Examination of the White Collar Crime Penalty Enhancements in the Sarbanes-Oxley Act

HEADNOTE

NOTE

The Sarbanes-Oxley Act (the Act) was signed into law on July 29, 2002.1 The Act's passage was widely heralded as an historic occasion marked by the most comprehensive corporate reform measures enacted

since the stock market crash of 1929.2 Passage of the Sarbanes-Oxley Act was a reaction to the questionable business practices of corporate executives, which ultimately caused precipitous across-the-board declines in the value of stock in publicly-traded companies during the summer of 2002.3 The inclusion of the White Collar Crime Penalty Enhancement Act (WCCPA) of 2002 in the corporate reform package was part of the political branches' response to growing public outrage over a number of highly-publicized incidents of corporate malfeasance.4 The specific enhancements contained within the WCCPA increase the maximum jail sentences for individuals convicted of certain ERISA violations, fraud, and conspiracies to commit fraud by a factor of four to ten.5 The WCCPA also makes it a crime for corporate officers to falsely certify the reports submitted to the Securities and Exchange Commission (SEC).6 Furthermore, the WCCPA directs the United States Sentencing Commission (U.S.S.C.) to amend the United States Sentencing Guidelines (the "GuideIMAGE FORMULA 4

lines") to "reflect the serious nature" of white-collar crimes.7 Taken together, the provisions of the WCCPA have the potential to subject white-collar criminals to longer jail sentences.8

This Note examines whether punishing white-collar criminals by sentencing them to longer prison terms will help solve the problems that prompted Congress to pass the Sarbanes-Oxley Act in the first place. Part I reviews news reports from papers across the country to provide an overview of the events that unfolded in the business community in late 2001 through the summer of 2002, and that caused the public to pressure legislators to enact business reform measures. Part II describes the political process that led to the passage of the Sarbanes-Oxley Act; Part II also focuses on how growing public outrage led to the inclusion of the WCCPA. Part III reviews the substantive changes in the law resulting from the adoption of the WCCPA and suggests that its directive to the U.S.S.C. will create new prosecutorial constraints; as a result, convicted white-collar criminals will serve longer prison sentences. Part IV asks whether longer jail sentences are a reasonable legislative reaction to the problem of corporate malfeasance. This section reviews scholarship that suggests that penalty enhancements are not the best way to deter white-collar crime and acknowledges the likely criticism that the WCCPA was passed hastily, so that legislators could sooth angry constituents before breaking for summer recess, and without reasoned deliberation. Nonetheless, this Note argues: (1) the WCCPA will deter white-collar crime by providing law enforcement with more tools to prosecute white-collar offenders; and (2) the remedies appropriately channel public rage over fraudulent business practices into the criminal justice system. This Note also argues that the WCCPA accomplishes other legitimate goals of the criminal justice system, such as retribution for wrongdoing. IMAGE FORMULA 6

I. RECORD BANKRUPTCY FILINGS CAUSE MARKET UPHEAVAL AND PUBLIC OUTRAGE

Between December 2001 and July 2002, four major corporations filed for Chapter II bankruptcy protection: Enron, Global Crossing, Adelphia and WorldCom.9 Based on the dollar amount of assets involved in each case, these filings constitute four of the six largest corporate bankruptcies in U.S. history.10 All four companies allegedly hid their true financial conditions from creditors and shareholders until an inability to meet financial commitments forced these companies to restate earnings and reveal massive losses.11 The value of each company's stock plummeted when respective financial restatements were made public and approached zero when each company filed for bankruptcy. 12 The financial collapse of these corporations, a result of allegedly fraudulent accounting practices, created a ripple effect that weakened a stock market already deflated by both the bursting of the technology bubble in 2000 and investor uncertainty resulting from the terrorist attacks of September 11, 2001.13 In the aftermath of each of the major bankruptcies, details emerged suggesting that top executives were not merely pushing the envelope on generally-accepted accounting practices, but instead engaged in IMAGE FORMULA 8

numerous fraudulent practices. 14 Those practices often were enabled by the corporate accounting firms and attorneys and blessed by internal audit committees. Each succeeding bankruptcy further destabilized the stock market and fueled public outrage. The collapse of WorldCom in the spring of 2002 created intense political pressure on legislators to prevent future corporate mishaps and to punish the individuals responsible.

The following is a chronological summary of the major bankruptcies that occurred between November 2001 and June 2002. Each summary explains the events that caused each company to file for bankruptcy protection and also describes some of the effects the bankruptcy had on each company's employees and investors. From the first sign of trouble with Enron through WorldCom's Chapter 11 filing, the details were headline news in major newspapers across the country. The chronology creates a sense of the litany of corporate debacles about which Americans heard daily for nearly a year. A summary following the chronology discusses briefly the ways in which public pressure for reform and punishment mounted over the course of the relevant months to create an environment where legislators felt there was a mandate for reform legislation.

A. Enron

At Enron, financial losses were related to investment partnerships created and run by Enron's Chief Financial Officer (CFO), Andrew Fastow.15 The company allegedly created the partnerships to hide financial loses. 16 Although this practice is not in itself illegal, the investment community often challenges it.17 Nonetheless, the SEC started a probe into the propriety of Enron's financial dealings to determine if its partnerships, formed using Enron equity and outside capital to hedge against the risks involved in new business ventures, were within the letter of the law.18 Arthur Andersen, Enron's accounting firm, quickly caught the SEC's attention by destroying documents related to their audits of Enron's books.19 It IMAGE FORMULA 11

now appears that many members of Enron's board, including members of its audit committee, received from the corporation consulting fees or cash payments to the philanthropic organizations of their choice, often funded by the partnerships that were being used to hide debt.20

The collapse of Enron had a devastating impact on its employees who were heavily invested in the company, causing many to file suits against their former employer.21 Early estimates suggest that employees lost over $1 billion as a result of the company's falling stock prices.22 Part of the reason for the extent of employee losses was that Enron blocked its employees from selling company shares during the four-week period immediately before the company restated its earnings.23 Enron's official reasoning for the blackout was a long-planned switch to a new 401(k) provider.24 But given the timing, this rationale rang hollow with employees who lost their life savings that month. However, lawsuits by employees are unlikely to lead to the recovery of a substantial percentage of losses suffered by employees or other investors because stockholders are not at the top of the creditor list in a bankruptcy proceeding.

