Go directly to jail.

On Monday, Sam Israel was supposed to directly surrender to federal prison in Ayer, Massachusetts, to begin a 20-year sentence for securities fraud in connection with his tenure as the manager of the Bayou Group hedge fund. Instead, today he is missing. His GMC Envoy was found abandoned near the Bear Mountain Bridge, which spans a remote and wild portion of the Hudson River. Someone scratched the message “Suicide Is Painless,” the theme song from the TV show M*A*S*H, into the layer of dust on the SUV. While the bridge is quite isolated and imposing, a law-enforcement source stated, “We’re not searching the river because it is widely presumed he didn’t jump.” Ross Intelisano, a lawyer for victims of Israel’s investment fraud, said, “Unless they find a body, I think he’s on the lam.”

Back in April, I wrote about our country’s “rogue state” status, in which draconian sentences are imposed even in nonviolent cases. I cited Israel’s 20-year sentence as an extreme example of punishment run amok. Despite the fact that Israel cooperated with government prosecutors and then pled guilty, he received an extraordinarily tough sentence from Judge Colleen McMahon. While the Department of Justice claims that the suicide rate for inmates now is much lower than it was 20 years ago, I can tell you from experience that people who face even a small amount of time behind bars often become unbearably anxious. If the authorities do discover Sam Israel’s body, those who are calling the disappearance his “greatest con” should be truly ashamed. On the other hand, if the Feds find him on a beach in Tahiti drinking a Mai Tai, it's going to be harder for all of us defense attorneys to get judges to allow our clients to surrender directly to prison instead of being thrown in the can at sentence.

Deal or no deal?

On Wednesday, Antoin “Tony” Rezko was convicted in Chicago of 16 of the 24 counts he was charged with, including wire fraud and money laundering. Rezco was a prominent fundraiser for Illinois senator Barack Obama and governor Rod Blagojevich. Obama, whose relationship with Rezko dates back to 1990, was also involved in a personal real estate deal with Rezko in 2005, when Rezko was already under federal investigation. Obama has characterized his involvement in this deal as “boneheaded.” Republicans wasted no time in exploiting the news of the conviction by sending an email questioning Obama’s judgment to reporters.

Rezco’s sentencing is scheduled for September 3. However, rather than asking the trial judge for a continuation of his release on bail pending sentence, he immediately surrendered and entered federal custody while he is awaiting sentence. His attorney stated that Rezco wanted to begin his sentence without delay. Even though Rezco was found not guilty of eight counts, including extortion, under federal sentencing law the judge may increase a sentence by considering acquitted conduct. Thus Rezco is facing many, many years in prison. Meanwhile, the government’s star witness against Rezko, self-admitted political fixer Stuart Levine, is likely to receive only a little over five years under the terms of his plea agreement, rather than the possible life sentence he was facing before he decided to cooperate with the government. This is not unusual. Prosecutors turn witnesses in all kinds of cases, and they get sweet deals for spilling the beans.

There is now speculation that with the heat turned up to a boil on Rezko, he’ll also strike a deal and squeal, engulfing Senator Obama in the kind of controversy that could jeopardize his run for the White House. This is highly unlikely. First, why would Rezko launch himself into the big house if he thought he could serve up Barak Obama on a silver platter? He’d have his lawyer get him bail, set up a meeting with the prosecutors, and start snitching. Second, the prospect of getting a cooperation deal after you’ve made the government convict you is far more difficult than auditioning for Team America prior to seating a jury of twelve to decide your fate.

Pat Fitzgerald, the U.S. Attorney in Chicago, is no shrinking violet. He’s a former Manhattan federal prosecutor whom I’ve squared off against. He zealously prosecuted and convicted Scooter Libby and would not hesitate to go after Obama if the goods were there. I don’t think Rezko has anything other than superficially embarrassing things on Obama; otherwise, he’d have played those cards already. Moreover, why volunteer to be a caged stool pigeon when you could be free and give Chicago yet another marquee trial? The bonehead is not Obama but Rezko, for risking trial without a real safety net. CR

The oldest profession revisited.

Deborah Jeane Palfrey, the operator of an alleged prostitution service in Washington, D.C., was found dead yesterday, an apparent suicide by hanging. Having been convicted after trial in federal court on charges of racketeering, money laundering, and mail fraud, she was facing a likely sentence of four to six years. Her elderly widowed mother found the body in a storage shed behind her mobile home in Florida.

Members of Washington’s political elite were rumored to have been Palfrey’s clients. Senator David Vitter, a Republican from Louisiana, admitted to utilizing the services provided by Ms. Palfrey’s business. Vitter, who is married and has four children, apologized and said he had committed a “very serious sin.” But neither he, nor any of Palfrey’s other customers, was prosecuted for violating laws against patronizing a prostitute.

Palfrey had been jailed for 18 months in the early 1990s and vowed in a TV interview that she would never go back to prison. She had also spoken about Brandy Britton, one of Palfrey’s former escorts, who hanged herself in June 2007, shortly before her scheduled trial for prostitution. Britton had been a professor at the University of Maryland.

The Palfrey case is only the most recent example of how devastating the antiquated and puritanical laws about sex workers in this country can be to those who work in this business. There is no easy solution to this problem. Efforts at legalization in the Netherlands have apparently led to an increase in human trafficking in underage girls. Other countries, such as Germany, regulate sex work and permit it in specified areas. Here in the U.S., COYOTE (Call Off Your Old Tired Ethics), an organization that acts as a support network for sex workers, is in favor of the decriminalization – as opposed to legalization – of commercial sex among consenting adults.

