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U.S. Sentencing Commission Approves Amending Sentencing Guidelines to Reduce Penalties for Economic Crimes

As previously reported on this blog here and here, the United States Sentencing Commission has proposed amendments to the widely criticized federal sentencing guidelines for economic crimes. On April 9, 2015, after hearing extensive public comment on the proposed amendments, the Commission voted to adopt an amended version of the Sentencing Guidelines which will take effect November 1st absent objection by Congress.

The changes are significant but not sweeping. Commission Chair Judge Patti B. Saris described the revisions as addressing “some problem areas, particularly at the high end of the loss table.” Despite objections by the Department of Justice and others that some of the amendments will create unwarranted leniency in the guidelines, the final amendments largely parallel those first proposed by the Commission in January.

Meanwhile, members of the defense bar argued that the changes do not go far enough in departing from an abstract numerical approach (measured by dollars and number of victims) when attempting to gauge culpability. James Felman, a defense attorney who co-chairs the American Bar Association’s criminal justice section and testified before the Commission, characterized the amendments as a “very meager response” to the problems endemic in § 2B1.1 of the Sentencing Guidelines, promising that “[w]e’ll keep lobbying the commission to do more.”

Objectors hoping to stop the changes before they become permanent may now take their concerns to Congress. The final amendments make changes in the following areas:

A.  § 2B1.1 cmt. 3(A)(ii): Intended Loss Defined

Appellate courts have disagreed over whether measurement of intended loss (the size of which is a factor in the Sentencing Guidelines) should be a subjective inquiry focused on the defendant’s intent or an objective inquiry focused on what harm could reasonably have been anticipated. The amended guidelines clarify that determining “intended loss” is a subjective inquiry to be measured by the harm “that the defendant purposely sought to inflict.”

B.  § 2 B1.1(b)(2): Victims Table

The Sentencing Guidelines include a series of tiered sentence enhancements (the victims table) that increase in severity based on the number of victims of an economic crime. This provision has been criticized as overly focused on the number of victims, regardless of the perpetrator’s role in harming them and the degree of individual harm.

As amended, the victims table incorporates whether the offense caused substantial financial hardship to multiple victims. The 2-level enhancement will apply if the offense involved 10 or more victims or mass-marketing, or if the offense resulted in substantial financial hardship to one or more victims. The 4-level enhancement will apply if the offense resulted in substantial financial hardship to five or more victims, and the 6-level enhancement will apply if the offense resulted in substantial financial hardship to 25 or more victims. Enhancements for schemes involving theft or opening of undelivered U.S. Mail (described in Note 4(C)(ii)) will begin at 10 rather than 50 victims.

A new section (4(F)) in the comments provides factors for courts to consider in determining whether substantial financial hardship occurred, including: bankruptcy, forced relocation, damage to credit worthiness, and loss of savings.

C.  § 2B1.1(b)(10)(C): Sophisticated Means Enhancement

The Sentencing Guidelines recommend an enhancement for crimes committed using “sophisticated means.” Courts have differed on whether the enhancement applies to defendants whose conduct involves high levels of planning, deception, and complexity or merely those who commit crimes that ordinarily require sophisticated means, such as complex interstate telemarketing-fraud schemes or accounting frauds.

The amendment requires consideration of the complexity of the offense or its concealment, providing examples such as the use of shell corporations and cross-border planning and execution. However, it also makes clear that only defendants whose own actions were sophisticated or caused the offense to be sophisticated should be subject to the enhancement. The Commission has rejected the position that a defendant’s co-conspirator’s sophisticated means could trigger the enhancement.

D.  § 2B1.1(b)(1): Fraud-On-The-Market Enhancement

Currently, the Sentencing Guidelines provide a formula for calculating enhancements in “fraud-on-the-market” cases based on the amount of losses incurred by investors (even those unintended by the defendant) who traded inflated or deflated securities on public markets because the defendant disseminated false or misleading information. The amendment provides courts with greater discretion to measure loss by using any method appropriate and practicable under the circumstances.

E.  Adjustments for Inflation

The Commission intends to adjust loss thresholds for sentencing by inflation for the first time since 1987. According to the DOJ, this could reduce fraud sentences by an average of 26 percent.

*Mark Harris is a member of the Board of Editors of the Federal Sentencing Reporter and a contributor to the treatise Practice Under the Federal Sentencing Guidelines.

© 2020 Proskauer Rose LLP. National Law Review, Volume V, Number 108


About this Author

Mark Harris, Litigation Attorney, Proskauer Rose Law Firm

Mark Harris is a Partner and co-head of the Appellate Practice Group, which was honored in 2011 by Law360 as one of five Appellate Practices of the Year in the U.S., and by theNational Law Journal with a spot on its annual "Appellate Hot List." Mark is also a member of the White Collar Defense & Investigations and Securities Litigation Groups, concentrating his practice in the areas of white collar criminal defense and related litigation, and representing both institutional and individual clients in government investigations and prosecutions.

James Unger, Law Clerk, Proskauer Rose Law Firm
Law Clerk

James Unger is a law clerk in the Litigation Department.

Phillip J. Caraballo-Garrison, Litigation Attorney, Proskauer Law Firm

Phil Caraballo is a senior Associate in the Litigation Department, resident in the New York office, where he also represents the Litigation Department on the Associate Council. His practice focuses on white collar criminal defense and corporate investigations, appellate litigation, and complex civil litigation at both the state and federal levels.

As a member of the White Collar Defense & Investigations Group, Phil represents clients in prosecutions involving a broad array of federal and state crimes, including insider trading, racketeering...