The mounting evidence that Enron's corporate executives allegedly sold their own stock during the period when employee actions were frozen further enraged employees and investors.26 Executives who knew about the company's worsening financial condition are accused of conducting $1.1 billion in insider stock sales during the time that non-executive employees were blocked from trading.27 According to employee reports, Enron Chief Executive Officer (CEO) Kenneth Lay encouraged employees to continue investing in Enron even as he was dumping his own shares.28 The top executives-those responsible for hiding Enron's financial condition from investors-made hundreds of millions of dollars by selling their shares in the company during the four-year period prior to the IMAGE FORMULA 13

restatement of the company's earnings.29 And even as laid-off workers received two weeks' pay as severance, Enron paid out $100 million in retention bonuses to senior level executives just before it filed for bankruptcy. 30

Outside investors, free to sell their Enron stock at any time, advanced the position that they were defrauded by executives and directors because senior management knew that the company's stock was overvalued; this overvaluation, investors allege, would fall eventually, causing major shareholder losses, information management failed to share with Enron investors.31 Aside from efforts to obscure the true financial condition of the corporation, evidence suggests that Enron executives bullied analysts who questioned the value of the company's stock.32 Further, agencies that provided credit ratings for Enron did not downgrade the credit rating even as late as November 2001, when the company was teetering on the edge of bankruptcy; this inaccurate credit-rating raised questions about the agencies' relationships with Enron executives.33 Litigation of these and approximately seventy other claims related to losses sustained by Enron investors and employees is set to start on December 1, 2003.34

B. Global Crossing

Global Crossing announced it was filing for bankruptcy in January 2002.35 The telecommunications company, founded in 1997, built an undersea fiber optic network to provide high-speed internet connections between countries around the world.36 However, its investment strategy assumed that international high-speed internet usage would surge. When the expected surge did not materialize, the company allegedly used questionable accounting methods, such as "swapping" fiber optic capacity with companies including Qwest Communications and improperly disclosing the transactions in financial reports, to inflate its corporate earnings.37 Global Crossing's settlement negotiations with the SEC have reached an impasse with regard to the culpability of individual executives, with Global IMAGE FORMULA 16

Crossing attorneys arguing that its management relied in good faith on advice management had received from its accountant, Arthur Andersen.38

Like Enron executives, Global Crossing executives profited from the inflated value of the company by selling more than $1 billion in personal stock during the three-year period before the company filed for Chapter 11.39 Global Crossing CEO Gary Winnick alone sold almost three-quarters of a billion dollars of his own company stock during that period.40 However, unlike the Enron case, Winnick's spokesperson claims that Global Crossing executives made no insider stock sales in the six-month period prior the company's bankruptcy filing.41 Still, Winnick is the first high-profile executive to attempt to make personal recompense for the losses employees experienced due to the company's bankruptcy.42 Winnick pledged $25 million of his own money to assist employees whose 401(k) savings had disappeared due to the declining value of the company's stock.43

Like Enron, the Global Crossing board, which was responsible for assuring the accuracy of the company's records, was replete with conflicts of interest.44 Many of Global Crossing's audit committee members were personal friends of Winnick.45 Maria Logamasiano, Winnick's private banker who managed his personal finances, was appointed to Global Crossing's audit committee in the spring of 2001.46 Logamasiano's company, J.P. Morgan, loaned money to Global Crossing and underwrote its corporate initial public offering (IPO); Winnick also served as a member of J.P. Morgan's Board of Advisors.47 A second member of the Global Crossing Board's audit committee resigned due to potential conflicts related to his investments in a Global Crossing's subsidiary.48 In the case of Winnick's private banker, J.P Morgan requested that she resign from the Global Crossing Board one month before Global Crossing filed for bankruptcy protection.49 An unrepentant Board of Directors is paying for all of Winnick's legal fees associated with the corporate collapse.50 IMAGE FORMULA 18

C. Adelphia

In late March 2002, Adelphia, the nation's sixth-largest cable operator, disclosed that it had failed to report $2.3 billion in debt.51 Most of that debt was attributable to loans Adelphia made to entities owned by the Rigas family-the founders of Adelphia.52 In May 2002, the company failed to satisfy the terms of several bond and bank loan agreements 53 Consequently, Adelphia filed for bankruptcy. During the preparation of its 2001 year-end financial reports, Adelphia found that members of the Rigas family, several of whom remained on its Board and held high-ranking positions within the company, had perpetrated massive improprieties.54 All three family members resigned from the company in May, and they were arrested in July for orchestrating a fraud.55 It appears that the Rigas family was buying back company stock with their own private funds in order to reduce company debt resulting from some poor investments.56 However, the buyback allegedly was funded with hundreds of millions of dollars borrowed from Adelphia.57 Additionally, company funds allegedly were used to subsidize some family members' apartments, an African safari, and construction of a golf course.58

D. WorldCom

WorldCom was the second-largest long distance carrier in the United States and the largest carrier of internet data.59 It is the parent company of MCI, the long-distance phone company, and UUNET, a provider of internet access services.60 The company's bankruptcy filing on July 21, 2002 is currently the largest in United States history, with $107 billion of assets involved.61 Initially, the company admitted to more than $7.2 billion in improperly booked expenses and to a multitude of other accounting mistakes.62 In early September, WorldCom disclosed an additional $2-3 billion in accounting problems.63 Like Global IMAGE FORMULA 22

Crossing, WorldCom had invested heavily in fiber optic cable,64 but a market excess of fiber optic line availability undermined WorldCom's earnings by lowering the cost of their services.65 In order to keep reports in line with Wall Street's expectations, corporate finance executives allegedly filed false financial reports and ordered employees to hide expenses to permit WorldCom to claim billions of dollars in false profits over the two-year period prior to bankruptcy.66

Employees and shareholders were devastated by WorldCom's failure. From 2001 to June 2002, WorldCom laid off more than 20,000 employees, trimming its overall workforce by ten percent in a little over a year.67 Many of the jobs lost were blue-collar positions that had been created to build WorldCom's extensive fiber optic network.il Economists predict that given the extent of the fiber optic over-development, there will not be a recovery of the jobs lost in the telecommunications sector in the short term.69 By the time the NASDAQ de-listed the company on July 30, 2002, WorldCom stock had fallen from a high of over $60 per share in 1999 to less than a dollar per share.70

At the same time that blue-collar workers were being laid off by the thousands, WorldCom paid out $287 million to approximately 560 top executives as part of a two-year bonus retention program.71 Strapped for cash, WorldCom was initially unable to provide rank-and-file employees with reasonable severance packages.72 As a result of petitioning the United States Bankruptcy Court in Manhattan, Worldcom was allowed to augment those severance packages, ensuring that 4000 former employees will receive twenty-six weeks of salary and benefits for an average of $9000 per employee.73 Still, the court's decision covered fewer than half of the employees laid off by WorldCom.74 IMAGE FORMULA 24

E. Public Outrage Builds to a Crescendo

Investor confidence dropped precipitously over the months spanning the Enron and WorldCom bankruptcy filings, battering the stock market.75 By July 2002, the Dow Jones Industrial Average hit a five-year low, causing many Americans on the brink of retirement to lose most of the value of their portfolios.76 Many individual investors gave up on their "buy and hold" investment strategies and pulled their money out of the stock market entirely.77 Brokerage firms began to lay off brokers in large numbers as the volume of stock transactions fell in July 2002.78 A robust recovery to the recession was not imminent and anger flared due to the high-profile corporate malfeasance cases.79 American investors were no longer satisfied with taking their anger out on the stock market.80

