You be the judge: Has the Eighth Circuit gone nuts?

If a district judge in the Eighth Circuit varied downward to probation, when the Guideline range in a conspiracy to commit mail and wire fraud, tax evasion, and conspiracy to commit tax fraud case was 135 to 168 months in prison, would you think the Eighth Circuit had gone nuts if the Court affirmed that huge deviation? See Douglas Berman, Based on additional 3553(a) justifications, Eighth Circuit affirms “profound downward variance to a sentence of probation” in multi-million dollar fraud (August 29, 2014).

Professor Berman provides this gloss:

Especially in the years right after Booker, the Eighth Circuit garnered a (seemingly well-deserved) reputation as one of the circuits most likely to reverse below-guideline sentences as too lenient.  But after a number of those reversals were thereafter reversed by the Supreme Court in cases like Gall and Pepper, it seemed the Eighth Circuit became somewhat more willing to uphold below-guideline sentences, and today in US v. Cole, No. 11-1232 (8th Cir. Aug. 29, 2014) (available here), a unanimous panel has upheld a probation sentence in a high-loss, white-collar case that in the past I would expect to see reversed based on the government’s appeal.

. . . .

This ruling strikes me a one-in-a-million outcome: I cannot recall another case (out of the nearly million cases that have been sentenced in the federal system since Booker) in which the defendant faced a guideline range of 11 to 14 years and received a sentence of probation. This outcome seems all that much more remarkable given that this huge (and now declared reasonable) variance was in a a case in which the defendant did not plead guilty or provide substantial assistance to the government in any way and involved “one of the largest corporate frauds in Minnesota history and was also a significant tax fraud.”

Because this Cole case seems remarkable in many ways, and because it likely will be (and should be) cited by nearly every white-collar offender facing federal sentencing in the months and years ahead, it would not shock me if the Justice Department seriously considers pursuing an appeal up to the Supreme Court.

Here’s my tentative thoughts: (1) after the Circuit initially remanded for further elaboration, Chief Judge Davis, the sentencing judge, must have really covered his bases when discussing the section 3553(a) factors, although Court of Appeals provides little in the way of specifics regarding what the Court thought was persuasive; (2) the fact that Judge Murphy, former Chair of the Sentencing Commission, sat on the panel affirming the variance is extremely important–her stamp approval carries much weight; and (3) the opinion written by Judge Sheperd affirming the variance is short on detail and the reasoning consists of little more than a few conclusory tidbits.  The brevity and weakness of the opinion could, and probably should, consign this case to the “one off” dustbin.

For criminal practitioners, particularly in the Eight Circuit, I am interested in your take.  Has the Circuit gone nuts?


30 responses

  1. almost 24 hours and 1 comment? I thank you judge because of all the crickets in here my family and i will be feasting this morning,but i can’t help but wonder where is the outrage? the fist shaking at the sky over the injustice of living under the whims of judges,the tidal wave of bile crashing onto the rocks of the defendants “race” as the cause of this sentence,the sensual gall unbuttoning the affluenza that imbibed the corpus of Best Buy? where? this post had an old amphibian thinking those thoughts along with these three things i’ll share on my way back to the knot:
    1. I wanted to see what you’d do. And you didn’t disappoint…you let five people die. Then, you let Dent take your place. Even to a guy like me, that’s cold..
    2.With a time-rusted compass blade
    Alladin and his lamp
    Sits with Utopian hermit monks
    Side saddle on the Golden Calf
    And on their promises of paradise
    You will not hear a laugh
    All except inside the Gates of Eden.

    3.Hello darkness, my old friend,
    I’ve come to talk with you again,
    Because a vision softly creeping,
    Left its seeds while I was sleeping,
    And the vision that was planted in my brain
    Still remains
    Within the sound of silence.

    In restless dreams I walked alone
    Narrow streets of cobblestone,
    ‘Neath the halo of a street lamp,
    I turned my collar to the cold and damp
    When my eyes were stabbed by the flash of a neon light
    That split the night
    And touched the sound of silence.

    And in the naked light I saw
    Ten thousand people, maybe more.
    People talking without speaking,
    People hearing without listening,
    People writing songs that voices never share
    And no one dared
    Disturb the sound of silence.

    “Fools,” said I, “You do not know –
    Silence like a cancer grows.
    Hear my words that I might teach you.
    Take my arms that I might reach you.”
    But my words like silent raindrops fell
    And echoed in the wells of silence

    And the people bowed and prayed
    To the neon god they made.
    And the sign flashed out its warning
    In the words that it was forming.
    And the sign said, The words of the prophets are written on the subway walls
    And tenement halls
    And whispered in the sound of silence.

  2. Many judges, including some for whom I clerked, have a blind spot for white collar crime. They gaze at the defendant and may see someone from their own (or equivalent) social class and circles, someone who may have attended similar colleges, who may belong to country clubs and golf, and who may be a “respected” member of the church and donated to the right charities.

    The judge usually sees someone wearing business clothes (not an orange jumpsuit). Someone who likely remained free pending trial and sentencing. Someone without prison tattoos or teeth ravaged by methamphetamines. Alongside the defendant may be a respected (high-priced) attorney the judge may have known for years.

    Typically, the white collar defendant presents with a supportive family the judge can relate to. The judge often is nundated with character references, including some from prominent people. And in the case before the 8th Circuit, the defendant was female (which matters to some judges).

    What the judge does not see is someone who triggers a visceral reaction, such as a bank robber, a street criminal, burglar, sex offender, or one who manufactures or sells certain drugs. The kinds of crimes, and offenders, that the judge can envision his or her family and friends being a victim of.

    In white collar crimes, the victim often is a bank or corporation or the government or some other institution, and no sobbing victims take the stand. (There are exceptions of course.)

    The judge typically is told the defendant has no significant prior criminal record. (There may have been multiple prior white collar crimes that weren’t prosecuted, and the judge is unaware of).

    A defendant who hands a note to a bank teller, and gets five hundred dollars, goes to prison, usually for years. A defendant who hands a different document to a bank, and steals five million or even fifty million dollars, may wind up with probation or a light sentence.

    The guidelines have been made harsher, and the amount of intended loss figure can lead to a very high range (though the white collar criminal defense bar and others are actively trying to undo that). Still one generally is better off stealing a very large sum than a small one.

