Rewards uneven in mortgage fraud cases

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Second of two parts.

When federal prosecutors set their sights on a mortgage fraud conspiracy led by broker Kelly Fields, they found that many of the people best positioned to incriminate her were family members.

All were rewarded through one of the least objective, most opaque processes in the federal court system.

Judges can grant credit for assistance only when the prosecutor files motions for leniency based on their "substantial assistance" to investigators, referred to in court as 5K1.1 motions -- often sealed from public view. Typically, the cooperation is also detailed in a courtroom sidebar conversation, inaudible to spectators and kept off of public transcripts.

An analysis of 100 completed mortgage fraud prosecutions, plus national data, by the Pittsburgh Post-Gazette and Duquesne University School of Law found that there are no consistent standards for setting the reward due to a criminal who has provided assistance to prosecutors.


SIDEBAR: Pleading guilty could cut defendant’s sentence

Defendants who helped prosecutors to unravel Western Pennsylvania's tangled mortgage fraud network typically got big breaks off of their potential sentences, as the Post-Gazette outlined Sunday. Nationally, fraud defendants who provide substantial assistance get sentencing breaks that are nearly twice as significant as do cooperating drug traffickers, despite the bigger risks inherent in "snitching" in the narcotics world.

Fields of Whitehall, now 42, had enlisted her mother, brother-in-law and two sisters-in-law in property transactions involving mortgages obtained through lies, federal investigators found.

Assistant U.S. attorney Brendan Conway wrung information from all four family members on the way to winning sentences of eight years and four months for Fields and two years for her closing agent, Robert Danenberg. Some were willing to testify against Fields, while others only dished on Danenberg, now 59.

Mr. Conway filed motions for leniency, describing the defendants' cooperation.

In the Fields cases, federal sentencing guidelines suggested that the co-conspirator relatives each deserved around two years in prison. Instead, Fields' mother got a year behind bars, while the other relatives got probation.

Some experts suggested that the unregulated leniency motions threaten to undermine decades-old efforts to make federal sentences rational and consistent.

"The problem is there are no guidelines for these kinds of departures" from normal sentencing procedures, said Cassia Spohn, a professor of criminology at Arizona State University who has studied the use of leniency motions. "I certainly think that there should be some guidelines, both in terms of when these motions are offered and what the discount on the sentence should be."

Powerful tool

For three decades, under a law meant to make sentencing fair, federal judges have been required to calculate guidelines before deciding whether to send someone to prison and for how long.

"Offense levels" are calculated based on the crime committed, the amounts of money or contraband involved, the nature of the victims, the offender's role, and the offender's degree of acceptance of responsibility for wrongdoing. The offense level translates to a recommended range of months in prison.

For the past decade, judges have been allowed to impose sentences below, within or above the recommendations as long as they state a reason. A common rationale is the defendant's assistance in the prosecution of others. When the prosecutor makes a leniency motion and it is granted, the judge can impose any sentence.

That makes the leniency motion "an extraordinarily powerful tool for getting people to talk [to investigators] who wouldn't otherwise talk with them," said Michael Simons, dean at St. John's University School of Law in New York, who is a former federal prosecutor.

Huge discounts

The Post-Gazette and four law school students analyzed 100 mortgage fraud cases for which sentences were pronounced and federal sentencing guidelines were available.

Court documents indicated clearly that at least 30 defendants assisted prosecutors. Of those, seven got prison sentences, none longer than two years. The others got probation, occasionally with time in a halfway house.

While sentencing guidelines suggested that the cooperating defendants deserved sentences averaging more than two years behind bars, the average amount of prison time meted out to them was 3.3 months. That translated into an average break of 87 percent for cooperators.

"I don't think under any rational system, that [cooperation] deserves a 90 percent discount," said David Rudovsky, a civil rights attorney and senior fellow at the University of Pennsylvania Law School. "On the other hand, mortgage fraud has created a huge problem," he said, and extraordinary measures might be warranted.

Drugs are also a huge problem, but nationally, defendants in trafficking cases who cooperate with prosecutors don't get the same breaks as those who commit fraud.

Nationally, drug trafficking defendants getting leniency motions for substantial assistance typically got prison sentences that were about 53 to 55 percent of those recommended by the guidelines, according to U.S. Sentencing Commission data for 2008 through 2013. Cooperating fraud defendants typically got sentences of 27 to 32 percent of those recommended.

Experts noted that drug dealers who cooperate may face violent reprisals. Convicted mortgage brokers don't face the same risks.

"Generally, the people involved in mortgage fraud are not dangerous people," said professor Stephanos Bibas at the University of Pennsylvania Law School, making it harder to justify "big discounts" in their sentences.

The judges pronouncing the sentences may view fraud defendants' cooperation as more valuable than the assistance of drug dealers, Mr. Simons said. "That might be the case because fraud schemes are often quite complex and may not be subject to surveillance and buy-and-bust operations."

Or judges may be using the freedom granted by the leniency motions, Mr. Simons said, to exercise "tendencies to spare jail time for white-collar criminals."

Fuzzy math

Nationally, defendants who provide substantial assistance across all types of cases typically get prison sentences half as long as those suggested by the guidelines.

In Western Pennsylvania, some federal court insiders said, there is a rule of thumb, consistent with national norms, that defendants who cooperate get sentences that are half of that suggested by the guidelines. Others said there is no universally recognized sentencing discount for cooperators.

Pittsburgh's U.S. attorney's office is "fuzzy in what it asks for, and judges are different" in their rewards to defendants for substantial assistance, said Stephen Stallings, a defense attorney and former federal prosecutor. That's not an ideal combination, he said.

"If you're going to have cooperation credit be imposed in cases," he said, "the [prosecution] office's approach ought to be transparent: 'This is how we handle cooperation.' "

In the Northern District of Ohio, which includes Cleveland, where 90 people were charged with mortgage-related crimes, the prosecution took a standardized approach to rewarding cooperators. People who provided information got 2 points off of their offense levels if they cooperated against their co-conspirators, and another 2 points if they provided information on another clique of criminals.

In a typical mortgage fraud case, that 4-point reduction might mean a drop of around a year in the guideline sentence. In practice, Northern Ohio judges tended to give cooperators in the mortgage fraud cases probationary sentences.

In some other federal court districts, defendants typically get one-third off of their sentence for substantial assistance to prosecutors and two-thirds off for extraordinary assistance, experts said. That approach has some merit, Mr. Bibas said.

Defendants should have a sense that standing ready to testify gets them a certain degree of leniency, testifying for the prosecution at another person's trial gets another, and going undercover an even higher level of consideration, Mr. Bibas said. The level of risk involved in cooperating should also be a factor, he added.

"The problem with trying to harmonize [sentencing breaks] is that it prevents people from recognizing the individual characteristics present in a case," countered attorney Barry Boss, co-chairman of Cozen O'Connor's Criminal Defense & Internal Investigations practice, based in Washington, D.C. Mr. Boss is a co-chairman of the American Bar Association's Task Force on The Reform of Federal Sentencing for Economic Crimes.

He noted that guidelines for white-collar crimes have been "ratcheted up to match the drug guidelines" to address the perception that business crooks were getting off easy compared with neighborhood dealers. Now punishments for narcotics offenses are being gradually reduced, and so should the prison terms meted out to fraud convicts, he argued.

"Everybody with a sense of fairness and justice looks at [federal fraud] sentences and at times realizes they're too high," Mr. Boss said. "We've looked for ways in which you can correct it, and the 5K [leniency motion] is an easy vehicle to do that.“


Rich Lord: rlord@post-gazette.com or 412-263-1542. Twitter @richelord.

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