Public outrage over the bad acts of corporate executives-those alleged and those admitted-increased to a furor by the time WorldCom collapsed. A CNN/ Gallup poll taken in February 2002 suggested that sixty-five percent of the public thought Enron executives had acted criminally by hiding company debt in "off balance sheet" partnerships.81 The pundits noted that the high-profile arrests of members of the Rigas family and high-ranking executives from WorldCom encapsulated the Bush Administration's effort to appease an angry electorate.82 But these initial arrests did not quiet public demand for accountability. Americans expressed continued indignation over the fact that some executives appeared unfettered by the collapse of their companies and continued living comfortably, while average citizens lost jobs and suffered other consequences of the recession.83 IMAGE FORMULA 27

An informal Moneyline poll conducted in mid-July 2002 asked viewers how important it was that Enron executives be indicted: ninety-seven percent responded that it was "very important."84 Legislators took note and accelerated their efforts to pass laws to reform corporate accounting practices and punish wayward executives.85

II. LEGISLATIVE HISTORY

Both Congress and the Bush Administration increasingly were made aware of the growing demand among their constituents for personal accountability of corporate executives. 116 The problems at Enron catalyzed discussions between Congress and the Administration on potential reform measures,87 but the spring and early summer of 2002 was marked by disagreement over which policy objectives should shape those measures.88 Should reform efforts focus solely on the prevention of future frauds? Should they include harsh punishments for the bad acts of individuals? President Bush's early reform proposals focused on oversight to address the "high profile company failures."89 His ten-point plan promised to make corporate balance sheets more comprehensible to average investors and to strengthen regulatory oversight of the accounting industry.90 Two aspects of his proposal were somewhat punitive: the first barred corporate officers who commit fraud once from later serving as executives in publicly traded companies; the second made it easier for the government to strip executives of performance bonuses resulting from inflated profits.91 Bipartisan criticism of the President's initial proposals was that the proposals failed to provide "real teeth" that would hold corporate executives accountable for fraudulent business practices that hurt IMAGE FORMULA 30

investors.92 As more corporate scandals unfolded, one purpose of the reform package-punishment-crystallized. The Act as passed not only addresses the need for improved accuracy in corporate financial reporting, but also accommodates the public's increasing desire to punish the executives responsible for inaccurate or fraudulent financial reports. Every political opponent of the legislation capitulated under the public pressure produced by WorldCom's collapse.93

A. Sarbanes-Oxley's Passage

Prior to the collapse of WorldCom, Capitol Hill approached corporate reform gingerly. Michael G. Oxley, the Chairman of the House Financial Services Committee, sponsored the Corporate and Auditing Accountability, Responsibility and Transparency Act, which passed the House in April.94 The bill focused largely on transparency in, and oversight of, corporate accounting practices; however it contained no provision for white-collar penalty enhancements.95 The Oxley bill was received by the Senate on April 25, 2002 and was referred to the Committee on Banking, Housing and Urban Affairs.96 Senator Paul Sarbanes, Chairman of that Committee, introduced his own bill, The Public Accounting Reform and Investor Protection Act of 2002, in mid-June.97 Because these bills came out of committees with jurisdiction over financial affairs, neither bill included changes or additions to the criminal penalties for white-collar criminals.98 IMAGE FORMULA 33

When the Sarbanes bill reached the Senate floor in July it was immediately the subject of numerous amendments.99 These amendments to the bill reflect the genesis of the WCCPA. On July 9, 2002, the Senate majority leader, Tom Daschle, offered an amendment on behalf of Senator Leahy, Chairman of the Judiciary Committee, intended "to provide for the criminal prosecution of persons who alter or destroy evidence in certain Federal investigations or defraud investors of publicly traded securities."100 The amendment was tabled and ultimately withdrawn.'O' On July 10, a second amendment, proposed by Senator Daschle on behalf of Senator Joseph Biden, was offered to increase criminal penalties related to conspiracy, mail and wire fraud, as well as some ERISA violations.'2 This amendment passed 96-0 later that day. 103 Ultimately, the Senate voted to incorporate its bill into the Oxley Act and sent that version to conference to resolve the differences between the House and Senate versions.104 The Sarbanes-Oxley Act, which emerged from conference on July 25, was the full text of the Senate's version of the reform bill.105 It was presented to the President on July 26 and signed into law on July 29.106

B. Political Backdrop

The mechanics of its passage aside, enactment of a corporate reform package was not a foregone conclusion as of early July 2002.107 As indicated by passage of the Oxley Act, the House took relatively quick action. Members of both the House and the Senate offered numerous bills providing greater oversight of corporations, strengthening the SEC and enhancing criminal penalties. 108 However, members of Congress did not believe that it was politically feasible to pass enhanced criminal penalties and broader regulation of behavior in a single bill.109 Serious discussions IMAGE FORMULA 36

about adding enhanced criminal penalties for individuals to the overall corporate reform package did not begin in earnest until the end of June 2002. 110Just prior to the Fourth of July holiday, Democratic leaders from the Senate informed the White House that an amendment from the Judiciary Committee enhancing criminal penalties would be offered as an amendment to the Senate bill.111 The Bush White House did not immediately embrace tougher sentences, noting that it had "concerns" about the proposed measures.112 President Bush announced his own plan for fighting corporate fraud and holding executives accountable at a press conference on Wall Street in early July. 113 Again, there was no mention of the enhanced criminal penalties suggested by Senate Democrats in their letter to the White House in late June, nor was there a pledge to sign any reform measures that Congress might pass.114 Such a statement by the President would have been thought unnecessary; the prevailing wisdom was that a corporate reform bill would not be passed before August recess.115

While Enron's bankruptcy sparked the reform movement, WorldCom's collapse provided the momentum to push reforms through Congress.' 16 Lawmakers opposed to some or all of the proposed reform measures quickly changed their positions in the wake of the fourth major bankruptcy in less than a year and the largest to date.' 17 Phil Gramm, Republican Senator from Texas and one of those who reversed his opposition to the bill, acknowledged that given the environment, IMAGE FORMULA 38

"literally anything could have passed."118 The President, who was on record as opposing the essence of the Senate's reform efforts, acquiesced and said that he would sign whatever Congress sent him.119 Politically, the White House could not veto a bill that contained augmented penalties to punish executives like those increasingly vilified in the press and by the electorate.120

III. SUBSTANTIVE CHANGES OF LAW: THE SARBANES-OXLEY ACT

The congressional solution to the market problems and high-profile bankruptcies of 2001 and 2002 was the Sarbanes-Oxley Act.121 The Act is broad and covers a range of topics. The Act addresses different facets that, in congressional judgment, spawned the activities that so many corporations engaged in that affected the stock market and undercut investor confidence. 122 Among the issues addressed by the Act are: accounting oversight, auditor independence, insider trading, corporate responsibility, the transparency of financial statements, conflicts of interest among analysts, the resource needs of the SEC, criminal fraud accountability, and the criminal penalty enhancements. 123 The WCCPA constitutes a small part of the package. However, the degree of enhancement as well as the new provisions' potential effects makes the WCCPA a potentially powerful part of the Act. There are five substantive sections in the WCCPA: Attempt and Conspiracy to Commit Criminal Fraud; Criminal Penalties for Mail and Wire Fraud; Criminal Penalties for Violations of the Employee Retirement Income Security Act of 1974; Amendment to Sentencing Guidelines Relating to Certain White-Collar Offenses; and Corporate Responsibility for Financial Reports.124 The following is a discussion of each of the Act's five substantive sections.