  3. I have been a trial attorney for the past twenty four and a half years. All my practice has been in federal court. My career has been devoted exclusively to helping indigent individuals. The first eight years sucked since the judges in a certain district never made any type of departures other then the Government’s 5K1.1 motion. Those were the days when the circuits would over turn downward departures and affirmed upward departures. I then moved to South Texas and my life changed. The judges there made departures every day. For the first time in my life I felt like a real lawyer. I have been blessed for the past 17 years to practice before judges who were not afraid to make justice and not give me the “oh, my hands are tied because this is what the USSG Commission wants.” As a matter of fact, the main judge I practice before is a former Chair of the USSG. His taught me that compassion is a strength, not a weakness. I am glad the Eight Circuit is backing its judges.

  4. I’ve been an attorney for 12 years, most of that doing indigent criminal defense at the state district court level. I’ve never tried a case in Federal court. That being said, the sentence of probation for proportionately so great a crime is outrageous. Things like this just heap fuel on to the fire of distrust and alienation that most people have for government at all levels – and the general sense of powerlessness they feel. And I get to hear a lot of it, because poor people get treated badly by the system whenever they come into contact with it – which is more often than the country club set.

    You can see the result of an unfair and abusive system of justice in the recent events in Ferguson, Missouri, where the most recent year that records were kept, slightly over 12,000 traffic cases were heard in 108 hours of court time – 36 sessions of 3 hours each. That’s a little over 30 seconds per case on the average – and those were the cases where the defendant appeared in court, nowhere near the number which were filed. What impression of “rule of law” or “due process” would such a system produce in the person unfortunate enough to be haled before such a tribunal?

    And then on the other side of the coin, a person who commits a multi-million dollar fraud essentially goes free? The people who get the warrants in Ferguson – contempt for failure to pay, 3 days or more of jail for failure to appear – are treated far more harshly than this wealthy defendant, but their crime, if any, was far, far less in the damage caused to society. Every one of those millions of dollars stolen by the wealthy fraud artist came out of someone’s pocket, and if they’re taxpayer dollars, most likely out of the pockets of middle and working class people who aren’t really participating in any sort of economic recovery.

    Governments only can survive as long as they receive the consent and cooperation of the governed, and when the governed lose faith in the government acting according to the principles of the “rule of law” and “equal justice under law”, there will eventually be a tipping point. This ruling is unjust and should be overturned.

  5. A month ago, Sentencing Law and Policy noted a Sixth Circuit case, US v. Musgrave, No. 13-3872 (6th Cir. July 31, 2014) vacating and remanding for resentencing, as substantively unreasonable, downward departures resulting in a one-day prison sentence for a series of white-collar frauds. In that case, the jury found Paul Musgrave guilty of one count of conspiracy to commit wire and bank fraud and to make false statements to a financial institution; two counts of wire fraud; and one count of bank fraud.

    It would appear, from Prof. Berman ‘s synopsis of the Cole case (the part you didn’t quote above, Judge), that the defendant getting probation was a collateral participant – a minor player – in the massive fraud/conspiracy against Best Buy. Her husband, OTOH, got 180 months for his part in the scheme. So, it would appear that two things obtained.

    One, the 8th Circuit took into account the individual circumstances and participations of the respective defendants and allocated sentences – with solid factual bases for each – according to the respective levels of participation (and therefore, relative guilt) of each defendant. In other words, it delivered individual justice as appropriate to each defendant.

    Two, it recognized the concerns of the bar, as noted in this post over at Sentencing Law: synopsized in this paragraph:

    A 2013 proposal from an American Bar Association task force would do exactly that, encouraging judges to place less emphasis on how much money was lost and more on a defendant’s culpability. Under the proposal, judges would more scrupulously weigh less-quantifiable factors, including motive, the scheme’s duration and sophistication, and whether the defendant actually stole money or merely intended to. The current structure, lawyers say, means bit players in a large fraud risk getting socked with harsh sentences despite playing a minimal role….

    It is in conspiracy cases that our justice system has failed most spectacularly, imposing the same massive sentence on both the main actor(s) in the scheme and on the bit players. Or, worse, giving cooperation credit – and lesser sentences – to the main players because they, as real criminals, are in far better positions to give effective cooperation and get credit for it, compared to the bit player dragged in. It’s the old “girlfriend” problem, where she picks up the phone, tells the boyfriend “it’s that damned drug-dealing buddy of yours” and hands it to the boyfriend, then winds up exposed to the same decades of incarceration as the boyfriend and the damned drug-dealing buddy because, having facilitated boyfriend and buddy making their connection, she’s now a part of the conspiracy and therefore liable for all of it. Then the bit player winds up doing decades, still in prison when the main actors have long since gotten out.

    In this instance, it would appear the 8th Circuit heeded all this and delivered individualized justice. I suspect we’d have to read the entire records of all the defendants’ cases to be sure, but that’s what I think. It might look bad and surely will make a great negative ad for some tough-on-crime-and-wacko-judges-letting-criminals-free-to-prey-again politician, but headlines and sound bites are often misleading, sometimes deliberately so.

  6. Dear Scribe,

    Nicely put.

    My primary problem with the opinion is that it is short on detail. If, as Professor Berman suggests, the Eighth Circuit opinion will be cited as precedent until the cows come home, lots of specifics would be have been loads of help for federal sentencing judges who must try to apply it in a variety of diverse fact patterns.

    Thanks for your thoughtful engagement. All the best.


  7. My question is this:

    Why do we sentence white collar offenders to prison in the first place (this can apply equally to other offenders but I’ll focus on the fraudsters in this post)? And I have not seen a good enough justification so far.

    The original father of the sentencing guidelines would turn over in his grave if he saw what takes place today. Sentences of 15, 20, 30, 112, 150, 840 years etc are common place and today there is no parole, which means defendants will actually serve at least 85% of the sentence imposed.

    The loss tables in 2B1.1 often produce a distorted picture of what actually took place. Ponzi schemes, bank fraud schemes, etc. certainly do lead to substantial losses, but the loss figure is usually not what the defendant personally profited from the offense. It is not the same as robbing a bank of $10,000 and driving away in a getaway car.

