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Congress and the public frequently express concern as to
whether defendants in white collar cases are sufficiently punished. It is
popular to think that defendants in these cases serve a short term at "Club
Fed," a kind of country club prison, and then move on. Accordingly, over the
years Congress has repeatedly increased the length of sentences. Nevertheless,
with the passage of Dodd-Frank, Congress requested that the U.S. Sentencing
Commission review its guidelines in white collar cases. The question is whether
the sentences are harsh enough.
Congress and the public need not be concerned. U.S. v.
Nadel (S.D.N.Y.) (here) is one example of the kind of sentences being handed
down in these cases. Arthur Nadel pleaded guilty to charges based on operating
a Ponzi scheme. Last week, he was sentenced to serve 14 years in prison. In
handing down the sentence, Judge Koeltl also ordered that Mr. Nadel serve three
years of supervised release following his prison term and forfeit $162 million
along with certain real estate in Florida, North Carolina and Georgia, five
airplanes and one helicopter.
The sentence is based on Mr. Nadel's February 2010 guilty
plea to fifteen counts of securities fraud, mail fraud and wire fraud. The
charges stem from allegations that Mr. Nadel fraudulently raised over $330
million from about 390 investors. The money was suppose to be invested in six
funds operated by the defendant from 1999 through January 2009.
Investors were solicited with claims that the various
funds yielded returns from 11% to as high as 55% per year. The returns
supposedly came from Mr. Nadel's trading prowess. Investors were furnished with
statements listing their investment and profits as proof. Mr. Nadel charged
millions in management fees.
Nobody wins all the time and neither did Mr. Nadel. To
the contrary, he repeatedly lost money. Likewise, the management fees were not
sufficient to support his life style and business ventures. In addition to a lavish
life style, Mr. Nadel was supporting his real estate project in North Carolina,
his wife's flower shop and the purchase of several private planes. To pay for
all of this, investor funds were siphoned off and diverted to Mr. Nadel's
Sentences in white collar cases such as are driven
largely by the amount of money involved and the number of victims. In Mr.
Nadel's case, the dollars were large and his crimes harmed many. Thus his
sentence is not a surprise. Yet, few crimes in either the federal or state
system result in life in prison. In cases such as this, however, the sentence
can amount to just that.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.