The cost of criminal enforcement of the laws against commercial sex work is significant. High-profile arrests recently ended the political career of New York Governor Elliot Spitzer, though he has yet to face prosecution for criminal laws he may have violated. An unregulated sex industry provides a fertile ground for other criminal conduct. But lengthy federal sentences for madams and arrests of sex workers and their clients will not solve the problem, and the problem is surely not going away. Only efforts at decriminalization and regulation will help to lead the way toward a safer and less degrading sex industry, and avoid the waste of public dollars spent on futile enforcement efforts. CR

Come on down!

In the wake of perceptions that Florida has become a hotbed of real estate scams, the state Senate yesterday passed the second bill in two years that boosts jail terms for those convicted of real-property-related rackets. Any mortgage fraud on home loans amounting to more than $100,000 will now be prosecuted as a second- degree felony, which carries a potential jail term of up to 15 years. Just last week, one Richard Crowder was convicted of a $37 million mortgage-fraud scheme involving 17 luxury condos in South Beach, Miami. He was sentenced to nine years in prison.

This is yet another example of the politically driven process by which criminal penalties are being increased in order to allow elected officials to appeal to voters. Longer sentences for those convicted of mortgage fraud will not address the widespread economic problems that Florida – and many other states – face in the wake of the subprime mortgage meltdown. And longer sentences cost states much more money in the long run. Election-driven prosecutors refuse to negotiate the fraud-case flavor of the month, thereby costing taxpayers money in unnecessary trials. This chronic pattern of predicament solving by mandating longer criminal sentences has never worked in the past and will continue to cause many more problems than it is worth in the future. CR

The rogue state.

In his latest installment in his ongoing series of articles under the rubric “American Exception,” examining commonplace aspects of the American judicial system that are virtually unknown in the rest of the world, New York Times legal correspondent Adam Liptak reports the disturbing statistic that the U.S., with a prison population of 2.3 million, now “leads the world in producing prisoners.” China, with a population four times ours, is a distant second, with 1.6 million people behind bars.

Shockingly, we now lock up one in every 100 adults. When it comes to incarceration rates, the U.S. ranks first, at 751 prisoners per 100,000 in population. In comparison, England’s rate is 151 per 100,000; Japan’s, 63. The median for all nations is around 125 – about one-sixth the U.S. rate. As Liptak points out, the rise in the U.S. incarceration rate is recent. Between 1925 and 1975, the rate was around 110 per 100,000. It spiked as a result of the movement to get tough on crime in the late seventies.

Liptak also cites compelling evidence that the lengths of prison terms in the U.S. are far longer than anywhere in the world, especially for nonviolent offenses, including white-collar and drug. Vivien Stern, a research fellow at the International Centre for Prison Studies in London, writes that the United States has become “a rogue state, a country that has made a decision not to follow what is a normal Western approach.”

I began my career as a criminal defense lawyer around the same time this country began its “get tough on crime” campaign. It is clear to me that the pendulum has swung much too far in the direction of draconian retribution. Liptak proposes several possible causes for this alarming situation, among them the politicized nature of the criminal justice system. In my experience, each election cycle brings a new clarion call for longer, harsher, and more punitive sentences. The election of prosecutors and judges, and even the politicized process of appointing federal judges, feeds this out-of-control wildfire.

Even in the aftermath of case law changes to the federal sentencing system, with federal judges being provided the opportunity to exercise more lenity, they are still largely following the sentencing guidelines. The result can be drastic sentences, such as the one handed down recently to Bayou hedge fund executive Samuel Israel, who pleaded guilty and cooperated with the government. His pleas for mercy were ignored by the judge, who sentenced him to 20 years in prison. Until legislators, judges, and prosecutors recognize the futility of our obsession with protracted imprisonment for individuals whose lives can be salvaged, we will continue to be a “rogue state” when it comes to making the punishment fit the crime. CR

Teflon Jobs?

Was Apple CEO Steven Jobs personally involved in backdating stock options? This question is explored in detail in a highly informative article by Peter Elkind in the current issue of Fortune titled “The Trouble with Steve Jobs.” Apple has acknowledged that Jobs “was aware [of] or recommended the selection of some favorable grant dates. ” But Apple’s investigation concluded that Jobs’s involvement did not amount to misconduct because he “was unaware of the accounting implications.” While Jobs has not been charged by either the SEC or the DOJ, the investigation continues. Former Apple CFO Fred Anderson, who has been charged by the SEC with securities fraud for misleading investors, has publicly stated that Jobs knew all about the accounting implications of backdating options.

Meanwhile, on March 19 in San Francisco, a tearful Stephanie Jensen was packed off to jail. The former Brocade human resources chief was sentenced to four months in federal prison by U.S. District Judge Charles R. Breyer (brother of U.S. Supreme Court Justice Steven Breyer) for her involvement in options backdating. Judge Breyer stated that her sentence should send “a message to individuals who may be confronted with a situation very similar to the one you were confronted with, and that if they don’t say ‘no’ they are going to spend a lifetime regretting the decision they have made.”

This fundamentally unjust situation highlights how inequitable it is to single out individuals as scapegoats to serve as deterrent value for a widespread and largely bygone corporate compensation practice. Options accounting rules were technical, complex, and muddled. Regulatory changes and company restatements have mostly addressed the issues. The government has convicted Jensen and former Brocade CEO Greg Reyes at trial and is 2-0 in the options backdating arena. Let’s hope it exercises fairer and more reasoned judgment going forward. CR