    And, more often than not, fraud cases have relevant and acquitted conduct thrown in to boost the figures. A recent example is the case of Jess Litvak sentenced by Judge Janet Hall in the District of Connecticut. The indictment charged a handful of instances where he cheated his counter-parties, yet in the PSR the Government alleged 76 uncharged instances of the same conduct.

    So, turning to 3553(a)(1) & (2)

    (1) the nature and circumstances of the offense and the history and characteristics of the defendant;

    (2) the need for the sentence imposed—

    (A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;

    In my view, just punishment needs to focus less on retribution and punitiveness and more on restitution (I’ll write more on that below).

    It was not that long ago that white collar offenses in the US almost always attracted a sentence of less than 10 years. This was considered enough to provide just punishment for the offense and promote respect for the law. For most white collar offenders who have education, family, etc., key indicators that lower the chance of recidivism, a criminal conviction of any sort is a wake up call. It rules out most jobs, is a permanent stain on their lives, and will never ever go away (there are countless stories on this point and I am not going to list them here). Why is a criminal conviction and the attendant shaming and humiliation not enough? Moreover, is probation, itself, not a restriction on a person’s liberty?

    Yet, thanks to politicization of numerous corporate scandals, white collar offenders these days face years, decades to potentially centuries in prison in the US.

    My question is this: is this new approach better serving the aims of 3553(a)? No. And I think it is far from rational, it is irrational.

    In Europe, life sentences (or the equivalent of life sentences) where there was no physical injury or risk of physical injury are unheard of. And still the justice systems operate just fine. Why is the US so systematically more punitive? I have read some research by Prof. Richard Fraser, amongst others, and they attribute it, in part at least, to the media and the politicization of the criminal justice process.

    Jerome Kerviel, who cost Societe General, 4.9 billions of euros in losses was sentenced to 3 years in prison with two suspended.

    Kweku Adoboli, who cost UBS over $2 billion was sentenced to 7 years in prison (of which he has to serve 50%).

    As it stands, restitution orders, I believe, are also excessive. Since the MVRA, there is no longer any assessment of whether a defendant can pay. A cursory research of the outstanding restitution orders revealed that a majority are unpaid because the defendants lack any means to pay them. Again, defendants who have criminal convictions (and who are usually older) are not going to stage a come around or a come back. There is a way to address this, but it might sound to liberal, to European! In many European countries, after a certain amount of time has passed, they are considered automatically rehabilitated and can’t be denied a job (except in positions of trust etc such as lawyers, banks etc). There is also a proposal on the table in the US, the Sens. Paul and Booker inspired “REDEEM Act.”

    I think any attempt to reform the fraud/loss guidelines vis-a-vis 3553(a) has to also look at how restitution orders are administered and where to draw the line. At present, most defendants who lead a company into bankruptcy, their only hope is their actions can be undone through the bankruptcy court process (trustee initiates adversary actions to recover the misappropriated funds), yet so much is lost and dissipated (look at the Lehman or Enron bankruptcy) through the process that only pennies are left for the victims.

    I just would not be surprised if I saw a white collar defendant who stole millions having to steal from a Walmart one day just to get by and then hearing a judge say at sentencing “why didnt you get a job?”

    We have had almost 3 decades of trying this tough on crime, no the stain must stay, it is all your fault…surely, there has to be some other way.

    (B) to afford adequate deterrence to criminal conduct;

    The Sentencing Commission’s own research (the Fifteen Year Report) has shown that long prison sentences have very little correlation with deterrence. The moment a criminal conviction enters, there is ample deterrence. A hedge fund manager with a criminal conviction is not going to raise new funds. A bank fraudster is not going to be able to lie on a new application to get a new $1 million house, because, most probably, his credit will be ruined for at least 7 years from the last offense. A credit card fraudster, well, that maybe the exception because identity theft is easy and can be easily repeated.

    Judges often fault the defendant — you were greedy, you knew no limits, you have no moral compass or you should have known better. In imposing the sentence, the Judge even may make comments to the effect that the sentence will “teach you not to do it again.” Okay. But, shouldn’t judges know better now too? After almost 30 years of guideline sentencing, rigidly passing out long sentences for white collar crime, costing the tax payer billions of dollars, this rise in sentence severity has done nothing to deter other would be white collar criminals. So, shouldn’t judges learn too? In the days before the guidelines, the question was more centered on whether a white collar criminal would go to jail, if at all, or if he would get probation. Today, the sentences can range from 1-5 years upwards of 845 (see United States v. Sholam Weiss, sentenced to 845 years, United States v. R. Allen Stanford, sentenced to 112 years, and, of course, the all time favorite, United States v. Bernard Maddoff, sentenced to 150 years). In short, I usually chuckle when I hear a judge say “x amount of years should deter other white collar offenders.”

    It will do no such thing other than ruin any chances of rehabilitation for such a defendant, ruin his family (and if he has any kids, it may result in problems that are left over for society to deal with, as well as render any restitution order symbolic. Prison doesn’t pay its inhabitants very much; but it does cost the tax payer at least $150 a day to keep them in there!

    There is no empirical evidence to show that sentence severity correlates to deterrence. Yet, after 30 years judges keep repeating the same mantra. This is just icing on the cake for me, aside from the usual Kantian objection to deterrence theory.

    (C) to protect the public from further crimes of the defendant;

    Let’s use an extreme example. Imagine if the evil and terrible Bernie Maddoff was released from prison tomorrow. Is there any chance he will get to start another fraudulent hedge fund? Would any investor give him a dime? Chances are as close to 0 as it can get.

    Most white collar offenders are barred from their previous profession. They cant repeat the past because hedge funds banks etc, those circles require a clean squeaky image and name. What further crimes will they commit? Sure, they may get a DUI or some thing else, but a repeat of the past is very low on the scale of probabilities.

    Again, I dont think this is so much an issue. I cant see a hedge fund manager (Bernie Maddoff), a former CEO (Jeff Skilling, Bernie Ebbers), former CFO (Andy Fastow), an insider trader (there are too many names to pick from), or the average mortgage defendant (you know, lied on the application by inflating his/her income) repeating their past. They will be shunned from those circles for life.

    (D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner;

    Most white collar defendants have education/vocational training. As for medical care, its on the tax payer and just imagine if such defendants were sentenced to probation, they could figure out themselves.

