Understanding Sentencing Guidelines in White Collar Crimes

V. A Sentence of 40 to 50 Years Is Necessary to Avoid Sentencing Disparities

Among the factors a sentencing court must consider in imposing sentence is “the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct.” 18 U.S.C. § 3553(a)(6). Congress adopted Section 3553(a)(6) “to eliminate unwarranted disparities nationwide.” United States v. Williams, 524 F.3d 209, 215 (2d Cir. 2008). No scheme to defraud since Madoff can be compared to this one in terms of its size, scope, and amount of loss. The PSR notes that sentencing data from the last five years shows that the average sentence for a defendant sentenced under the fraud Guidelines with offense level (43) is approximately 24 years’ imprisonment. The United States Sentencing Commission’s Judiciary Sentencing Information database does not indicate, however, what conduct resulted in these sentences. Nor does it indicate what the largest sentences were. Because of the range of potential white collar crimes that fall under the Guidelines in Section 2B1.1, the Government submits that a more focused approach is necessary to avoid unwanted sentencing disparities. Specifically, the Government submits that other fraud cases where the loss amounts were at the top of the loss table—and in particular, those involving embezzlement—is the relevant body of cases to evaluate.

Below is a table of sentences imposed since Booker on defendants where the loss amount exceeded $100 million, and the money was stolen through a Ponzi scheme or some other form of misappropriation or embezzlement.

As the table makes clear, most defendants who steal their clients’ or customers’ money with $100 million dollars in losses or more receive sentences ranging from 40 to 50 years’ imprisonment. Indeed, in cases with $200 million or more in losses, courts have typically imposed a sentence of 50 years imprisonment or more. For instance, in a case with similar facts to those here, Russell Wasendorf, the CEO of a futures commission merchant, embezzled more than $215 million in customers’ funds, and was sentenced to 50 years’ imprisonment. There are exceptions, of course, but it also bears noting that the defendant’s fraud would rank second, right below Madoff, in terms of total losses. Accordingly, to avoid unwarranted sentencing disparities amongst like defendants, a sentence of 40 to 50 years’ imprisonment is necessary.

The defendant’s submission cites and then distinguishes several other fraud prosecutions involving large losses. Starting with Madoff, the defendant says it is not an apt comparison because Madoff embezzled more money, engaged in fraud from the beginning, was older, and used millions in stolen funds for himself. (Def. Mem. at 75). Bankman-Fried is right that there are differences between his and Madoff’s case, but those do not justify disregarding the Madoff sentence as a benchmark. Like Madoff, the defendant misappropriated billions of dollars of customer money over a multi-year period, spending much of it on his own ventures, and causing massive harm to his victims. United States v. Madoff, Nio. 09 Cr. 213 (DC), Dkt. 92 (Gov’t Sentencing Mem.). And unlike Madoff, Bankman-Fried has not accepted responsibility; rather, he obstructed justice, he perjured himself, and he committed other significant crimes. The defendants’ ages are certainly a distinguishing factor. Age, of course, cuts both ways. A shorter sentence because the defendant is relatively young means he will have an opportunity to commit fraud again when released. And a shorter sentence because of his age also undermines general deterrence, as it could signal to would be young fraudsters that it is worthwhile to attempt a massive fraud, because either they will get away with it, or the prison sentence will allow them a second chance to make money. Even if age were a reason why this Court should impose a shorter sentence than the one imposed on Madoff— a sentence that gives Bankman-Fried the possibility of release someday—it is not a reason to disregard the Madoff sentence given the similarities to the case.

Next, the defendant distinguishes Judge Ramos’s recent 20-year sentence of Karl Greenwood, who was involved in the fake cryptocurrency scheme OneCoin. (Def. Mem. at 76- 77). That sentence is distinguishable, but not for the reasons in the defendant’s brief. Greenwood received a sentence shorter than what Bankman-Fried deserves, not a longer one. Greenwood pled guilty and was remorseful for his conduct. At sentencing, Judge Ramos stated that while the defendant’s criminal conduct “compelled” a substantial sentence, there were “substantial reasons” for granting “some measure of lenity, including “horrific conditions” that the defendant endured in a Thailand jail. United States v. Greenwood, No. 17 Cr. 630 (ER) (S.D.N.Y. Sept. 12, 2023), Sent. Tr. at 39. Those conditions included being “stripped naked,” “shaved down,” “chained to other inmates for 24 hours,” “forced to sleep on the floor full of cockroaches and rodents,” “food filled with magots,” “forced to sit outside in the heat for hours,” and some particular circumstances, which are under seal, that “resulted in lasting health effects and health consequences.” (Id. at 18- 19).[13] The particular circumstances of Greenwood’s case distinguish it, and make it an imperfect precedent for the sentence here.

