Posted on Monday, Oct 8, 2012
In recent financial fraud cases, federal courts have handed down prison sentences that would deter Methusaleh, nevermind your average, silver-haired fraudster: 100 years for 58 year-old Edward Okun, 150 years for septuagenarian Bernie Madoff, and another century or so for mogul Allen Stanford, 62. So in this era of symbolic sentencing, it’s nice to see a court take a more cool-headed approach to the sentencing guidelines, even if it benefits a crook who snapped up $17 million of government contracts by pretending to be a veteran and Green Beret.
In what the court called a simple yet brazen plan, defendant John White’s company fraudulently bid for and won four government contracts set aside for veteran-owned small businesses. The four contracts had a total face value of approximately $16.7 million and were for construction work to be performed at various VA and Army facilities in the Northeast. To his chagrin, White learned that military service entails more than just saying you were in the military. White’s fraud was uncovered by VA investigators, but not before the VA had already paid White more than $4.9 million for construction work under the contracts. In a five-day jury trial, White was convicted of mail fraud, three counts of major fraud against the United States, false statements, and witness tampering.
We’re not Sherlock Holmes. We’re not even Dick Tracy. But how hard would it have been to have checked to see if the contractor had been in the Army before awarding him $16.7 million in contracts reserved for veterans?
Application Note 3(F)(ii) to Section 2B1.1 of the Sentencing Guidelines governs fraud involving government benefits. It defines the “loss” resulting from such fraud as “the value of the benefits obtained by unintended recipients or diverted to unintended uses.” In the sentencing phase, the government argued for a 20-level upward adjustment to White’s sentence based on the $16.7 million of contracts he had falsely won, arguing that the entire face value should be the measure of loss to the Government. White disagreed. In argument before the Southern District Court of New York, the parties agreed that the contracts at issue were a “government benefit” for the purposes of the sentencing guidelines, but disagreed on how those benefits should be measured, with the defendant arguing that the $4.9 million of construction work he actually performed should be credited against the loss to the government. In considering both the “plain meaning” of the word “benefit” and federal precedent interpreting loss for diverted government benefits (such as misappropriation of food stamps), the court ultimately found that the “benefit” of the contract was the profit White hoped to realize from it, not the dollar value of the contract itself. Holding its proverbial nose at “the nature of White’s crime,” the court agreed with White, reasoning that no contractor receives or intends to receive the full value of a contract as a benefit because of the necessary labor and materials expended in performance. Thus, the face-value of a contract, which does not account for those costs, cannot be an appropriate measure of loss.
Although White may have escaped a 20-level sentence enhancement and the corresponding 75-year maximum sentence he faced, observers can take solace in the court’s fair-minded interpretation of the sentencing guidelines and case law. And though White’s incarceration will not extend into the 22nd Century, at least he will be able to fulfill his fantasy and don a federal uniform. Of sorts.