O'Brien Hatfield Teal, P.A.
LOCAL 813.228.6989 TOLL-FREE 888.962.7436 Línea en Español 813.390.2494

Federal guidelines in flux; high insider trade sentences noticed

Over the past few years, criminal defense attorneys, civil rights activists and even federal judges have begun openly criticizing the structure of, and the often-harsh sentences resulting from, the federal sentencing guidelines. In the latest of a recent series, the 7th Circuit court of appeals refused to penalize street-level members of a drug trafficking conspiracy to the guideline sentence, which would have given them the same harsh sentence as the leaders. In a March speech before white collar criminal defense attorneys, federal judge Jed S. Rakoff called again for the government to scrap the sentencing guidelines, which he described as irrational and even dangerous.

With that background, it may be surprising that sentencing in federal crimes appears to be on the upswing, according to one law professor’s observations, particularly in the area of insider trading. It’s not just trial judges handing down long sentences, either -- two recent appellate decisions have encouraged judges to look at the wider picture when applying the federal sentencing guidelines.

Each case involved alleged insider trading conspiracies with sentences that met the federal guidelines but were substantially higher than those handed down to similarly situated defendants in the past. In each case, the appellate court cited the need for strict sentences to deter criminal behavior that undermines the credibility of our financial markets.

Each of the defendants challenged his sentence. The first argued that his 10-year sentence was unreasonable because other defendants have recently received much lower sentences for similar offenses. The 2nd Circuit court of appeals sharply disagreed, saying that “some judges have chosen as a policy matter not to sentence white-collar criminals to the harshest permissible punishments, this does not entitle other white-collar criminals to lighter punishments than are reasonable under the Guidelines.”

The second man challenged the use of the full amount of illicit gains earned by the conspiracy to calculate his sentence under the guidelines. While that is the correct method of calculation, he said that another member of the alleged conspiracy had secretly violated their explicit agreement to limit their activities, which resulted in the illicit gains being much higher for the conspiracy as a whole than he had personally received. The 3rd Circuit reiterated that co-conspirators are fully legally responsible for foreseeable actions by others in the conspiracy.

Judge Rakoff, who is a district court judge in Manhattan, has routinely sentenced insider trading defendants to sentences below the guidelines’ recommendations, but that does not mean others can expect the same treatment. With the sentencing guidelines under attack, sentencing for all federal crimes may be unpredictable -- making it harder for defendants to make informed choices about how to proceed in their defense.

Sources: 

  • The New York Times’ DealBook blog, “Insider Traders Should Be Ready to Do Hard Time,” Peter J. Henning, July 15, 2013
  • Courthouse News Service, “Drug Dealer Sentencing Is Role-Based, Court Says,” Joseph Celentino, July 9, 2013