Bankman-Fried argues that the sentences imposed on defendants from the public company scandals from the early 2000s are poor comparisons. (Def. Mem. at 77). The Government agrees. Bernard Ebbers of WorldCom and John Rigas of Adelphia Communications were convicted of perpetrating large accounting frauds that resulted in losses to the companies’ investors. These were securities fraud cases, but the nature of the losses was different: the losses did not involve the theft of customers’ or clients’ funds that were entrusted to the defendant. Rather, in both cases, there was ambiguity as to whether the companies’ losses were fully attributable to the fraud. United States v. Ebbers, 458 F.3d 110, 127 (2d Cir. 2006) (“The loss to investors who hold during the period of an ongoing fraud is not easily quantifiable because we cannot accurately assess what their conduct would have been had they known the truth,” and recognizing that “the dot-com bubble burst and its likely negative future effect on WorldCom’s business was public knowledge,” which caused “a downward pressure on share price not attributable to the defendant.”); United States v. Rigas, 583 F.3d 108, 119–20 (2d Cir. 2009) (recognizing that “[t]he loss must be the result of the fraud, as opposed to other, non-fraudulent occurrences”) (citation omitted). That distinguishing feature is critical because, as the above table indicates, courts have routinely imposed lengthier sentences on defendants who have stolen from people who trusted them.

Bankman-Fried acknowledges similarities to Elizabeth Holmes. (Def. Mem. at 78-79). But the similarities are superficial. Bankman-Fried stole billions from customers who entrusted him with money. The loss amount in Holmes’s case was less than $150 million, and those losses were borne by private investors, not the general public. United States v. Holmes, 18 Cr. 258 (N.D. Cal.), Dkt. 1712 (Court Order on Sentencing), at 1 (“the loss in this case can be reasonably found to be $120,146,247”), 6 (list of investors). The defendant claims that Holmes’s conduct was worse because her scheme resulted in parties receiving inaccurate medical information. But BankmanFried caused a similar type of trauma to his victims, but at a grander scale. He led victims to believe their money was safe and in accounts, to be used as needed. As the witness statements above make clear, people put their life savings in the defendant’s hands. So like the Theranos patient who got inaccurate medical results and was traumatized, the FTX customers have experienced devastating emotional and psychological trauma from the defendant’s fraud. The difference is, however, that the Theranos patients ultimately learned that the tests were junk and were able to right their lives. The same is not true for FTX’s customers, who have not gotten their money back.

Finally, the defendant settles on Michael Milken as the “best comparison” for this case. There is very little about the defendant’s fraud that is any way like the crimes for which Milken was prosecuted. Although Milken was associated with Drexel Burnham’s leveraged buyouts and “junk bonds,” the charges to which Milken pled guilty had nothing to do with those practices; nor did they involve insider trading associated with Ivan Boesky. While Milken pled guilty to six offenses, they related to the following: Milken guaranteed Boesky against loss and helped him evade the net-capital rules in some transactions, he made adjustments in the price of securities bought and sold for another client without disclosing this to the fund’s customers, and he helped the same client lower his takes by arranging unprofitable trades. Milken’s convictions neither involved theft of customers’ funds, nor did they involve anything close to the amount of losses sustained here. Milken’s sentence is not a fair comparison for the conduct here.

Arguing otherwise, Bankman-Fried cites to personal similarities to Milken—they were both young, had a “meteoric rise” in their industry, were “geniuses,” and had an interest in charity. (Def. Mem. at 81-82). But Section 3553 requires consideration of whether a sentence will create an unwarranted sentence disparity among defendants “who have been found guilty of similar conduct,” not defendants who may or may not be similar. Milken did not steal customers’ money. He did not steal over $10 billion dollars. He did not perpetrate multiple frauds with losses in the billions. He did not refuse to accept responsibility, obstruct justice, and perjure himself. A sentence equivalent to the one imposed on Milken of 10 years (let alone the two-year sentence he later received based on his cooperation) would be unreasonable here given the facts.

At bottom, defendants who are in a position of trust and steal $100 million or more appropriately are sentenced to 40 to 50 years, or more. Such a sentence is necessary here and would be in line with the sentences meted out to other defendants who engaged in similar conduct.

[13] The specifics of these circumstances are sealed. If the Court believes the details of those circumstances are necessary in determining how, if at all, to consider the sentence in Greenwood, the Government will provide the information to the Court on a sealed basis.