    I might be sounding too easy on white collar defendants but they are in the least likely to re-offend category and the focus is just money – money can be replaced. Decades in prison where some defendants can’t even attend the funerals of their son (Jeff Skilling being a ready example), lose their entire lives (they get out at 80 and still have a multi-million dollar restitution order) seems absurd. It didnt use to be this way. Just go back to the 1980s, another decade that was not short on corporate and white collar crime. Why are judges and prosecutors blind to the fact that the system, as it treats white collar crime, doesn’t work? Why keep repeating the same response to white collar crime when its not working?

    As for the ABA proposal. I have read it but I think it really needs to be firmed up. In the Jess Litvak case in Connecticut, the defense attorneys argued in their very well written sentencing memo that under the ABA guidelines, as a first time offender, he should receive only 14 months in prison because the offense was not “serious.”

    The Government countered that it was serious and requested a sentence (which they concocted by applying every enhancement in the ABA proposal), which was nearly identical to the proposed Guideline sentence (somewhere between 10-12 years). The district judge, Hon. Janet C. Hall, gave him 2 years, which was very reasonable.

    Any thoughts from the judge or any practicing attorneys would be very appreciated….

  8. Anonymous,

    Thanks for the link. I like and respect Judge Davis. But, if the news article is accurate, I respectfully suggest that his honor treated the government poorly at oral argument when the case came back on remand. The article states:

    “[H]e saved his harshest words for the federal prosecutors who, in a unconventional move for the government, appealed Cole’s sentence by Davis to the Eighth U.S. Circuit Court of Appeals, arguing that the punishment was too lenient. The U.S. attorney’s office in Minneapolis had sought at least 12 years in prison for Abby Cole.

    ‘The court was not asleep during the course of the trial, was I?’ Davis asked in a string of sarcastic questions to Assistant U.S. Attorney William Otteson, who helped argue the case based on investigations by Best Buy, the FBI, IRS and U.S. Postal Inspection Service.

    Looking at Cole, Davis said, ‘It’s good someone can be rehabilitated, isn’t it?’”


    “Otteson, seeking to provide the government’s response to Davis, was quickly shot down.

    ‘If you don’t like what I said today, you take it up to the Eighth Circuit and tell them,’ Davis said. ‘I don’t want to hear it.”

    I am sure that from the insider’s perspective, it was an amusing spectator sport, so long as you were not the poor SOB who was on the receiving end of the judge’s remarks. Now, I have no place to talk, given some of the stuff I have posted in this blog and otherwise, so I am happy to cut the good Judge Davis a break. But, this is a stark reminder for me that beating up on lawyers is cheap and unproductive sport.

    All the best.


  9. Judge,

    You could not be more right. Facts matter. Facts matter a lot in white collar cases where skirting over the intricacies and details doesn’t leave the public with a true sense of what happened. Here are some of the details left out of the 8th Circuit’s second opinion that might of interest to your readers (from the government’s briefs to the Eighth Circuit, citations omitted) I acknowledge this recitation is biased in favor of the government, but the court made no effort to address any of these facts or why the district court did not abuse its discretion by ignoring them. My apologies for the lengthy post. At some point I will raise my serious concerns with the district court’s rationale on remand (not the least of which he seemed to excuse her behavior because the victim Best Buy was an easy target that employed unscrupulous individuals – an odd reason to say the least to vary downward).

    Some facts about Defendant Abby Cole:

    In 1989, Abby Cole founded Chip Factory, a computer parts distributor located in Deerfield, Illinois. She was the owner, chief executive officer, and president of the company until it shut down in late 2007. Cole started the company in her basement and initially ran all aspects of the business, from purchasing and selling to bookkeeping and customer service. Before and after 1998, Cole’s company sometimes had over $10,000,000 of annual sales. By her own attorney’s assessment, Cole “is a smart woman and she’s a good business woman.”

    With respect to the fraud: Best Buy’s PPN system had a significant flaw that allowed a winning bidder
    to re-enter the system and increase its winning bid price. Cole and her husband were aware of this glitch and took advantage of it from the beginning of Chip Factory’s participation in the PPN. They were assisted by several Chip Factory employees who were aware of the fraud, including Ben Ripstein, Douglas Jantz, and Joseph Kase, and by a Best Buy insider.

    Abby Cole was responsible for ordering the generic parts to fill Best Buy orders, which made up the overwhelming majority of the variances. On a daily basis, Ripstein supplied Cole with a list of Best Buy generic parts orders along with the bid amounts, and she obtained the parts. The bid amounts were frequently far below the market price Chip Factory paid its suppliers. Accordingly, it was obvious Cole knew about the Best Buy fraud and facilitated it. As the District Court concluded: “Abby Cole ordered generic parts to be sold to Best Buy; therefore, she saw the low-ball bid prices and ordered the parts at substantially higher prices. Also, because she monitored Ripstein’s commissions [which were based on the inflated invoice amounts], she saw the inflated invoice prices.”

    [part of the scheme involved bribing a Best Buy employee, here is an example of Abby’s involvement:
    In addition it found: “Abby Cole herself regularly asked employees to prepare what were known within Chip Factory as ‘Bob envelopes’. Abby Cole was observed on two occasions stuffing cash into these envelopes.” As a result of the bribes, “[w]hen Best Buy employees questioned the bid-to-invoice price variances, Bossany succeeded in deflecting issues and suppressing concerns
    about these and other matters.”

    As their $41 million fraud scheme progressed, Abby and Russell Cole began living more and more extravagantly with their new-found wealth while still rapidly amassing assets. After the fraud began, the Coles built a luxurious mansion in Deerfield, Illinois, and furnished it lavishly. ($1.9 million construction costs, not including real estate)[;] Kominsky interior decorating). In speaking with co-conspirator Bossany, Russell Cole referred to it as “the house that Best Buy . . . built.”

    The Coles filled their new home’s four-car attached garage and seven-car detached vehicle showroom with a collection of exotic sports cars and other high-end vehicles. Eleven cars they owned in 2008 were worth over $2 million and included a Super Performance Cobra, an Aston-Martin, two Porsches, a Lamborghini, and a Bentley. From 2004 through 2007, the Coles purchased over $380,000 of jewelry and furs.

