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Tuesday, June 24, 2014

Enron-Type Life Sentences For Port Authority Fraud? Could Be!

New Jersey state and Port Authority of New York and New Jersey officials who had the Port Authority raise $1.8 billion from a bond offering to use those funds to repair an "access road" to the Lincoln Tunnel could be facing jail time (20+ years, or effectively, "life") comparable to that of the upper management at notorious companies like WorldCom, Refco and Enron.  More on that below.

The New York Times speculates on the real legal trouble for people in the Port Authority and the Christie Administration. 

Even worse is what the article DOES NOT say. If a billion dollars were raised and spent fraudulently, and a federal securities fraud criminal prosecution were brought, anyone considered to have been a criminal conspirator would be liable for the entire monetary loss in the alleged fraud. (Conspiracy to commit a crime requires only that someone intended to do any one single component of the crime, so someone who is 1% culpable could be on the hook for everything.) With the federal sentencing guidelines based almost entirely on the dollar amount of the fraud, any of the co-conspirators could be facing more than 20 years in prison! That's because, under the 2010 federal sentencing guidelines covering financial crimes (because the offering was in 2010), the "offense level" for a fraud of this magnitude is a whopping 42. The base level for the crime is six points, but the amount of the fraud being over $400 million adds 36 points to give you 42. Under this 2010 sentencing matrix (go to page 401), even a Level One offender (no prior convictions) could be facing 360 months to life. 

Now, there are myriad ways to get "downward adjustments" for such a draconian sentence. You could "cooperate" with the government and try to get the government to recommend leniency. (If you feel like learning more, go to Section 5K1.1 of the Guidelines. Bring an oxygen tank and plenty of nonperishable food.).  You could also seek leniency on various hardship grounds, like family or caregiver considerations. Some audacious white-collar criminals have even reportedly discovered their alcoholic or substance abuse problems and gotten credit for going into rehab. And the guidelines are now "advisory" pursuant to a 2004 Supreme Court ruling, so judges have quite a bit of latitude to depart from the guidelines matrix (in both directions, I might add).

Finally, a second point arises from the article's mention of the Martin Act, which is the New York State securities statute (the "blue sky law"). The Martin Act was recently abused by then-Attorney General Eliot Spitzer to go after all sorts of small fry, because the Act allows for state criminal penalties without finding criminal intent!

I will continue to monitor developments.

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