Sam Bankman-Fried vs. Fraud Sentencing Guidelines

III. The Guidelines Do Not Overstate the Seriousness of the Offense

Bankman-Fried argues that the fraud Guidelines are not based on empirical evidence and “substantially overstate the seriousness of the offense.” (Def. Mem. at 28). This argument is misguided for several reasons: the current fraud Guideline is the result of extensive and iterative work by the Sentencing Commission, and is based on sound policy choices, and even if the fraud Guidelines were overly reliant on loss as a general matter—a point the Government does not concede—they are an appropriate measure of the seriousness of the offense in this case.

“One of the central reasons for creating the sentencing guidelines was to ensure stiffer penalties for white-collar crimes and to eliminate disparities between white-collar sentences and sentences for other crimes.” United States v. Davis, 537 F.3d 611, 617 (6th Cir. 2008). “[T]he sentencing guidelines sought to address the inequities of prior sentencing practices that tended to punish white collar economic crimes less severely than other comparable blue collar offenses.” Fishman, 631 F. Supp. 2d at 403. Over a five-year period between 1996 and 2001, the Commission engaged in a deliberative process to address the Guidelines’ treatment of white-collar offenses, with the involvement of relevant stakeholders including the defense bar, the Department of Justice, probation officers, and the U.S. Judicial Conference. See Federal Register Notice BAC2210-40, 62 Fed. Reg. 152, 171-74 (1997) (proposals by the Commission for comment regarding economic crime sentencing reform). The Commission explained that the resulting amendments, which became effective on November 1, 2001, were based on the determination that “loss serves as a measure of the seriousness of the offense and the defendant’s relative culpability.” Sentencing Guidelines for the United States Courts, 66 Fed. Reg. 30,512, 30,533 (June 6, 2001). Thus, the 2001 amendments to Section 2B1.1 reflected the considered view of the Commission, following a collaborative process with relevant stakeholders, that loss amount should be a central consideration in determining the seriousness of an offense to which that Guideline applies. Indeed, “[e]ven if the enhancements may lack robust empirical support related to deterrence, they have foundations in empirical data and national experience related to the goals of fair sentencing and retribution.” United States v. Moose, 893 F.3d 951, 958 (7th Cir. 2018).

In 2002, following major corporate fraud at Enron, WorldCom, and Adelphia, Congress instructed the Commission to amend the Guidelines for white-collar crime again, this time as part of the Sarbanes-Oxley Act, and in response the Commission amended the modified loss-amount enhancement in Section 2B1.1 for high-loss cases — that is, cases involving loss amounts in excess of $200 million. See U.S. Sentencing Comm’n, Emergency Guidelines Amendments, 15 Fed. Sentencing Reporter 281, 283 (Apr. 1, 2003) (“[T]he amendment expands the loss table at §2B1.1(b)(1) to punish adequately offenses that cause catastrophic losses of magnitudes previously unforeseen, such as the serious corporate scandals that gave rise to several portions of the Act.”), available at 2003 WL 22016909. Thus, to the extent Section 2B1.1 emphasizes loss amount to the degree it does, that was an intentional decision by the Commission based on years of consideration and guidance from Congress. See Ebbers, 458 F.3d at 129 (“[T]he Guidelines reflect Congress’s judgment as to the appropriate national policy for [white collar] crimes.”). The few district court opinions cited by Bankman-Fried seem not to have considered the Commission and legislative history. See, e.g., United States v. Johnson, No. 16 Cr. 457 (NGG), 2018 WL 1997975, at *3 (E.D.N.Y. Apr. 27, 2018) (cited by Bankman-Fried for the incorrect proposition that “as far as [that] court can tell” the loss guidelines were not the “result from any reasoned determination”).