    From March 2004 through June 2008, the Coles also made seven trips to Las Vegas, staying at the Bellagio Hotel for over 100 days. On each trip, they charged an average of $400 to $1,140 per night to their room. The Coles also used the stolen money to play the stock market. In 2004,
    they reported about $217,000 of short-term stock sales. In 2007, they reported over $4.5 million of short-term sales. Over half of this amount was from an account owned solely by Abby Cole.

    The District Court found Abby Cole “attempted to conceal the fraud.” It noted in particular that Abby Cole suggested to Ripstein: “that they get out from under the fraud allegations by falsely claiming that they were the only vendor who supplied plastics with their
    LCD screens. When Ripstein pointed out that other vendors had plastics with their LCDs, Abby Cole suggested that Ripstein tell investigators that it was very difficult to get the plastics, which was untrue.” The District Court also found that, “[i]n another statement to Ripstein, Abby Cole lied” about bribes to Bossany and why she had sent him cash. As the District Court concluded, “Abby Cole attempted to convince Ripstein to go along with her and her husband’s plan to lie and cover up the fraud, and her efforts fit with Russell Cole’s cover-up efforts with Ripstein and Bossany.”

    On November 28, 2008, Abby and Russell Cole both spoke to Ripstein in a recorded telephone conversation. They discussed what they and Bossany should say to federal investigators in order to conceal their crimes. Abby Cole talked with Ripstein about the inflated bid scheme, and she suggested that they give false explanations for why Chip Factory raised its bid prices. She urged Ripstein to lie about the inflated bids by claiming they were the result of shifts in the market prices for these parts and indicated would lie to back him up using the same story for her inflated-bid purchases. Cole later suggested claiming Chip Factory was “the only vendor with new parts.” When Ripstein pointed out that they had sold refurbished, “fudge” parts, she said certain of their parts were always new. Id. When Ripstein expressed doubt about the “new parts” story, Cole suggested, alternatively, claiming they were providing parts no other suppliers had access to, such as “screen plastics.” When Ripstein noted other vendors had screen plastics, Cole revised the excuse once again to suggest it was “very difficult to get them.” Id. at 23. Russell Cole repeated some of the suggestions and proposed other false stories to tell investigators. Abby Cole admitted in the conversation that she was responsible for the inflated bids, along with her husband and Ripstein. T8 1459; Ex. 358A at 19 (“Yeah, we did them.”)

    Knowledge about the tax scheme:
    Because Chip Factory was Abby Cole’s company and she was the president and chief executive officer, Chip Factory’s and the Coles’ tax preparer, Mike Hartman, advised her that she was responsible for overseeing the bookkeeping, and he sent the Chip Factory tax returns to her. Cole acknowledged in 2007, as she did every year, that she was “responsible for establishing and maintaining internal controls, including monitoring ongoing activities” at Chip Factory. Cole was “very knowledgeable” about how Chip Factory operated and “the numbers that flow through.” Cole signed all the Chip Factory tax returns as its president, and she signed her personal tax returns.

    Despite [their accountant’s] instructions, the Coles paid for their most basic personal expenses through Chip Factory, from dairy delivery to doctors and dentists, and recorded them on the books as if they were legitimate business expenses or charges for business inventory. The Coles did so from at least March 2003, when Barkan started at Chip Factory, through 2007. T16 3198, 3207-08. They did so in paying for construction of their new home, for furniture, and for jewelry. They did so
    in purchasing and maintaining their cars, including a Ferrari, a Jaguar, a Lamborghini, and a Porsche. They did so for Armani, Brooks Brothers, and Coach; dance lessons, Disney World, and dry cleaning; furs and FAO Schwarz; pearls, Prada, and Petco; as well as salon service, spas, and the Sunglass Hut. They also deducted bribes to Bossany, including checks to him and the purchase of his ATV. For just the years 2005 through 2007, these false entries on Chip Factory’s books totaled over $1,350,000.

  10. To Bear In the Woods:

    In my view, none of those facts change the fact that prison would not have done anything here other than perhaps satisfy the retributive lust of some (I am not referring to you). The guidelines, as they were originally intended, were supposed to serve as both a limit on punitiveness, as well as a floor. Today, they serve neither purpose. They are just a political tool; the Sentencing Commission adds adjustments, mostly upward, sometimes on a whim.

    Again, per my lengthy comments posted above under Anon, why is that in the 1980s and early 1990s a conviction, sentence of probation, or a short prison sentence was deemed “just punishment” but today we need to start with a few decades for a sentence to be deemed “just punishment”? Why has the value of a day in prison become so devalued? There is no good justification and there is no evidence that a prison sentence for this women would have helped anyone or furthered the purposes set forth in 3553(a).

    In fact, in considering the 3553(a) factors, and as demonstrated by the woman’s completion of the probationary sentence without any violation, the sentence was just and no more than necessary. Also, why is the “no more than necessary” part always forgotten? Judges and the appellate courts usually treat that nowadays as excess superfluous language. She is working, she is paying restitution, she no longer has the cars or the expensive goods. She has a criminal conviction and will be shamed for life; would prison really have been better for anyone? Other than a few good headlines?

    As for the details of her criminal conduct, I have yet to find a sympathetic fraud scheme. The details are always bad, and every winces/is filled with disgust at the largess, so what difference does it make?
    It was a fraud scheme, not a scheme to feed the poor.

    As for the Hon. Judge RGK:

    Thanks for the comments and the link to the economist. My quandary is this:

    what I have said in my Anon post is something that every sentencing judge probably knows and every defense attorney tries to make the same arguments and it usually falls on deaf ears. In fact, most judges might think an attorney an “idealist” for advancing those very same arguments. Those arguments usually work better in law reviews than at sentencing.

    I am assuming, correctly or incorrectly, you have probably had some similar defendants stand before you and have heard the same arguments from defense attorneys.So the question is: when judges, after 30 years of the same approach now know better, and since after Booker/Gall line of cases etc. you have the discretion to try a different approach, especially, since, as you put it in another blog post, “district judges are carpenters,” why has there been no change overall? If you sentence a defendant (similar to Ms. Cole) within the guidelines it is more likely than not going to be upheld on appeal and judges seem to take comfort in “not rocking boat.” But that is not a very good excuse to cost a defendant an extra decade or two in prison. Why are more judges not trying to be carpenters and change the approach?

