Heard Off the Street: Sentencing white-collar criminals still vexing
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Those who think too few white-collar criminals are brought to justice -- or that when they are, it takes too long and results in lenient sentencing -- may find fault with the final chapter in the seven-year, $41 million fraud involving Richard E. McDonald and World Health Alternatives.
On Tuesday, U.S. District Court Judge Joy Flowers Conti sentenced McDonald, the 38-year-old former president and CEO of the defunct Wilkins medical staffing firm, to 130 months in prison. Although prosecutors and the Securities and Exchange Commission concluded McDonald made off with about $6 million, Judge Conti and the SEC have examined his financial statements and concluded the Leechburg farmer cannot pay the money back.
Justice comes 87 months after McDonald resigned suddenly Aug., 15, 2005, and World Health shares plunged from $3.75 to pennies. Within days, it became clear McDonald, a high school graduate who also served as the company's chief financial officer, had been cooking the books.
Shareholders sued. The FBI and SEC investigated. Creditors pounced. And World Health ended its days in bankruptcy.
Among those investigating was a then 65-year-old Middletown, R.I., grandmother who had purchased 28,000 World Health shares at an average cost of $3.42.
"It had a devastating effect on me financially and emotionally," said Carol Cummings, now 71.
Ms. Cummings said she was concerned with her investment and spoke with McDonald before he bolted from the company. Nevertheless, she bought more shares after he left to reduce her average cost. Later, she did an investigation of her own, producing work that was good enough for lawyers in the class action lawsuit to purchase and use.
"Anyone that touched Mr. McDonald in any way I talked to," she said. "It was a painful lesson of trust."
Shareholders got first justice, accepting a $2.7 million settlement in 2007 valued at 11 cents per share -- before lawyers took their cut.
In August 2009, a federal grand jury indicted McDonald on 20 counts, accusing him of wire and securities fraud, lying to the SEC, and failing to pay personal and payroll taxes.
In December 2009, McDonald and three other former World Health employees settled civil charges brought by the SEC alleging that they received $12.3 million in ill-gotten gains. The defendants agreed to repay about $5.5 million of it. None of it came from McDonald.
Fast forward to April 2012, when McDonald pled guilty to five of the 20 charges. Free on bail, he will begin serving his 130-month sentence sometime after the New Year.
Based on federal sentencing guidelines, Judge Conti could have sentenced him to 188 to 235 months.
Assistant U.S. Attorney Shaun E. Sweeney told the judge he would be satisfied with a sentence at the lower end of that range. Tina O. Miller, McDonald's attorney, had asked for seven years (84 months) -- less time than his victims had to wait for his sentencing.
Among the factors influencing Judge Conti's decision were 39 letters commending McDonald, three witnesses who asked for leniency at the hearing, and his cooperation with investigators.
McDonald's supporters, many of them family members, described him as hard-working, compassionate, contrite and generous. They testified about how hard McDonald works on the small farm he leases and how great a father he is to his 18-month-old son.
"He cares too much and can't say no to people who ask for help," Liane McDonald, his tearful wife of 15 years, testified.
Mr. Sweeney countered that Richard McDonald "constantly lied, cheated and stole for two and a half years."
"That's a side of Mr. McDonald that these folks have never seen," he told the judge.
Ms. Miller argued the sentencing range the guidelines prescribed did not stack up with sentences handed to other convicted fraudsters. Her examples included Le-Nature's CEO Gregory J. Podlucky, who pleaded guilty and was given 20 years in 2011 for masterminding a $684 million fraud unmasked in 2006. The Latrobe beverage maker's fraud was 16 times larger than what McDonald orchestrated.
The discouraging truth is that white-collar crime cases present considerable challenges even for highly skilled and motivated prosecutors. They must sort through reams of evidence and talk with dozens of witnesses to meticulously document the complex crime; prepare a clear, convincing case that a jury not versed in financial concepts can understand; and juggle those challenges with a backlog of other cases demanding their attention.
In short, throwing the book takes time and money taxpayers are not willing to provide.
Even when, several years down the road, a white-collar criminal pleads guilty to reduced charges or a jury renders a guilty verdict, there's the matter of punishment. How much is enough -- or too much -- remains a subject of debate. As Ms. Miller pointed out, judges have imposed vexingly disparate sentences.
Ms. Cummings is satisfied with what McDonald got -- as long as he does not get time off for good behavior.
"If I were younger and in better health, I would not have let go of this case. There were more doors that needed to be opened," she said.
It's a judgment that applies to many white-collar cases.
First Published December 9, 2012 12:00 am