Law Enforcement And Judicial Systems Are Not Prepared To Deal With Serious Punishment With White-Collar Crime Cases

Despite the potential and visible impact associated with securities and investment fraud, a great disparity exists in punishment of white-collar and conventional crime offenders. This disparity exists at many levels, including likelihood of incarceration, and the length of the prison sentence imposed. In fact, due in part to mandatory drug-sentencing laws, the federal white-collar inmate population decreased in proportional terms, from 2.8% of the total in 1985 to 0.6% in 2001.

During 1999, in cases terminated in U.S. District Courts, nearly 60% of offenders convicted of a fraudulent offense were incarcerated. This compares to 65% for burglary and 70% for motor vehicle theft. When looking at their prison sentences, the white-collar offenders received an average sentence of 22 months, while the burglary and motor vehicle theft offenders received 31 and 27 months, respectively.

However, most of these white-collar criminal offenders were involved in smaller scale frauds and investment schemes, and are not reflective of the group of crimes that may net millions of dollars in profits at the expense of hundreds or thousands of innocent victims. And what do statistics regarding this group of offenders show us? For the year 2000, federal prosecutors indicated they charged 8,766 defendants with a white-collar crime.

Of the 4,000 individuals who went to prison, only 226 were involved in securities fraud cases. From 1992 to 2001, SEC officials felt that 609 of its civil cases warranted criminal charges and were referred to U.S. Attorneys for consideration. Of these SEC referrals, only 142 defendants of 525 disposed cases were found guilty.

Eighty-seven of these individuals went to prison. In terms of sentence length, research conducted in the early 90’s clearly demonstrates the disparity between offenders. Those incarcerated for losses in excess of $100,000 or more as a result of the savings and loan scandals received an average of 36.4 months in prison. During the same time period, those nonviolent federal offenders who committed burglary got 55.6 months, car theft received 38 months, and first-time drug dealing averaged 65 months. While some of this disparity may have been corrected by revisions to the federal sentencing policy for economic crimes, disparate sentencing can still be seen between ‘white-collar’ cases involving substantial monetary loss, and other crimes with similar financial impact.

These unfavorable trends in punishment persist in an era where there is a strong public sentiment against white-collar crime. Recent data collected by the National White Collar Crime Center demonstrates that Americans view this type of behavior as more costly and problematic than ‘traditional’ or ‘street’ crime. Furthermore, many feel the punishment does not fit the crime.

While most individuals feel white collar offenders should receive a tougher sentence, the consensus is that the criminal justice system is more likely to hand out lengthier prison terms for street crime offenders. These findings have been brought to light in recent months in the wake of the Enron and Andersen debacle, as the public continues to express frustration that more serious punishments are not meted out for corporate fraud and greed.

The conclusion we can safely draw from this body of information is that white-collar criminals, particularly those involved in large, complex frauds that impact hundreds, if not thousands of victims, do not receive punishment that is proportionate to the harm that they cause.

This is not to say that all such offenders walk away from their actions with no repercussions from the criminal justice system. In May, Donald Allyson Williams was sentenced to 15 years in a California state prison as a result of a boiler room operation that would contact elderly individuals and eventually convince them to invest in speculative, high-risk oil and gas partnerships, partnerships that were purportedly safe. The result? These elderly investors lost $7.2 million, while Williams spent the bulk of the money on a lavish lifestyle.

What makes this case unique is not the nature of the crime -- unfortunately we see this type of behavior on a regular basis from individual and corporate entities alike. The unusual aspect of this example is that we had a successful conviction at all. For every Donald Allyson who serves time for investment or securities fraud, there are dozens of others people similar crimes who will not spend a day in court, let alone a day in prison. It is not merely enough to examine disparities in white-collar punishment from a sentencing perspective.

It is also imperative that our enforcement agencies and our courts properly investigate, prosecute, and convict these individuals. Certainly sentences must deter criminal activity and protect the public. When weighing the low probability of conviction with the reality of a probationary period or minimal prison term, many white-collar offenders see these risks as an acceptable cost of doing business. We must change these attitudes and work toward sending a clear message to others who might be involved in, or who are planning, similar fraudulent activity.

Research has clearly demonstrated that the most effective deterrent to crime is not only to increase the severity of punishment, but to increase the certainty of punishment. This two-pronged approach to the punishment issue is where our focus must be.

The difficulties of investigating and prosecuting securities and investment frauds are a result of the increased globalization of fraud, the complexity of the cases, and the limited resources of regulators and law enforcement officials.

Prosecutors are often unwilling to bring forward economic crime cases that involve complex legal issues and extensive paper trails; following such trails becomes much more difficult because of the time that often elapses between criminal offending and discovery and subsequent investigation efforts. This is a problem inherent in many types of financial crime. For example, interviews with identity theft victims have found that several years may pass before the crime is discovered.

Because the statute of limitations is often based on the date of the criminal occurrence rather than date of discovery, many criminals never face a judge because of the overwhelming task of gathering extensive evidence. The gap between the criminal act and its discovery also allows offenders to effectively cover tracks and destroy information that may otherwise prove invaluable to the investigative efforts.