  11. Just to add to my post above, if you want to see an example of an extreme sentence. Read the Second Circuit’s opinion in United States v. Corsey:

    The defendants received a sentence of 20 years based on an intended loss of $3 billion. The sentencing judge simply ticked off the 3553(a) factors without any analysis and said “next.”

    The Second Circuit vacated and remanded for procedural error, however, Judge Underhill’s concurring opinion notes that he would have reached the question of substantively reasonableness. He also notes that “The twenty-year sentences imposed on appellants are not merely harsh, they are dramatically more severe than can be justified by the crime the appellants committed. This was a clumsy, almost comical, conspiracy to defraud a non-existent investor of three billion dollars. That scheme never came close to fruition.”

    Its this continued belief, and argument advanced by prosecutors, that jail will solve everything and will always satisfy the 3553(a) factors that get to me because I have yet to see a good justification for these lengthy and extreme sentences or instances where jail is viewed as compulsory as opposed to probation.

  12. Anon.,

    But, you are dead wrong. The Abby Coles of the world are scared to death of prison. They can’t wear frilly dresses there. There are a lot of “innocent spouses” who are as guilty as hell. General deterrence matters, and it matters a helluva a lot.

    All the best.


  13. Of course they are scared to death of prison! Absolutely agree. But show me some evidence that these long sentences are serving the cause of general deterrence and I’ll agree with you 100%.

    Just show me some empirical evidence (Sentencing Commission from wherever) that long sentences or prison sentences, as opposed to criminal convictions alone, lead to increased general deterrence and I am with you 100%. If I remember from the Commission’s 15 Year Report stated sentence severity had little correlation with general deterrence and so did many academic commentators. See, for example, Frank O. Bowman, III, Pour Encourager Les Autres? The Curious History and Distressing IMplications of the Criminal Provisions of the Sarbanes-Oxley Act and the Sentencing Guidelines Amendments That Followed, 1 Ohio St. J. Crim Law 373, 419 (2003-04) and Paul J. Hofer & Mark H. Allenbaugh, Perspectives on the Federal Sentencing Guidelines and Mandatory Sentencing, 40 Am. Crim. L. Rev. 19, 64, n.192 (2003).

  14. Anon.,

    First, there is a difference between a “long prison sentence” and a “prison sentence” when it comes to general deterrence (and other concepts of punishment). I fear you conflate the two. Second, I would further add that until we address the problem addressed in the Economist editorial–civil cases turned into criminal cases–it will always be nearly impossible to address general deterrence issues because you are conflating the states of mind required for negligence or gross negligence and criminal intent. Third, you ask me for data. I don’t think there is good data either way. If you have what you think is good data on general deterrence and prison sentences (no necessarily long prison sentences) give me the cite to the actual data runs–not some generalized summary. Finally, the logical implications of your argument is that general deterrence and prison sentences are never correlated. Is that what you believe?

    Thanks for pushing and your deep level of engagement. I appreciate it.

    All the best.


    *By the way, I reread the 15 year report and don’t see what you thought you remembered.

  15. Anon – you advocate neither jail nor prison for “white-collar” criminals, but then there’s something like this:
    “The Foristell warrant stemmed from a speeding ticket in 2011. As mentioned before, Bolden didn’t show up in court because she didn’t have the money to pay it and feared they’d put her jail. It’s a common and unfortunate misconception among [black/poor white] St. Louis County residents, especially those who don’t have an attorney to tell them otherwise. A town can’t put you in jail for lacking the money to pay a fine. But you can be jailed not appearing in court to tell the judge you can’t pay — and fined again for not showing up. After twice failing to appear for the Foristell ticket, Bolden showed up, was able to get the warrant removed and set up a payment plan with the court. But she says that a few months later, she was a couple days late with her payment. She says she called to notify the clerk, who told her not to worry. Instead, the town hit her with another warrant — the same warrant for which she was jailed in March.

    Bolden’s bond was set at $1,700. No one she knew had that kind of money. Bolden broke down; she cried, she screamed, and she swore. She was given a psychological evaluation, and then put on suicide watch. She finds that memory particularly humiliating. Bolden would remain in jail for two weeks, until Foristell’s next municipal court session.”

    In light of that, tell me about “equal justice under law.”

  16. H Luce: You are speaking about a state case and I get your point. This post and my arguments were about sentencing in federal courts. They are two different animals. Its like comparing a chicken pen (state courts) to a bull pen (federal courts).

  17. Honorable Judge:

    Thank you for the engaging discussion, I do appreciate it. As to your first point, I agree I am conflating the two but that’s just because I am having a hard time traveling and writing a response.

    As to your first point, I absolutely agree that there is a difference between “long prison sentence” and a “prison sentence.” My point was about the growing use of imprisonment for white collar crimes. As to your second point, no objection there. I agree whole heartedly.

    As to your third point, give me a week to ten days. I will respond fuller on a follow-up reply.

  18. Thank you Judge. Since we agree on the first point (the difference between a “prison sentence” and “a long sentence”) and the second point, I am going to focus on point three: deterrence. So here is the best I can come up with and I would love to hear your thoughts or comments in full (or whatever your time permits):

    I take it that you agree that the long sentences handed out today for white collar offenders are based primarily on general deterrence grounds.

    Just some background to put things in perspective:

    A month after Judge Frankel put forward the arguments in favour of a guideline regime, in United States v. Bergman, after extensive sentencing hearings, he sentenced a sixty-four (64) year old rabbi to four (4) months imprisonment for running a 1.2 to 2.5 million dollar Medicare and tax fraud scheme involving various nursing homes operated by Rabbi Bergman. He determined that both general deterrence and equal justice required a prison sentence. In a sentencing memorandum, Judge Frankel carefully stated his reasons for this short prison sentence. One year later, Judge Frankel imposed a $5,000 fine and ten (10) month prison sentence on the former Mississippi Republican gubernatorial nominee Rubel Phillips. Mr. Phillips was an officer in the Stirling Homex Corporation, which manufactured housing modules. The company went bankrupt in 1972 and Mr. Phillips and four other company officers were indicted and tried on charges of conspiracy and fraud in the sale of $40 million worth of stock. Four of the officers, including Phillips, were found guilty of having falsely inflated earnings reports and having deceived investors, auditors, and the U.S. Securities and Exchange Commission; the convictions and Judge Frankel’s sentence were left intact on appeal. Fast forward to 1989, two years after the guidelines became effective, and such offenses would have called for mandatory guideline sentences of approximately three years.