A. Increased Penalties for Mail and Wire Fraud

The WCCPA increases the maximum sentence for committing Mail and Wire Fraud from five to twenty years.125 The elements of criminal mail and wire fraud under 18 USC 1341 and 1343 are: (1) a scheme to defraud, (2) with the intent to IMAGE FORMULA 42

defraud, (3) while using the United States mails or private interstate commercial carriers in furtherance of the scheme or, in the case of wire fraud, the communication must be transmitted through the wires across state lines. 126 Additionally, each participant must "willfully participate in a fraudulent scheme" under these statutes. 127

Under the first element, a scheme to defraud, it need only be proved that a scheme existed; a prosecutor need not prove that the scheme was executed or that any person was actually defrauded as a result of the scheme.128 However, that scheme must meet the common-law definition of fraud.129 Thus, a prosecutor must demonstrate that a defendant used a falsehood to which a reasonable person would attach importance in determining a choice of actions or that the perpetrator of the falsehood knows or should know that the subject matter of the falsehood is likely to be important in determining the choice of a person to whom the falsehood was told. 130

In most cases, a scheme to defraud is one that seeks to deprive someone of money or property.131 The scheme typically is demonstrated by showing that the perpetrator misrepresented or omitted a material fact to induce someone to act on those misrepresentations.132 However, the mail and wire fraud statutes occasionally extend to cover schemes that deprive individuals of fundamental rights.133 This extension can apply either to cases where public officials deprive citizens of good government or to cases where individuals are deprived of honest services in the private sector.134 In the latter case, the misrepresentation or omission at issue must "contravene-by inherently harming-the purpose of the parties' relationship."135 IMAGE FORMULA 44

The second element, intent to defraud, requires a showing of the perpetrator's specific intent to defraud the victim.136 Circumstantial evidence, such as an attempt to conceal the actions in question, may be used to demonstrate that a defendant's actions meet the intent element.137 Conversely, circumstantial evidence may be used to establish that a defendant did not have the requisite intent.138

The final element requires the prosecutor to demonstrate successfully that the defendant used the mail or wires to further the scheme.139 "Use of the mails" is liberally construed to include causing the use of mail.140 However, under the wire fraud statute the circuits are split: some require that the defendant have knowledge that interstate wire communication would be used, or else that use must be foreseeable; others do not. 141 To demonstrate that either form of communication was used in furtherance of the scheme, a prosecutor must show that the mailing or communication is related to the fraud at issue. 142

The WCCPA does not change any of the fundamental elements of either mail or wire fraud. 143 Instead, the WCCPA significantly increases the maximum penalty applicable when an individual is convicted of mail or wire fraud.144 In each instance, the WCCPA strikes the previous penalty of five years and replaces it with a maximum of twenty years.145

Congress enhanced the penalties for mail and wire fraud because they are "among the most frequently charged federal criminal statutes" in white-collar crime cases.146 The statues often are used to establish federal jurisdiction over fraudulent activities.147 Further, prosecutors may indict defendants for each mail or wire communication.148 This meant that, in theory, a defendant who used the mail or wire one hundred times in the furtherance of a scheme to defraud could have faced a maximum penalty of five hundred years in prison. However, IMAGE FORMULA 46

prosecutors often manipulated the number of charges in the defendant's indictment as a bargaining chip to obtain favorable plea agreements. 149 In other words, a prosecutor might use the fact that the defendant could be charged with five hundred counts of mail fraud to secure a plea on one count of mail fraud. By creating a higher maximum penalty for a single count of mail or wire fraud, Congress ensured that even when a white-collar criminal pleads to a single count of either mail or wire fraud, he or she could still serve a substantial prison sentence. 150

B. Increased Penalties for Violations of ERISA

Another section of the Act provides enhanced criminal penalties for willful violation of Part 1 of the Employee Retirement Income Security Act ("ERISA").151 ERISA applies to all employee benefits that are "established and maintained" by "any employer engaged in commerce or in any industry or activity affecting commerce," "by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce," or both.152 ERISA was enacted to regulate the growing number of employee benefit plans. In its announcement of purpose and policy Congress noted that:

[T]he continued well-being and security of millions of employees and their dependents are directly affected by these plans; that they are affected with a national public interest; that they have become an important factor affecting the stability of employment and the successful development of industrial relations.153

To achieve its stated purpose, Congress enacted provisions that are set out in the Labor and Tax Codes, respectively.154 The ERISA provisions are lengthy and complex and are not the subject of this Note. It is sufficient to note that provisions of ERISA designed to protect workers who depend on various retirement plans may apply when employer actions implicating or affecting those plans are at issue. Under this section, the Criminal Penalties associated with violations of the Act are increased from a maximum prison sentence of one year to a new maximum of ten IMAGE FORMULA 51

years. 155 Fines also increase under this subsection for an individual from $5,000 to $100,000 and for a corporation from $100,000 to $500,000. 156

Other provisions of the Sarbanes-Oxley Act make substantial changes to the reporting and disclosure requirements under ERISA. 157 Within 180 days of the Act, all plan administrators are required to give all participants in individual account plans thirty days' notice before prohibiting participants in the plan from selling stock or conducting other business transactions related to their accounts.'-58 Such periods of restriction are typically referred to as "black out" periods.159 As discussed in Part I of this Note, rank-and-file employees of major corporations such as Enron suffered severely from the falling stock prices because they were blocked from trading.160 Company employees were forced to watch as their stock in the company plummeted without being able to access or control their investments. 161 The Act forbids the imposition of a blackout period on plan participants without notice. 162

A companion provision prohibits corporate executives and directors from selling any of their own company stock during a blackout period. 163 This provision would have criminalized the actions of executives at Enron who unloaded stock while their employees-plan participants-were unable to do so. The criminal penalty enhancements impose stringent maximum fines and possibly lengthy jail sentences on individual officers or executives who fail to comply with ERISA requirements, including the provisions added by the Act.

