Federal appeals court vacates securities fraud sentence

In a federal prosecution for a white collar crime, sentences can vary widely depending on the amount of money involved and whether there were any factors in play that warrant a reduced sentence. In the specific context of federal securities law, some criminal statutes contain a no-knowledge provision. In practice, this type of no-knowledge provision can be used to prevent a defendant from going to prison if that defendant had no knowledge of the rule or regulation he or she is accused of violating.

Recently, a federal appeals court vacated a man’s sentence because a trial judge refused to allow him to present the defense that he had no knowledge of the rule.

In 2009, the defendant was indicted on federal securities fraud charges. Last year, he pleaded guilty to securities fraud. As a result, he was sentenced to five years in prison and was ordered to pay more than $6.8 million in restitution to investors.

Prosecutors alleged that the defendant misappropriated funds from about 25 investors and spent the money on himself. At the sentencing phase, the defendant attempted to use the no-knowledge defense. However, the trial judge decided that he could not assert the defense because he had pleaded guilty to section 78j(b) of the Securities Exchange Act of 1934, a statute governing deceptive on manipulative devices.

The court of appeals disagreed with the trial judge and found that the no-knowledge defense was available for this type of securities offense. The appeals court vacated the man’s prison sentence and sent the case back to the trial court. There, sentencing will be conducted again and the trial court will need to consider the no-knowledge defense.

Sources: United States v. Behrens, 10-3505, 2011 WL 2694608 (8th Cir. July 13, 2011)

Businessweek, “Federal appeals court vacates Omaha man’s sentence,” Margery A. Beck, 13 July 2011