Legal Commentary

Marc Dreier, the law firm partner who defrauded his hedge fund clients of hundreds of millions of dollars, was sentenced yesterday by Judge Rakoff in the Southern District of New York.  Although Dreier's attorney had argued for a sentence of 12 and 1/2 years' imprisonment, the 20-year term that Judge Rakoff imposed was far less than the 145 year term that the government had sought in its filings (available here).  So, what lessons can one glean from Dreier's and Bernard Madoff's sentencings?  I arrived at the following four conclusions:

1. Remorse matters.  Whereas Madoff's self-serving statements during his plea allocation had the feel of an attorney-written admission, Dreier's four -page letter felt authentically remorseful and decidedly unlawyerlike (ironic, given that Dreier is a lawyer and Madoff is not).  Sure, Dreier's letter also reeked of self-pity, but it was bluntly honest in recognizing that he had destroyed his life and those of many others.

2. Madoff's sentence remains an outlier.   A few weeks ago, I stated that I did not think that Madoff's sentence would become the new anchor for large-scale frauds.  For now, this appears to be correct.  Judge Rakoff dismissed the notion that Dreier's fraud approached either the degree or type of harm that Madoff inflicted on others.   As soon as the Court indicated that Dreier's crime paled in comparison to Madoff's, the government's request for 145 years' imprisonment became a non-starter.  No surprise then that the Court asked the government if it was being serious when it requested a 145 year term.  (The government responded that anything greater than 30 years would be fine.)

3. Abuse of trust matters - but with limits.  There is no doubt that Dreier abused the trust of his clients.  The Sentencing Guidelines provide a two-level enhancement for offenses fueled by a defendant's abuse of a public or private trust relationship, and Judge Rakoff was rightly disgusted by Dreier's behavior.  But the government seemed to push the abuse of trust argument a bit farther, arguing on page 16 of its submission that a "long term of imprisonment" was necessary to deter the "thousands of lawyers in this and other jurisdictions" who otherwise might be tempted to "steal, cheat  or otherwise dishonor their profession to achieve personal wealth." 

Wow, if "thousands of lawyers" need a 145 year term of imprisonment to deter them from stealing from their clients, our profession is in far worse shape than we thought.  Aside from the hyperbole, the problem with the government's argument is that it seems to view "dishonor to the profession" as a legitimate basis of criminal sentencing.  But is it?

When we say that Dreier has dishonored the profession (Rakoff himself commented during Dreier's plea allocution that he had "disgraced" the profession), we are in effect saying that Dreier made other lawyers look bad.  Presumably, this is harmful insofar as it causes potential clients to distrust their attorneys and avoid seeking legal advice (if you really believe that people will alter their behavior toward attorneys in light of Dreier's brazen, and slightly nutty, scheme).  But how does a 145 year term of imprisonment bring honor back to the profession?  And is the "disgrace" to the legal profession of such a nature that Dreier's abuse of trust should be treated differently than other abuses of trust, such as by stockbrokers, accountants or doctors? 

4. Framing matters. Consider for a moment what would have happened to Marc Dreier had Bernard Madoff not existed.  The most likely point of comparison would have been Worldcom's Bernie Ebbers or Enron's Jeffrey Skilling.  The underlying question would not have been, "Is Marc Dreier as bad as  Madoff," but rather, "Is he worse than Ebbers or Skilling?"  And it is at least possible that in this regard, a court would have concluded that Dreier's crime was worse because Dreier was its sole architect and because the fraud itself was so brazen.  In that regard, Dreier is very fortunate -- both that he was sentenced so soon after Madoff, and that the government sought a sentence that inevitably drew comparisons to Madoff.