C. Attempts and Conspiracy

The Attempts and Conspiracy to Commit Criminal Fraud Offenses section of the WCCPA creates a new section in chapter 63 of title 18, which addresses crimes and criminal procedure generally and mail fraud specifically.164 The new provision reads: "Any person who attempts or conspires to commit any offense under this chapter [18 U.S.C. 1341 et seq.] shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt IMAGE FORMULA 54

or conspiracy."165 This provision may initially seem unnecessary, as the United States Code has already a general provision criminalizing conspiracy to commit a federal crime: 18 U.S.C. 371.166 The basic idea underlying the law of conspiracy is that the conspiracy to commit an illegal act is an independent crime, regardless of whether the conspiracy comes to fruition.167

Commission of a substantive offense and conspiracy to commit such an offense are separate and distinct offenses, and the completed substantive offense is not merged with the conspiracy.168 Conviction for the commission of both the underlying offense and the conspiracy is allowed. 169 However, when a prosecutor goes forward on a charge of conspiracy to commit mail or wire fraud, the maximum penalty is the maximum penalty under conspiracy: five years.170 As noted above, an individual may have conspired to commit multiple counts of mail and wire fraud and used the mails or wires multiple times over the course of the conspiracy.171

However, an individual defendant can only be charged once for conspiracy, meaning that they will serve at most five years for a conviction.172 If section 371 remained at the disposal of prosecutors for charging white-collar criminal defendants of conspiracy, then prosecutors could limit the maximum sentences such defendants would serve to five years simply by charging them under section 371.173 The important change resulting from the enactment of the attempt and conspiracy provision is that specific maximum sentences attached to general conspiracy will be inapplicable to instances of mail and wire fraud because section 371 is replaced by the conspiracy provision specific to mail and wire fraud. Therefore, prosecutors will not be able reduce the potential maximum jail sentence, thereby skirting the new penalty enhancements for mail and wire fraud, by charging the defendant with conspiracy.174

Additionally, the new provision creates an explicit crime of attempt. 175 In the case of mail and wire fraud, perhaps this is not exceedingly important considering IMAGE FORMULA 56

that mail and wire fraud by their definition (and exposition in case law) include incohate crimes which have not come to fruition or succeeded.176

D. Certification Requirement

Chapter 63 of Title 18 is also amended by the addition of new section 1350, which generally requires that a company's CEO or CFO certifies financial statements legally compelled by the SEC. The provision states:

Each periodic report containing financial statements filed by an issuer with the Securities and Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall he accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer. 177

The new section also dictates the content of such certification, demanding that essentially CEOs and CFOs swear to the fact that their financial statements reflect the true financial condition of the company at issue. Specifically, it states:

The statement required ... shall certify that the periodic report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.178

Together, these subsections of the new provision require CEOs and CFOs to take responsibility for the accuracy of the records their company submits to the SEC.

In writing the penalty provision of the certification requirement, Congress created two separate sets of penalties based on what Congress perceived to be two qualitatively different violations. On the one hand, a CEO or CFO who "certifies any statement ... knowing that the periodic report accompanying the statement does not comport with all the requirements ... shall be fined not more than $1,000,000 or imprisoned not more than 10 years, or both."179 On the other hand, a CEO or a CFO who "willfully certifies any statement ... knowing that the periodic report accompanying the statement does not comport with all the requirements ... shall be fined not more than $5,000,000, or imprisoned not more than 20 years, or both."" It is not clear how the courts will interpret the difference between these two ways in which chief executive or chief financial officers certify false IMAGE FORMULA 63

statements to the SEC. 181 Some have also argued that criminal penalties are not applicable for failing to provide a certification in the first place, but only in the instances where certifications that are provided are false.182

The policy purpose of this additional provision is straightforward. Given the certification requirement, CEOs and CFOs cannot shift blame down the corporate ladder by claiming ignorance of the facts of the company's financial condition. Perhaps the origin of this provision was the congressional testimony during which heads of multiple corporations claimed ignorance about the true financial condition of their companies-that is, when such corporate leaders did not invoke the Fifth Amendment. 183

E. Directive to the United States Sentencing Commission

The final provision in the WCCPA is the Amendment to Sentencing Guidelines Relating to Certain White-Collar Offenses, directing the U.S.S.C. "to amend the Federal Sentencing Guidelines and related policy statements to implement" the Act.184 The U.S.S.C. is an "independent agency in the judicial branch of government."185 The Sentencing Reform Act, passed in 1984, created the U.S.S.C. to improve fairness in sentencing, to provide advice to Congress on appropriate crime policy, and to collect and analyze research on crime and sentencing issues. `86 Specifically, the U.S.S.C. was directed to establish policies on sentencing consistent with congressionally mandated purposes of sentencing: deterrence, prevention and punishment.187 With these purposes in mind, the U.S.S.C. created guidelines to foster certainty in sentencing and to abolish the disparities between sentences received for commissions of the same crime.188

The result-the Guidelines-apply to all federal felonies and take into account the seriousness of the crime committed and the convicted person's history of IMAGE FORMULA 66

criminal conduct.189 The Guidelines created levels of seriousness for various offenses, which are adjusted downward or upward depending upon a variety of factors.190 The U.S.S.C. creates a profile of characteristics associated with each offense. For example, in the case of fraud, the amount of the loss resulting from the fraud can increase the offense level.'9' Fraud has a base level of 6; if the loss created by the fraud is $3,000, then the offense level goes up one level to 7; if the loss involved is $50,000, then the offense level is raised by 5 for a total offense level of 11.192 There are also adjustments available for all offenses that can be used to increase or decrease the offense level.193 A minor participant would qualify for a downward adjustment in the offense level, as would a defendant who cooperated with the prosecution or who accepted responsibility. 194

Congress gave a six-part directive to U.S.S.C. in the WCCPA.195 These mandates include: (1) assuring that the Guidelines reflect the seriousness of the offenses and penalties included in the Act; (2) asking the U.S.S.C. to consider the extent to which the Guidelines and policy statements achieve the purposes set forth by Congress: deterrence, prevention, and punishment of such offenses; (3) ensuring that the Guidelines take into account aggravating and mitigating circumstances that may call for exceptions to current applicable guidelines; and (4) revising the Guidelines accordingly. 196 The U.S.S.C. was also directed to make changes to the Guidelines within 180 days of the Act's enactment. 197 In a recent policy statement, the U.S.S.C. noted that implementing changes related to the Sarbanes-Oxley Act is the number one priority for the May 2003 amendment cycle.198

