The Effect of the Pressure to Cooperate by Federal Prosecutors on White-Collar Criminal Defendants

Frank DiPascali, Bernie Madoff‘s top financial aide, pleaded guilty on Tuesday to ten criminal counts, including conspiracy, tax evasion, and securities fraud. He was taken into federal custody immediately after the hearing, at which he had waived indictment and admitted to helping Madoff falsify trading records for decades.

Although he faces up to 125 years in federal prison for his crimes, he may receive a lenient sentence due to his cooperation with the prosecution. Other than Madoff (who received a 150-year sentence) and DiPascali, only accountant David Friehling has been charged in connection with the massive Madoff fraud. DiPascali likely has a wealth of information on many potential targets of investigation and has been cooperating with the prosecution since January. Based upon his cooperation, the prosecution recommended a bail package pending sentencing in his case. Despite the recommendation, Judge Richard Sullivan denied bail, ordering DiPascali into custody immediately. Whether he will benefit from his cooperation at sentencing remains to be seen.

One of the prosecution’s most formidable tools in a criminal case is the bargaining power inherent in its prosecutorial discretion. The prosecution usually wields significant power at sentencing. In other accounting scandal cases, highly culpable defendants who have cooperated have received light sentences in comparison to their former co-workers. Scott Sullivan, for instance, former WorldCom CFO who testified against CEO Bernard Ebbers, has already returned to his home in Boca Raton, after serving four years of his five-year sentence. Ebbers, on the other hand, is scheduled for release in 2028. Jeffrey Skilling, former president of Enron, is also scheduled for release in 2028, whereas CFO Andy Fastow received only six years, due to his significant cooperation with the prosecution.

More worrisome is the pressure prosecutors place on lesser associates to cooperate in the investigation and prosecution of bigger fish. Prosecutors investigate potential witnesses who may be useful to their cases. When those witnesses refuse to cooperate for any number of reasons, prosecutors will sometimes threaten those people with indictments of their own. Even when innocent, many people cannot afford the economic and social costs of fighting such charges, let alone the risks of losing at trial. In any case the pressures to cooperate are immense and those who do not are penalized heavily when it comes to sentencing. Because of the risks, defense attorneys face difficult decisions when advising clients as to whether they should cooperate.

A recent law review note by Sarah Ribstein addresses the economic costs white-collar criminal defendants face. “A Question of Costs: Considering Pressure on White-Collar Criminal Defendants” is available here.

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