    Fast-forward to 2014, the same offenses would correspond to a sentence of at least ten years, if not more, under the now advisory guidelines.

    You are right the Fifteen Year Report is silent on the specific issues I mentioned. Rather, it is the commentary written by others that draws the conclusions I have made (I have cited them below). You are also right that there is no definitive data on the correlation between sentence severity and deterrence especially in the field of white collar crime. However, to respond to your request for “data on general deterrence and prison sentences (not necessarily long prison sentences) give me the cite to the actual data runs” here is what I could come up with:

    Some of the research:

    On the point of general deterrence, the initial Commission increased sentences for economic crimes above past practice to provide a “short but definite period of confinement for a larger proportion of these ‘white collar’ cases” in the belief that this would “ensure proportionate punishment and …achieve deterrence.” (Fifteen Year Report at 56). In the process, a deterrence researcher advised the Commission that certainty is more important to deterrence than severity. See Paul J. Hofer & Mark H. Allenbaugh, The Reason Behind the Rules: Finding and Using the Philosophy of the Federal Sentencing Guidelines, 40 Am. Crim. L. Rev. 19, 61 n.192. Other research has shown that lengthy terms of incarceration have little deterrent effect on white-collar defendants, presumably the most rational group of offenders:

    -Sally S. Simpson, Corporate Crime, Law, and Social Control 6, 9, 35 (Cambridge University Press)(2002);

    -David Weisburd et al., Specific Deterrence In A Sample of Offenders Convicted of White Collar Crimes, 33 Criminology 587 (1995).

    – Anthony N. Doob and Cheryl Marie Webster, Sentence Severity and Crime: Accepting the Null Hypothesis, 30 Crime and Justice 143-195 (2003) (one of the better articles I have read).

    I will concede, however, that none of this research is conclusive. Yet, we live in the post-Enlightenment era (or if you are a follower of Habermas, we are still being “enlightened”) and instead of blindly following the Guidelines or trying to guess how many months or years of a defendants’ life it would take to deter other would be white collar offenders (without any data or certainty that the general deterrence portion of the sentence will lead to any results) there is a better approach I think. Deterrence is a very tricky business and I think without any solid data to back it up there is no reason to believe that what worked before in the pre-guideline era wont work today. Just using the Abby Nicole as an example, she has a permanent criminal conviction. By all accounts the sentence fulfilled the goals — she works, has forfeited or lost most of her wealth — and she will forever carry a criminal conviction on her record. She successfully completed her probation and supervised release and according to the judge, has been “rehabilitated.” I cant imagine her finding a location to wear her “frilly dress.” I have met many white collar offenders and, for the most part, they are quite depressed and question their actions on a daily basis. But I have never met one that says “my sentence of x has deterred others.” Most white collar offenders don’t follow other defendants’ sentences — they never realize what they have gotten themselves into until they are reading a prosecutor’s sentencing memo.

    Peter J. Henning, ‘Long Sentences Send A Message Few May Hear’ New York Times, June 27, 2011,

    Back in the 1970s/80s and even early 1990s sentences for white collar offenders were quite rational. They served all the purposes they were supposed to. Yet, today a 9 year sentence for Matthew Martoma seems to be perfectly legitimate–no one is even questioning the sentence. Just a reminder: Michael Milken, the junk bond king, was sentenced to 10 years (later reduced to 22 months). A sentence of 2 to 5 years would have been more than sufficient for Martoma I think. BTW I am surprised you did not have a blog post regarding Martoma’s sentence.

    I need not detail for you Judge how the fraud/theft guidelines have increased over the years. My past arguments have been based on the fact that (a) the increases have been primarily due to pressure from the DOJ and (b) directives from non-experts in Congress. Even former Commissioners (Michael K. Block and former Deputy Chief Counsel Jeffrey S. Parker) have criticized the Commission for “gratuitously” increasing punishment for larger fraud cases in the past. See Jeffrey S. Parker & Michael K. Block, The Sentencing Commission, P.M. (Post-Mistretta): Sunshine or Sunset?, 27 Am. Crim. L. Rev. 289 (1989). The same concerns regarding “factor creep” etc are also noted in the Fifteen Year Report (page 137 and 138):

    “Pressure to add further adjustments has continued throughout the guidelines era…As evidenced in Appendix C, Congress frequently has directed the Commission to add aggravating adjustments to a wide variety of guidelines, in some cases formulating the specific wording and degree of adjustments. Commentators have noted that the need for these amendments has often not been demonstrated empirically and they have warned of the dangers of congressional “micro-management.” Political pressure to respond to public concerns over high-publicity crimes could result in frequent revision of the guidelines without a sound policy basis (Rappaport, 1999). Regardless of the motivation, the steady accretion of guideline enhancements reflects Congress’s increasing interest and involvement in the development of guidelines sentencing policy, as well as Congressional preference for a detailed and “tough” guidelines sentencing scheme.”

    The fraud guidelines include approximately 40 specific offense characteristics, many of which replicate or overlap with the loss concept, with one another, and with further upward adjustments under Chapter 3. The Sentencing Commission is no longer acting like it was intended: an independent body of experts tasked with evaluating “empirical data and national experience.” It was not expected to promulgate Guidelines ranges by merely carrying out the perceived will of Congress.

    Over the years I have read so many sentencing memos and transcripts where a white collar defendant is facing 20-30 or 40 years based on a dozen enhancements and neither the Court nor the prosecution blink an eye. Although reliance on the loss table is often criticized, See Mark H. Allenbaugh, Drawn from Nowhere: A REview of the U.S. Sentencing Commission’s White-Collar Sentencing Guidelines And Loss Data, 26(1) Federal Sentencing Reporter 19-27 (October 2013), the other enhancements are equally problematic.

    Example: A defendant starts with a 7 base offense level. He receives an enhancement of 20 levels based on an intended loss of 7 to 20 million dollars. If the fraud defendant has more than 50 victims (increase of 4 points), involved sophisticated means (2 points), abused a position of trust (2 points), involved violation of securities/commodities laws (4 points) etc. The sentence goes from a level 27 (Cat I) 70-87 months to a level 39 or 262 to 327 months. How can that be justified?