Perhaps the purpose of the directive to the U.S.S.C. was a perception that white-collar crimes are not assigned sufficient offense levels and, further, that upward departures based upon the dollar value of monetary loss related to white-collar crimes (like fraud) do not adequately reflect the magnitude of the losses sustained as a result of the most recent round of corporate failures.199 Although it is impossible to predict how the U.S.S.C. will comply specifically with the broad congressional directive, it may be the case that the general offense levels IMAGE FORMULA 68

for white-collar crimes will increase. Additionally, the aggravating factors may also be extended to recognize the magnitude of financial losses that can result from fraud committed by the officers of publicly-traded corporations. The ultimate outcome is an increased likelihood that white-collar criminals will serve longer jail sentences.200

IV. WILL LONGER JAIL SENTENCES FOR WHITE-COLLAR CRIMINALS SERVE THE PURPOSES OF THE CRIMINAL JUSTICE SYSTEM?

Hundreds of billions of dollars of losses each year are attributable to whitecollar crimes.201 By some estimates, the societal losses resulting from crimes related to fraud alone202 are eleven times greater than the losses sustained from crimes against property.203 Still, perpetrators of white-collar frauds are less likely to serve jail time than are other criminals prosecuted by the federal government.24 There are a number of factors that contribute to this phenomenon.205 One such factor is that some theorists in a position to influence enforcement and sentencing IMAGE FORMULA 71

practices do not believe that terms of imprisonment are the appropriate sentencing choice for white-collar criminals.206 For more than two decades, these so-called "optimal penalty theorists" have argued that in the case of white-collar criminals, fines create the same deterrent effect as jail sentences and avoid the expenditure of societal resources necessary to incarcerate convicted criminals; thus, these theorists argue, sentences for white-collar criminals should be limited to fines.207

This part of the Note is comprised of three sections. The first describes optimal penalty theorists' position regarding the efficacy of jail sentences for deterring white-collar crime, and anticipates their objections to the WCCPA: namely, that it will not provide enhanced deterrence and that its passage was politically motivated. The second section discusses the increased deterrent effect that will derive from the WCCPA, and in addition the second section outlines the ways in which jail sentences are a more effective deterrent than fines. The third section suggests that even if the WCCPA does not have any deterrent effect, it serves other congressionally mandated purposes of the criminal justice system, and to the extent that it was motivated by a desire to express moral outrage about the acts of a few corporate executives, its passage encapsulates the purpose of a republican form of government.

A. Optimal Penalty Theorists on the WCCPA

Optimal penalty theorists likely will view the WCCPA as an ineffectual deterrent to white-collar crime that wastes societal resources. Further, optimal penalty theorists will object to its passage, noting that the WCCPA was motivated not by a rational desire to deter white-collar crime, but rather by legislators' desire to demonstrate their disapproval of corporate malfeasance to their constituents.

1. Jail Sentences Waste Societal Resources

An optimal penalty approach to dealing with convicted criminals assumes that it IMAGE FORMULA 75

is better to impose fines than jail sentences.208 This view is based upon the economic rationale that the best option for solving a problem is the one that preserves the most societal resources.209 From an optimal penalty theorist's perspective, an equal measure of deterrence can be derived from imposing optimal fines as imposing jail sentences; therefore, it is better to impose a fine because doing so conserves the resources that would have been expended to incarcerate the convicted criminal.210 An optimal fine is determined by looking at the economic harm a particular felonious act has caused, multiplied by a number reflecting the likelihood of capture, plus the cost of investigating and prosecuting the individual.211

Optimal penalty theorists base the assertion that fines deter individual actors as well as the threat of incarceration on a number of disparate factors. First, while incarcerating a convict has the obvious effect of constraining an inmate's freedom, optimal penalty theorists argue that the main purpose of incarceration is to protect the public.212 Optimal penalty theorists suggest that this goal is not very important in the context of white-collar crime because white-collar criminals do not pose a threat of physical harm to the public.213 Further, they discount any deterrent effect IMAGE FORMULA 77

flowing from the potential loss of liberty because white-collar criminals rarely serve lengthy sentences.214 Other psychological effects of incarceration, such as shame or loss of reputation, optimal penalty theorists argue, are ineffective deterrents because they are too costly to achieve--contrary to fines, they do not "yield any revenue."215 Moreover, optimal penalty theorists resist the idea that such stigma effectively attaches as the result of sentencing, holding instead that whatever stigma does attach to a felon, it does so as a result of conviction, not sentencing.216

Beyond arguing that fines provide a measurably superior alternative to imposing jail sentences, optimal penalty theorists were hostile to efforts to impose criminal liability on corporations involved in fraudulent business practices. The theorists' argument against the Organizational Sentencing Guidelines, developed in the late 1980s, further demonstrates optimal penalty theorists' exclusive focus on fines as the ideal form for dealing with white-collar crime.2 '8 The eventual adoption of the Organizational Sentencing Guidelines initiated a firestorm of criticism from optimal penalty theorists, which was based largely on early scholarship by Richard Posner and Gary Becker, suggesting that individual white-collar felons should be fined, not imprisoned.2199 Optimal penalty theorists such as Michael Block, Richard Wray, and Steven Shavell extrapolated from Posner and Becker's early scholarship about optimal sentences for individual white-collar criminals to argue that corporations should not receive probation if a corporation is convicted of a white-collar crime.220 Corporate probation (in which the federal government monitors a convicted corporation for a specified number of years) was analogized to imprisoning corporations; thus, corporate probation was subject to the criticism that (1) it wasted societal resources when compared to imposing fines and that (2) probation does not have a deterrent effect superior to imposing fines.221

Optimal penalty theorists rely on the notion that criminals are rational costbenefit calculators.222 These commentators argue that white-collar defendants are IMAGE FORMULA 79

more likely than other criminals to make decisions from a cost-benefit point-ofview.223 Therefore, imposing fines directly deters undesirable behavior among this group.224 By contrast, non-monetary sanctions-imposing jail sentences or monitoring corporate behavior-are an indirect method of curbing undesirable behavior and therefore provide a less effective deterrent.225 Optimal penalty theorists would only impose non-monetary deterrents, such as jail time, when collecting fines is likely to be a problem.226

In assessing the current set of potential defendants at whom the WCCPA is directed, optimal penalty theorists would argue that members of this group are able to pay optimal fines.227 Thus, from an optimal penalty theorist's perspective, imposing jail sentences of any length wastes societal resources because the same quantum of deterrence can be achieved without the expense of detention.228 From this perspective, the penalty enhancements contained in the WCCPA likely will be condemned as embodying an irrational policy that cannot achieve efficient or effective deterrence. Enhancing penalties to the degree that they extend the prison terms only serves to increase the amount of resources wasted by the sentencing policy, without creating any additional societal benefit.

