Law school panelists: White collar crime hard to deter

By Andy Owens
Published Feb. 22, 2010

Crime pays, at least if you’re a midlevel executive wearing a white collar.

Panelists at a symposium on crime and punishment said that fraudsters find the risk of being caught typically worth the potential reward for all but the most top-level executives.

Using Enron and WorldCom, along with more recent financial fraud, as examples, the panelists — a federal prosecutor, a CPA and a former Securities and Exchange Commission official — said deterring white collar crime is difficult, partly because criminals are typically caught after years of high living and typically only the top executives receive the harshest penalties.

The symposium, held by the Charleston Law Review and the Riley Institute at Furman University, took place Thursday and Friday in downtown Charleston. It included a keynote address by the founder and executive director of the Equal Justice Initiative based in Montgomery, Ala., as well as a series of panel discussions by scholars, judges, lawmakers, lawyers and public advocates.

‘Like the Whac-A-Mole game’

For example, in 2000, the FBI reported that the number of suspicious mortgage fraud cases was 3,515. By 2008, that number had risen to 63,713. Even eliminating false alarms, the numbers are growing at an enormous rate, said Daniel V. Dooley, CPA and a former senior partner with PricewaterhouseCoopers.

“This trend is staggering,” Dooley said. “This is like the Whac-A-Mole game.”

From left, Rhett DeHart, assistant U.S. Attorney; Daniel Dooley, CPA; and Mark Radke, an attorney with Dewey & LeBouef, talk about white collar crime at the Charleston School of Law symposium on crime and punishment on Friday. (Photo/Andy Owens) The reason for the dramatic growth in mortgage fraud, Ponzi schemes and other types of white collar crimes is the large amounts of money involved and the difficulty in proving a complex case. The FBI estimates that in 2008, those potential mortgage fraud cases resulted in more than $1.5 billion in losses.

Dooley said a comparison of the prison time given to top executives — Enron’s former president, Jeffrey Skilling (24 years, 4 months in jail) and the company’s CFO, Andrew Fastow (6 years) — shows that CEOs typically take a bigger hit, especially when the CFO cooperates with the government’s case against the chief executive.

In a recent paper, Dooley and Mark Radke, a former SEC official and partner with Dewey & LeBoeuf, wrote that this can be a big challenge to the argument that lengthy prison sentences deter fraud.

“Most financial criminals don’t think about it, and they don’t think they’ll get caught,” Dooley said.

The 150 years in jail that Ponzi schemer Bernie Madoff received will likely deter only him from committing similar fraud, Dooley said, and even those who consider they might get caught know that they might have a decade or more to live off ill-gotten gains before anyone notices.

More like a gatekeeper

Radke thinks the SEC should act less like a prosecuting agency and more like a gatekeeper that could shut down rip-off artists even without a case that could go before a court. He said a lot of the damage that’s being done could be stemmed if the SEC would use its regulatory power to freeze assets and bar fraudulent activity from occurring.

“You don’t have to build a case beyond a reasonable doubt” to act, Radke said.

Assistant U.S. Attorney Rhett DeHart agreed that a more regulatory approach would be helpful in stopping financial criminals, but he said it’s impossible to know if large prison sentences deter the trend of financial fraud because you can’t measure the incidence of someone not committing a crime.

“Who knows whether they deter others or not?” he said. “You can’t measure a crime that’s not committed. I think deterrence may be the least important factor.”

Other goals served

DeHart read from several impact statements from Madoff’s victims to make the point that justice is served against the people who perpetrate these crimes. He added that, even if prison terms don’t deter other criminals, they accomplish other goals, including reflecting the seriousness of the crime, serving a just punishment, deterring other crimes and protecting the public from the defendant.

“What we know is there will be another round of Ponzi schemers,” Dooley said. “If the Justice Department didn’t go after these criminals, it would get worse.”

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Added: 22 Feb 2010

Yes it's the low level or employees. At the end of 2008 I placed my name on a website for mortgage help. Within minutes I recieved three phone calls, six e-mails, and the next morning three more phone calls. All claiming to be professionals in mortgage modification. Unbelievable to how many scammers are out there.