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Securities Fraud and Sentencing Guidelines After Sarbanes-Oxley
In the legislative process that led to the adoption of Sarbanes-Oxley (SOX), legislators from both sides of the aisle vied with each other to establish their credentials for being tough on white-collar crime. The maximum penalties for mail fraud and wire fraud were increased from 5 to 20 years. Pub. L. No. 107-204 ' 903. The maximum penalty for willful violations of any provision of the Exchange Act or rule or regulation adopted thereunder the violation of which is unlawful was increased from 10 to 20 years. Pub. L. No. 107-204 ' 903. If this were not enough, a new crime relating to securities fraud in connection with the securities of public companies with a maximum penalty of 25 years was created. Pub. L. No. 107-204 ' 807 This does not exhaust the list, but should be sufficient to suggest that there are more than enough post-SOX criminal laws covering financial fraud to deter rational corporate officers and others to refrain from participating in financial crimes. The maximum statutory sentence, however, is less significant than other sentencing guideline factors in determining the range of sentence (minimum to maximum) within which the sentencing judge must impose a sentence. Defendant X, as we describe in greater detail below, an officer of a public company convicted of a willful violation of Rule 10b-5 resulting in a loss to more than 250 investors of $7-$20 million and a first time offender, under the Guidelines' Sentencing Table (below) has an offense level of 37 and faces a minimum term of 210 months (17.5 years) and a maximum sentence of 262 months (21 years and 10 months). Critical to determining the sentencing range is the Sentencing Table and what goes into it. See United States Sentencing Commission, Guidelines Manual (Nov. 2003) (available at http://www.ussc.gov/2003guid/2003guid.pdf), The Sentencing Table is as in effect as of Nov. 1, 2003 and incorporates amendments resulting from the provisions of the Sarbanes-Oxley Act discussed below.
About the Table
The table horizontally takes into account the defendant's Criminal History Category (prior offenses) and vertically the Offense Level stated as a number (ranging from 1 to 43) derived from various factors we discuss below reflecting in generic terms the seriousness of the offense. Where the two intersect determines in months the range of the minimum-maximum sentence. Thus, an Offense Level of 10 and a Category I criminal history (0-1 prior convictions) requires the sentencing judge to impose a sentence of not less than 6 months and a maximum of not more than 12 months. In contrast, an Offense Level of 27 and a Category I Criminal History would result in a sentencing range of 70-87 months. We stress the importance of the Offense Level on the assumption that corporate officers of public companies generally do not have prior convictions. The difference between the Offense Level of 10 and 27 under the above assumptions in terms of the minimum sentence is six months in the case of 10 and almost 6 years in the case of 27. There are also four zones (A-D) that are impacted by the Offense Level and Criminal History category but not in a straight line, which are relevant in determining whether probation, home detention, community service or some combination are or are not a sentencing alternative. For our immediate purpose, we note that only the A zone is eligible for probation without any imprisonment or substitute for imprisonment and that if in the D zone probation and none of the other alternatives not involving imprisonment is appropriate. It is also important to realize, that for federal crimes parole is not possible and that the maximum reduction of the sentence for good behavior is approximately 15%. See Guideline Manual (November 2003), at p. 9.
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