Monday, June 22, 2009

White collar crime and punishment

R. Allen Stanford is just the latest in a long line of accused con men to face the prospect of prison time for his alleged misdeeds. He certainly won't be the last.

My question is whether it makes any sense to put a white collar criminal behind bars in the first place.

Mr. Stanford's alleged crimes include lying to investors and diverting investor funds to his own private bank accounts. Mr. Stanford's firm promised huge returns for those willing to invest in certificates of deposit in his Antigua bank. Of course, as I have pointed out before, it is a law of economics that the riskier the "investment," the higher the return.

Apparently no one questioned why a bank was paying exorbitant interest rates on certificates of deposit. Investors were blinded by greed and neglected to perform their due diligence before handing over large sums of cash to Mr. Stanford's company.

Now, if the allegations are true, I'm not saying that Mr. Stanford didn't do anything wrong. What I am saying is that locking him behind bars for the rest of his life doesn't do anything for the people he allegedly bilked.

I guess there's the lottery for the working poor; casinos for the middle class; and R. Allen Stanford, Bernie Madoff and company for the wealthy.


Anonymous said...

All of his investors ignored two of the most basic rules in life:

1) There Ain't No Such Thing As A Free Lunch; and

2) If sounds too good to be true then it is.

Paul B. Kennedy said...

Thank you for your comment. I think in all of these Ponzi schemes that targeted wealthy investors, the "victims" neglected those two basic rules.

Anonymous said...

Using your logic, locking up murderers doesn't do anything for the deceased either, so why lock them up!

Paul B. Kennedy said...

Thank you for your comment. My point was that with Stanford and Madoff, the ultimate sanction is to disgorge them of their ill-gotten gain and make their victims whole.

You can never make the family and friends of a murder victim whole so we are left with putting the murderer behind bars as both a sanction and a preventative measure.

Anonymous said...

Mr. Kennedy,

Your argument has two flaws. First, you completely ignore the role that deterrence plays in the criminal justice system. A would-be thief is more likely to be deterred from stealing if she faces the prospect of imprisonment, as opposed to simply returning her ill-gotten gains. Otherwise, why not steal and take your chances? After all, the worst that might happen is that you'll have to give back what you stole!

Second, ordering a defendant to disgorge illegally-obtained money is not punishment -- it is restitution. *Prison* is punishment, and, if he is convicted, a well-deserved one in Mr. Stanford's case.

Finally, the idea that the foolishness or greed of a criminal's victims has anything to do with that criminal's culpability seems like an idea only a defense attorney -- or white collar criminal -- could love.

Paul B. Kennedy said...

In state after state death row is at full capacity. Deterrent theory only works for those who choose to act and think rationally.

Mr. Stanford thought he was too smart to get caught. A trip to the pen won't change his attitude. The same holds true with many high-profile white collar criminals.

The death penalty hasn't deterred murder. Murderers act out of arrogance, anger or intoxication. Just pick up the paper and see how many killings involved estranged couples or parties.

You and I can weigh the potential benefits of a criminal act against the costs of getting caught and come to the conclusion that it just isn't worth it.

Finally, Stanford and his ilk wouldn't have been able amass as much cash as they did had their victims not been blinded by greed. Common sense tells you that a CD should not pay a high rate of interest; Stanford's victims ignored plenty of warning signs along the way.

Peter Goldmann said...

Mr. Kennedy: The argument about deterrence with respect to murder is impossible to substantiate. How do we know that eliminating the penalty would result in no increase in homicides?

With regard to fraud, "anonymous" has a point: If disgorgement were to be the worst-case scenario for a would-be fraudster, wouldn't that substantially reduce the deterrent effect that a potential prison sentence poses?

It is true that fraud has gotten worse since the last amendments to the federal sentencing guidelines in 2002. That, it could be argued, proves that tougher prison sentences for white-collar criminals does nothing to deter them from committing fraud. However, perhaps the problem isn't the guidelines, but the intepretation of them by judges. I recently read an article about a woman who stole $101,000 from her employer (a bank) and received a mere 1-year sentence. She will probably be out in six months. In another case, perpahs more to your point, a man embezzled $400,000 from his employer. When he got caught, he paid it back. He got NO prison time and $100 penalty. No wonder fraud is on the increase. As long as judges continue to regard fraud as a victimless crime, we can all rest assured that Madoff, Sanford, Ebbers and the rest of them will live another day to rip off innocent shareholders, investors and taxpayers.
Peter Goldmann

Paul B. Kennedy said...

Thank you for your comments.

One of the problems with the sentencing guidelines is they did not do an adequate job of taking into account the circumstances of the defendant.

One of my points in regard to Mr. Stanford and his brethren is that our prisons and jails are bursting at the seams with non-violent offenders.

Putting Mr. Stanford in prison satisfies our need for vengeance, but is it the most effective punishment?