White Collar Alert

This guest post was authored by Mara Smith, a summer associate with Montgomery McCracken.

On Friday, the Seventh Circuit upheld what it determined to be a substantively reasonable sentence for billionaire Ty Warner, the creator of Beanie Babies. We previously blogged about Warner’s district court sentencing, during which Judge Kocoras found that Warner’s “very unique” circumstances warranted a non-incarceration sentence – well below the term of imprisonment recommended by the Sentencing Guidelines. Following this sentencing, the government appealed, arguing that Warner’s sentence was far too lenient.

As you may recall, Warner’s prosecution came out of the DOJ’s initiative to combat offshore tax evasion, which started in 2008 with a targeted investigation into the Swiss bank UBS, where Warner had an offshore account. In early 2009, UBS admitted wrongdoing and agreed to cooperate with the U.S. government investigation by handing over information about some U.S. offshore clients. Not long thereafter, Warner attempted to enroll in the offshore voluntary disclosure program (“OVDP”), but he was ineligible because the government had already acquired his account information and an investigation was pending. Ultimately, in 2013, the government charged Warner with one count of willful tax evasion. Less than a month later, Warner pled guilty to the charges and agreed to pay $56.3 million in penalties.

Although Warner’s Guidelines range was 46- to 57-months imprisonment, neither side proposed a sentence in that range in their pre-sentencing submissions. Rather, the government requested incarceration “in excess of a year and a day” while Warner argued that probation and community service were sufficient. In January 2014, Warner was sentenced to two years’ probation, at least 500 hours of community service, a $100,000 fine, and costs. The district court based this decision on, among other things, testimony revealing Warner’s consistently philanthropic character, his attempt to disclose the account through the offshore voluntary disclosure program, and his willingness to pay a penalty more than ten times the amount of the tax loss.

The government did not agree that this was a sentence “sufficient, but not greater than necessary” to achieve the purposes of sentencing. See 18 U.S.C. § 3553(a). But, thankfully for Warner, the Seventh Circuit did, concluding that the district court “fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case.” See slip op., at 2. While upholding the sentence, Judge Kanne, who delivered the Seventh Circuit’s opinion, noted that “[i]n other cases, justice might demand a harsher sentence, but here it does not.” The Seventh Circuit made the following important points while reviewing the district court’s analysis of the 3553(a) factors:

• The Appropriate Benchmark: “No one disputes that he deserved a below-guidelines sentence. … While the court was not strictly bound by the[] [parties’] recommendations, it was well within the court’s discretion to use that range as a benchmark,” meaning that the real choice before the district court was between probation and roughly a year in prison – not 46 to 57 months. Id. at 16.
• Characteristics of the Defendant: According to the district court, the character letters submitted on Warner’s behalf showed that he consistently displayed concern for others and acted with “the purest of intentions” when making “overwhelming” charitable contributions, which he often did “quietly and privately.” at 2, 18. Indeed, Judge Kocoras – on the bench for 3 decades – had “[n]ever … had a defendant in any case – white collar crime or otherwise – demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.” Id. at 16. Such character is an appropriate mitigating factor and the district court did not err by placing as much weight on it as it did. Id. at 17-18
• Seriousness of the Offense: While his offense was serious, his crime was isolated and uncharacteristic. Further, the district court properly took into account that Warner attempted to enroll in the OVDP and, after he could not be accepted, he cooperated with the government and paid full restitution, a $53.6 million FBAR penalty, and a $100,000 fine.
• General Deterrence: The Seventh Circuit noted that, while incarcerating Warner would have sent a stronger message to the general public than probation, the message sent by his existing sentence – which included a penalty more than ten times the amount of the tax loss – was sufficient.
• Disparity: Finally, the appellate court noted that, while most individuals receiving probation for offshore tax evasion had caused smaller tax losses, Warner’s unique situation meant that his sentence “did not cause any unwarranted disparities among similar ” Id. at 28 (emphasis in original).

In light of the above, the Seventh Circuit concluded that the district court’s decision was “reasoned” and “justified.” Id. at 31.

The district court’s careful and thoughtful analysis (as well as the Seventh Circuit’s affirmation thereof), also shows how courts are willing to fully consider the sentencing factors and to impose a sentence that is reasonable and appropriate for the person in front of them – even where that is wholly inconsistent with what the Sentencing Guidelines recommend. As we have blogged before in connection with the sentence of former Virginia Governor Bob McDonnell and Sentencing Guidelines reform proposals by both an ABA Task Force and United States Sentencing Commission, the fraud guidelines for white collar offenses have steadily increased over the years and may very well result in an unreasonable sentence. It is our job as white collar practitioners to ensure that the district court has all of the information it needs to make that careful and thoughtful analysis so that we may obtain the appropriate sentence for our clients.