    There are other examples:

    -United States v. Corsey, 2nd Circuit opinion posted here (20 years based on a crime that could never come to fruition to deter others).

    -United States v. Gregory Loles, sentenced to 26 years for a $27 million crime. FBI Press release is here:

    (the guideline range without all the extra enhancements would have been just around 10 years).

    -United States v. Michael Jude Fay (a priest was convicted of embezzling $1 million from the diocese. He had prostate cancer that was spreading. He pleaded for home confinement saying he doesn’t want to die in prison. He got 37 months in prison and died in prison 10 months into his sentence).

    At sentencing, the Judge insisted the punishment (time in jail) was necessary to promote respect for the law. “It is a message that not even the collar can protect you from prison,” she said. This was horrible conduct by the Reverend – no question about it – but I dont think he needed to be sentenced to die in prison to deter others.

    No one remembers any of these defendants’ names.

    I have also seen quite a few judges sentence defendants, who are likely to be deported after serving their sentence, based on the need to “deter others.” I am always curious, but will never ask a judge, “they are getting kicked out of the country, who are they going to deter?”

    In conclusion, my argument is this: there is sufficient research to agree that longer prison sentences don’t increase general deterrence (especially if you follow the Guidelines). There is also some anecdotal data to argue that a prison sentence itself doesn’t increase general deterrence. Alternatively, if you dont agree with the latter assertion, then you have to agree that there is insufficient research to argue that long prison sentences provide any benefits in terms of general deterrence: there is no empirical data to support any purported benefits — except nice headlines. It costs $150 per day to incarcerate someone and upwards of $1,000 per day for older defendants. It costs much less to either give such a defendant probation or a short prison sentence (1 year or a few years) so they can get on with the most important part of coming to terms with their conduct: restitution.

    Finally, on the sociological front, the most often cited authority for white collar deterrence is John Braithwaite (Braithwaite, John. “Restorative Justice: Assessing Optimistic and Pessimistic Accounts” Crime and Justice 25 (1999). (By most often cited, I am referring to sentencing memos in the 2nd Circuit.) Yet, Braithwaite is often cited out of context and often misquoted. (Most prosecutors in the Second Circuit cite him leaving defense attorneys to point out that Braithwaite does not call for 20-30 year or 100 year sentences to achieve general deterrence.)

    *By long prison sentence, perhaps I am biased, but in the absence of violence or extreme harm I cant find any justification for sentencing anyone to more than 10-12 years in prison for white collar offenses.

    Sorry for any errors in my post. I am still traveling and there is an 8 hour time difference between here and home.

  19. If you really want deterrence, put them in Riker’s Island for a year, in general population. Most financial crimes are committed in NYC, anyhow, or have their nexus there, and the Federal Government could work out an arrangement with the City of New York. A year amongst semi-literate gangstas would deter almost anyone…

  20. Putting a financial criminal in Riker’s Island would go towards specific deterrence. I am not sure it would really have an impact on general deterrence because usually prison assignments are not advertised (unless someone goes and looks up a defendant).

    But its a much better approach than the current ridiculous 10, 20 30 or 100+ year sentences. As long as its short, its fine.

  21. Anon.,

    You obviously spent a lot of time thinking about this. Thank you.

    There is no doubt that some sentences for white collar crime (fraud) are far too long for the purposes of general deterrence and most of the other sentencing goals. As you know, the Sentencing Commission has recently decided to study the issue, and that should provide us with good data and thoughtful (although not necessarily correct) analysis. See here and here.

    But when I look at the data that is available now, I am not sure that for most cases there is any real problem with sentences exceeding a length from which one might make a reasonable general deterrence argument. See USSG, Analysis of Fraud Sentences (2012). .

    Here is some of the pertinent data for the period between 12/11/07 and 9/30/11:

    1. The average loss was about $2.6 million and the median loss was about $87,000.
    2. The average Guideline minimum sentence was 30 months.
    3. The average sentence was 25 months.
    4. The average within Guideline sentence was 27 months.
    5. The average above range sentence was 64 months.
    6. The average sentence when the government moved for a sentence below the Guidelines was 18 months.
    7. The average sentence when a party moved for a sentence below the Guidelines was 22 months.

    So, assuming I have not misunderstood the data, none of it suggests to me that federal fraud sentences (which include white collar sentences) when viewed as a whole are too long for general deterrence purposes. In fact, they seem just about right to me.

    Again, thanks for your very thoughtful comment. Travel safely.

    All the best.


  22. Advertise it, then. Put their pics up on a billboard – defraud people, and you’ll end up in Riker’s. People in NYC know perfectly well where it is, and more importantly, *what* it is, and it’s no country club.

  23. Thank you for your wonderfully insightful comments and a very engaging exchange.

    Your acknowledgement that “There is no doubt that some sentences for white collar crime (fraud) are far too long for the purposes of general deterrence and most of the other sentencing goals” is my key point.

    Looking at averages cited in sections 2-7 of your post is like taking a classroom average and saying “well most of the kids passed the class.” Yet, what is at stake for defendants is a lot more. If you contrast those figures with the figures from before the SRA or other western countries with similar aims in sentencing (UK for instance), they show a marked increase without any empirical data to support the increases.

    With regards to the higher dollar amount or the decades/centuries long sentences, which we agree on, they are more common than the averages reveal. There is a saying that I learned in a previous life during a lecture in a derivatives/financial modeling class: “the tails (in a normal distribution chart) are always fatter than the averages reveal.” There are far too many defendants that fall into the “too long” category.

    As for the departures you cite, I again refer to my statement that the sentences handed down today are far longer than the pre-SRA era and even with the departures you cited, it is still no where near the level where the sentences could be considered sufficient but no more than necessary to serve the 3553(a) factors. There is just too big of an emphasis placed on loss coupled with very many enhancements that always act as an “upward ratchet.”

    I am hopeful that some day there will be real meaningful reform that focuses potentially on more restorative justice, however, it took nearly 3 decades to get any real reform with regards to the crack/coke disparity so I am not holding my breath for white collar offenders! So, until there is reform, it all depends on the judges discretion!

    Again, thanks for an engaging discussion. Hopefully there will be more posts like this with a few more defense attorneys or even prosecutors contributing to the discussion….

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