The defendant’s argument otherwise draws on language from Judge Rakoff’s decision in United States v. Adelson, 441 F. Supp. 2d 506, 509 (S.D.N.Y. 2006), Judge Block’s decision in United States v. Parris, 573 F. Supp. 2d 744, 753 (E.D.N.Y. 2008), and Judge Underhill’s concurrence in United States v. Corsey, 723 F.3d 366, 379 (2d Cir. 2013), which quotes from Adelson. All of those cases involved extremely lengthy sentencing ranges recommended by the Sentencing Guidelines for defendants who personally had no participation in causing any actual loss. For example, “Adelson was not the originator of the fraud, and, as the jury found in effect, Adelson did not participate in the fraudulent conspiracy until its final months,” during which time the company’s “stock was not further inflated.” Adelson, 441 F. Supp. 2d at 513. In other words, “Adelson was closer (though not identical) to an accessory after the fact.” Id. As a result, Judge Rakoff recognized that the Guidelines range of 85 years in prison could not account for the nuanced way in which the defendant participated in the scheme and resulted in a patently unjust advisory sentencing range. Id. Even after taking that factor into account, though, Judge Rakoff noted the importance of considering general deterrence in financial-fraud cases and imposed a three-and-ahalf-year sentence: “notwithstanding all the mitigating factors outlined above, meaningful prison time was necessary to achieve retribution and general deterrence.” Id. at 514. Adelson thus advocates implementing a meaningful custodial sentence in fraud cases, even when “it was undisputed at the time of sentencing that [a defendant’s] past history was exemplary.” Id. at 513.

In Parris, the defendants were engaged in a two-month “pump and dump” scheme in the penny stock market that resulted in approximately $2,500,000 in losses among hundreds of victims who traded the stock. 573 F. Supp. 2d at 746-49. As a result of their brief penny-stock fraud, even with no criminal history, the defendants faced an advisory Guidelines range starting at 30 years’ imprisonment. Judge Block found this crime with that Guidelines range “not of the same character and magnitude as the securities-fraud prosecutions of those who have been responsible for wreaking unimaginable losses on major corporations.” Id. at 746. The district court asked the government and the defendants to provide the court with a compendium of factually analogous cases nationally. Id. at 751-52. After considering those cases, the court ultimately sentenced the defendants to 60 months’ imprisonment.

Corsey presented a similarly unusual situation warranting a variance. In Corsey, the defendants were prosecuted for trying to carry out an outlandish scheme against, what turned out to be, an FBI informant. “This was a clumsy, almost comical, conspiracy to defraud a nonexistent investor of three billion dollars. That scheme never came close to fruition.” Corsey, 723 F.3d at 378. “This scheme amounted to a series of absurd lies piled on top of even more absurd lies.” Id. at 379. However, the defendants in Corsey immediately faced a Guidelines calculation that was above the statutory maximum of 20 years and close to life in prison. It is in this context that Judge Underhill, in a concurring opinion, found the Guidelines to be of “low marginal value” for the case at hand. But he did not say the guidelines were always of such little import. In fact, Underhill quoted Adelson in holding that in other instances, the Guidelines are “of considerable help to any judge in fashioning a sentence that is fair, just, and reasonable.” Id. at 380.

Whatever merit there is to the argument that the Guidelines overstate the seriousness of the offense generally, this case is a particularly poor vehicle through which to make it. While reasonable minds can disagree about the precise workings of the fraud Guidelines and whether they are unduly driven by loss, no one would argue that the size and scope of a financial fraud should be unrelated to the resulting sentence. It stands to reason that a defendant who engages in a longer, bigger fraud involving more victims should be punished more harshly than a defendant who engages in a short-term scheme (as in Parris), only joins the scheme late (as in Adelson), or does not harm real victims (as in Corsey). Here, by any measure, the defendant’s crime was historic. By dollars, the loss amount was at least twenty times the top of the Guidelines range. And this was not merely the “loss amount,” it was the amount of money actually stolen from customers and lenders. Thus, this case is unlike the fraud in Adelson and other securities fraud cases, where the “ordinary measure of loss” is “the decline in the price of stock when the fraud is revealed.” 441 F. Supp. 2d at 506.

Here, by contrast, the loss is simply the amount of money that the defendant stole from his victims as of the time that the fraud collapsed. In other words, Bankman-Fried fixed his own Guidelines range by misappropriating billions of dollars. Indeed, the Guidelines commentary suggests that in a case like this one, an upwards departure may be appropriate (although that is not what the Government seeks here). See U.S.S.G. § 2B1.1, cmt. n. 21(A) (upwards departure may be appropriate where the “offense caused or risked substantial non-monetary harm,” such as “psychological harm, or severe emotional trauma,” or where the “offense created a risk of substantial loss beyond the loss determined for purposes of subsection (b)(1), such as a risk of significant disruption of a national financial market”).