2. Non-Monetary Sentences As Irrational Political Pandering

When the U.S.S.C. promulgated the Organizational Sentencing Guidelines, optimal penalty theorists pushed for adoption of an "optimal fines" approach to sentencing organizations.229 When the U.S.S.C. rejected an optimal fines approach and adopted guidelines that called for governmental monitoring of convicted organizations (the perceived equivalent of jail sentences for corporations), prominent optimal penalty theorists cried foul and charged that the decision was a result of political pandering on the part of U.S.S.C. members.230 From an economic perspective, imposing punishment regimes that are costly to the government can IMAGE FORMULA 82

only be produced by irrational motivations such as personal political gain.231

Given the legislative history of the Sarbanes-Oxley Act, optimal penalty theorists likely will argue that political expediency superseded rationality in the furor to ensure enactment of a package that creates the appearance that politicians are tough on corporate fraud.232 The number of politicians who, in speaking about the reform package to the press, focused on the WCCPA bolsters this argument. As Ari Fleischer, the White House Press Secretary, put it, corporate wrongdoers should expect to spend time "in the pokey."233 Upon signing the bill, President Bush commented that the new law meant "no more easy money for corporate criminals, just hard time."234 House Speaker Dennis Hastert was quoted as saying, "if you lie, cheat, or commit some other white-collar crime, you'll face the same consequences as lawbreaking street thugs."235 Attorney General John Ashcroft noted that WorldCom executives could face "up to sixty five years in prison" if convicted.236 Optimal penalty theorists will cite comments like those made in the weeks before and after the Act was passed as an indication that Congress and the President were not motivated by reasoned judgment in enacting the WCCPA. Instead, optimal penalty theorists will argue, enhanced penalties for white-collar crime were included in the reform package because public threats of incarceration for corporate executives provides a straightforward way for politicians to demonstrate to voters that they are against corporate malfeasance.

B. The WCCPA as a Deterrent

The WCCPA may indeed provide a greater deterrent to committing white-collar crime than current law. First, by providing an appropriate sentencing option for convicted white-collar criminals, the WCCPA will provide incentives for prosecutors to expend their resources pursuing individual white-collar criminals. Plainly, the more white-collar criminals who are convicted and sentenced for the crimes they commit, the greater the deterrent effect produced by the legislation. Second, jail sentences generally can provide some kinds of deterrence that fines cannot. Contrary to the position of some optimal penalty theorists, facing incarceration does have psychological effects on the incarcerated individual that levying fines does not. IMAGE FORMULA 85

1. Creating Appropriate Sentences

White-collar cases are complicated to investigate and difficult to prosecute.237 For instance, the Justice Department's investigation into Enron's accounting practices started soon after the company's collapse in December of 2001, but the first indictments arising from the investigation did not occur until almost a year later.238 Generally, prosecutors have limited resources, which they are often obliged to expend on non-white-collar crimes.239 Given the scarcity of prosecutorial resources, prosecutors will pursue white-collar criminals only when they can reasonably "obtain a conviction and when that conviction will result in an appropriate sentence."240 Often, it was easier to convict a corporation than an individual. Prior to the passage of the WCCPA, that reality was compounded by the difficulty of obtaining an appropriate sentence when an individual was convicted. The WCCPA potentially ensures that sentences will be appropriate when a conviction is obtained, which may result in more frequent pursuit of individual white-collar criminals.

The evidentiary burden for obtaining the conviction of a corporation is often less stringent than for an individual in a white-collar case.241 For instance, the prosecution may be able to secure the conviction of a corporation without demonstrating that a particular agent of that corporation is culpable.242 The government's prosecution of Arthur Andersen, Enron's accounting firm, on charges that it destroyed thousands of e-mails and other documents related to the Enron investigation, is a good illustration of this point. In that case, the jury found Arthur Andersen guilty of obstruction of justice even though jurors could not agree about which agent within the firm was responsible for the criminal acts.243 Despite suggestions that the government might pursue charges against the Andersen IMAGE FORMULA 88

attorney who ordered the destruction of documents, no Andersen employees have been indicted to date.244 Once the government successfully convicts a corporation, there is a reduced incentive to prosecute an individual despite that individual's culpability.245

The low statutory maximums for many types of white-collar crime, combined with Guidelines that assigned fraud a low base level, acted to further limit the incentives for prosecutors to pursue convictions of individual white-collar criminals. Under the un-amended Guidelines, acts of mail and wire fraud are subject to the "Offenses Involving Fraud and Deceit."246 The base offense level for mail and wire fraud is six.247 That offense level can be amplified up to a maximum of twenty if the fraud involved a loss of more than $100,000,000.248 But, no matter how much in excess of $100,000,000 was the loss resulting from the fraud, the offense level would often not go higher than twenty-six.249 For this reason, prosecutors could not hope to obtain sentences that sufficiently approximated the harm caused by the frauds.250

As noted, the WCCPA significantly increases the statutory maximums for a number of different types of white-collar crimes, including mail and wire fraud.TM Perhaps more importantly, it directs the U.S.S.C. to promulgate new Guidelines related to white-collar crimes. These changes may assure that the upward departures from the base level offenses for white-collar crimes are commensurate with the losses those crimes create.252 If the Guidelines are changed in this manner, then prosecutors who pursue individual offenders can obtain appropriate prison sentences for the white-collar criminals they succeed in convicting; more specifically, the greater the loss resulting from a crime, the longer the jail sentence likely to be imposed.253 The new statutory maximums mean that white-collar felons whose IMAGE FORMULA 90

crimes generate significant losses will serve significant sentences of, for example, up to twenty years for one count of fraud. The greater the number of prosecutions of individuals that yield appropriate sentences, the greater the overall deterrent affect achieved.

By contrast, the fines favored by optimal penalty theorists cannot hope to have a deterrent effect commensurate with losses caused by the most serious white-collar crimes. Even in the case of wealthy individuals, there is a limit on the amount of money that a white-collar felon, even an affluent one, will be able to pay.254 It is possible to adjust prison sentences to any level in the temporal continuum, whereas the optimal fine at some point exceeds the threshold of collectability; it is at that point that a fine does not-indeed cannot-deter the undesirable activity.255

2. Providing Deterrence Not Achievable Through Fining

As noted above, optimal penalty theorists do not believe that the psychological effects of incarcerations provide efficient deterrence of the commission of whitecollar crimes.256 However, it is reasonable to predict that while costly, some effects inherent in the psychological aspects of incarceration simply cannot be achieved through levying fines. This is because a term of imprisonment constrains physical freedom in a way that fines cannot; further contrary to the position of optimal penalty theorists, a prison sentence has the effect of creating significantly more embarrassment and shame than a sentence requiring an individual to pay a fine.

