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The Dodd-Frank Act and Public Retribution

January 30, 2012

Photo by ageing accozzaglia. Some rights reserved.

Last Thursday the U.S. Sentencing Commission (“USSC”) published for comment a hodgepodge of proposed amendments to its criminal sentencing guidelines. Along with proposed changes to the guidelines for various and sundry crimes — human rights violations, drunk driving, burglary, and trafficking a form of ecstasy ironically called Legal E — the proposal includes amendments and requests for comments mandated by the Dodd-Frank Act.

The Dodd-Frank Act requires the USSC to review its sentencing guidelines to insure they appropriately account for the potential and actual harm to the public and the financial markets resulting from securities fraud, mortgage fraud, and financial institutions fraud. The guidelines must “reflect (i) [t]he serious nature of the offenses, (ii) the need for deterrence, punishment, and prevention, and (iii) the effectiveness of incarceration in furthering those objectives.”

Under the proposal, a defendant’s sentence can be enhanced by 4 levels if, for example, the offense jeopardized the safety and soundness of a financial institution; or if the offense endangered the financial security of a publicly held company or a company with more than 1,000 employees.

A 4-level enhancement can also be imposed against an insider trading defendant who was an officer or director of a public company, a broker-dealer, an investment adviser, or a futures commission merchant.

And the USSC asks whether an enhancement of 2, 4, or 6 levels should be imposed if the offense involved a significant disruption of a financial market or created a substantial risk of such a disruption.

And therein lays the notable difference between the proposed amendments for financial crimes and those for other crimes. When discussing illegal drugs and burglary, the USSC addresses concrete issues like drug potency, the harm suffered by the victim, and the steps the defendant took to avoid detection or responsibility.

In contrast, the Dodd-Frank Act amendments discuss the more nebulous concepts of “significant disruption” and “substantial risk.” And the proposal not only seeks redress for harm suffered by individuals and companies, but for that possibly incurred by the “market.”

A new form of “public” retribution awaits.  Comments should be submitted on or before March 19, 2012.

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