.

And fourth, in the wake of the Enron scandal, the Sentencing Commission tweaked its formulas to make the sentences in cases like Olis's dependent on the amount of money investors lost. The guidelines changed after Olis committed his crime, but before he was charged. Under a Constitutional loophole that the Supreme Court has endorsed, this ex post facto change is perfectly legal, because Olis's sentence was still within the range Congress had prescribed, even though no one before Olis ever would have faced it.

Well, it turns out that the California Retirement System says it lost more than $100 million as a result of Olis's fraud, because it bought at the top and sold right after the story broke. This makes Olis a criminal kingpin under the Commission's guidelines, and elevates his sentence from the roughly 1-2 years he would have faced previously, to a range of 24-30 years. The judge sentenced him to the minimum the Commission's guidelines allowed.

There are all kinds of pernicious evils here. Olis should reasonably have been expected to know that his accounting was improper. But he could not have known how many shares a particular investor owned, at what price they had bought, or under what conditions they would sell. He cannot have known how his fraud, if it became known, would affect the stock price. In any event, the plunge in Dynegy stock clearly was influenced by many factors well outside of Olis's control.

A murderer knows that he has killed, and a robber knows that he has stolen. But the Sentencing Commission's guidelines force the judge to punish Olis for market factors that he cannot possibly have been expected to foresee.

A few years back, there was a spate of highly publicized car-jackings. Congress, eager to show that it was alive to the crisis, passed a law making it a Federal offense to commit a car-jacking across state lines. The law was utterly unnecessary. Car-jacking was already a serious crime in all fifty states. No one suggested that car-jacking was going unpunished, or under-punished. It was just a publicity stunt, to demonstrate to constituents that Congress was "doing something" about the problem. It was, as one writer put it, therapeutic legislation, that is, legislation that doesn't solve an actual problem, but makes people feel safer.

The Sentencing Commission's reaction to the Enron-era scandals was similarly therapeutic. It was meant to make the public "feel good" that "something was being done" about securities fraud. But it was utterly unnecessary, and probably an over-reaction in the heat of a highly charged political environment. Even before these revisions, Federal law treated securities fraud as a very serious offense, as it should.

The latest sentencing rules have managed to turn Olis into a very sympathetic and tragic felon. He should, of course, pay a just price for his crime. But this mid-level executive who poses no future threat to anyone will be a senior citizen before he gets out of prison. His infant daughter will not know her father before she is an adult.

If all of this isn't enough, Federal law allows the government to file criminal and civil charges simultaneously against the same defendant, for the same crime. Naturally, they did so against Olis. The civil case is punitive in all but name only, flagrantly violating the Constitution's double jeopardy clause. For some reason, the Supreme Court has fallen for this trick. It allows the government to go after Olis twice for the same offense, but because it's branded a civil case, the burden of proof is much lower.

So while Olis spends a majority of the rest of his life in prison, his legal troubles are far from over. To the extent his fraud produced ill-gotten gains, there's little he can do to enjoy them in the slammer. The brunt of the feds' pursuit will fall disproportionately on his innocent family. It's an outcome that would make you happy if you're the sort who rooted for Inspector Javert in Les Miserables.

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