Whether or not peers approve or disapprove of one's behavior has a stronger effect on whether or not someone commits a crime than does the penalty itself.257 Further evidence suggests that where individuals are well established within communities, the shame attached to the punishment is more effective.258 White-- collar criminals like the ones targeted by the WCCPA are more likely than common criminals to have a multitude of social and business relationships within their communities. Thus, the shame of felony criminal conviction is likely to attach more strongly to affluent and socially prominent individuals. IMAGE FORMULA 93

Further, as the result of prison sentences, such individuals suffer additional stigma when re-integrating into society after completing their term in jail.259 Where social ties are strong, as likely is the case with affluent white-collar criminals, individuals are less likely to reject their relationships despite the fact of criminal conviction.260 Nonetheless, those relationships will be difficult to reestablish after a term of imprisonment because of the stigma that attaches to a convicted criminal.21' By this logic, imposing a fine cannot create the same stigma, as the convicted felon will not be forced to experience the stigma of re-integration. Therefore, despite the cost of achieving an effective level of stigma,262 the desire to avoid the loss of social relationship among affluent and highly educated would-be felons is a deterrent that cannot be achieved effectively through fining alone.263 This serves to undermine optimal penalty theorists' contention that fining can create the same deterrent effect as imprisoning a white-collar convict.264

C. The Legitimate Objective of Retribution

Even if the WCCPA does not create a superior deterrent to optimal fines, it still conforms to the other purposes of sentencing set forth by Congress. The congressionally mandated purposes for sentencing convicted criminals are manifold. These normative objectives include: promoting respect for the law; punishing the perpetrator; protecting the public; rehabilitating the criminal; and providing adequate general and specific deterrence.265 Optimal fines may be one means of punishing white-collar felons, but imposing jail sentences is another legitimate IMAGE FORMULA 96

means of holding an individual white-collar felon responsible for his or her acts. Further imposing jail sentences proportional to the offense committed can satisfy the public's legitimate desire to express its moral condemnation of the types of acts committed by the high-ranking officials of Enron, Global Crossing, Adelphia, and WorldCom.266

The retributive notion of punishment is that punishment, in whatever form, should be imposed because it is "morally fitting that a person who does wrong should suffer in proportion to his wrongdoing."267 By contrast, the utilitarian view is that punishment is only justifiable where its outcome has a favorable impact on society.268 Optimal penalty theorists are, by this definition utilitarian, arguing that only sentences that are likely to deter the commission of future white-collar crimes with minimal costs to society should be imposed on white-collar criminals.269

From a retributive perspective, the outcome of the punishment is irrelevant because its purpose is to demonstrate moral blameworthiness.270 For this reason, retribution insists on punishing in proportion to blameworthiness without reference to the punishment's deterrent effect.27 ' The congressional mandate regarding appropriate sentencing explicitly leaves room for criminal sanctions that do nothing more than require culpable individuals to pay for the wrongs they have committed. In this way, the WCCPA conforms to the legal standards for inflicting sanctions on white-collar criminals. This new law creates the possibility that when a CEO defrauds employees, investors and the government--causing catastrophic losses-that CEO will face a sentence that reflects the enormity of the damage his actions have wrought. The sentence should be one that properly restricts him and stigmatizes him and does not allow him to avoid accepting that responsibility simply by writing a check.

Finally, the WCCPA withstands the criticism that its enactment was merely political pandering.272 What optimal penalty theorists fail to recognize is that one purpose of the criminal justice system is to express the citizenry's condemnation of certain behavior.273 Inherent in the sentence of significant jail time is a "symbolic IMAGE FORMULA 98

significance" that is not replicated in the levying of fines.274 Stating through law that a particular behavior or set of behaviors carries a sentence of incarceration is an act of public expression. So, while legislators were certainly responding to the general outcry about the behavior of the CEOs and CFOs at particular corporations, in doing so the legislators were appropriately giving voice to the rightful public condemnation of criminal acts through the passage of Sarbanes-Oxley in general and the WCCPA in particular.

CONCLUSION

One fiscally tumultuous year characterized by four high-profile bankruptcies led to the passage of the Sarbanes-Oxley Act. The WCCPA, contained within the sweeping legislation, sought to create the real possibility that white-collar defendants, particularly heads of publicly-traded corporations, would serve lengthy prison sentences if convicted of mail or wire fraud, attempt and conspiracy to commit mail or wire fraud, certain ERISA violations or a failure to submit accurate financial reports to the SEC. To increase the likelihood that prosecution of (or plea agreements with) white-collar criminals would yield prison sentences, Congress directed the U.S.S.C. to amend its Guidelines to better account for the serious losses that result from high-profile frauds like the ones that allegedly led to the bankruptcies of Enron, Global Crossing, Adelphia and WorldCom.

Although Congress acted almost unanimously when it passed the Sarbanes-- Oxley Act, the effectiveness of the WCCPA in deter-ring future commission of similar large-scale frauds will be seriously questioned in the months and years to come. Theorists like the ones that have criticized government efforts to impose jail sentences on individual white-collar criminal defendants and efforts to impose criminal probations on corporate white-collar defendants will likely challenge the legitimacy of the WCCPA. The WCCPA's legitimacy will be attacked on two grounds: one, that longer jail sentences are an inefficient way to prevent the future commission of similar frauds; and two, that the WCCPA was adopted based on politicians' irrational desires to appease constituents worried about the effect corrupt CEOs will have on the nation's future financial health.

This Note preemptively challenges the anticipated attacks, pointing out that optimal penalties do not live up to their promise of effective deterrence. Given the magnitude of loss in many white-collar cases and the way in which low rates of detection and prosecution increase the monetary penalties necessary to create adequate deterrence, few if any white-collar criminals can pay the fines optimal penalty theorists would suggest imposing. In addition, optimal penalty theorists are wrong to suggest that fines can achieve the same deterrent affect as imposing prison sentences. Such theorists inappropriately discount the psychological effects IMAGE FORMULA 101

derived from imprisoning white-collar felons, and in doing so they fail to recognize that the stigma resulting from imposing jail sentences attaches more effectively to affluent and well-educated white-collar felons than it does to common criminals.

This Note also suggests that even if the threat of lengthy jail sentences does not "optimally" deter white-collar crime, the WCCPA still serves legitimate purposes of the criminal justice system. First, allowing the criminal justice system to impose jail sentences in proportion to the reprehensible nature of the acts committed by high-profile bad actors creates the possibility of punishments commensurate with the blameworthiness of the actors. Such punishment is valuable because it holds a culpable individual responsible for his acts without reference the effect the punishment has on other potential bad actors. Second, the WCCPA gave voice to the anger and frustration of the electorate in whose name Congress passed the enhanced criminal penalties. Punishment, and the law that authorizes it, is a tool designed to demonstrate public disapproval and condemnation of unacceptable behavior.

AUTHOR_AFFILIATION

Jennifer S. Recine*

*J.D. expected. Geaorgetown University Law Center, 2003. I would like to thank Peter Moores, Don Anthony, and Rachel Lebejko Priester for their help developing and fine-tuning this Note. Thanks also to my brotehr Bradley Recine whose clear and concise answers to my questions about corporate finance were invaluable to my understanding of these high-profile bankruptcies. Special thanks to Jessica Cordova, John Hirsch, and my family for their support and encouragement throughout this rpocess; I would not have written this Note without their help.