White collars, prison blues
Stepped-up federal prosecution puts corporate leaders under more intense scrutiny, and stricter sentencing rules mean convicted executives find hard time coming their way
chicagotribune.com
By Greg Burns
Tribune senior correspondent
Published January 4, 2004
AYER, Mass. -- Sitting erect in a green plastic chair, tan jumpsuit neatly buttoned and pressed, wire-rim glasses lending a professional air, David Heath Swanson looked every inch the chief executive.
Even here, in federal prison.
After a long career at the top of Midwest agribusiness, Swanson at age 61 is just beginning a 15-year sentence on corporate fraud charges.
His move from the boardroom to the big house comes amid a federal crackdown on white-collar crime. Under criticism for failing to pursue the corporate elite in the past, the Justice Department is finally starting to boost its caseload. But the biggest changes, as Swanson can attest, involve penalties.
Even before the Sarbanes-Oxley Act of 2002 dramatically increased jail time for standard white-collar offenses such as mail and wire fraud, prosecutors were bringing more extensive charges, toughening up on plea bargains and protesting when nonviolent offenders were sent directly to halfway houses.
"The prospect of prison, more than any other sanction, is feared by white-collar criminals and has a powerful deterrent effect," a top Justice Department official declared last summer.
These days, executives who get caught can expect to serve considerably longer stretches than noted business crooks of the past, according to criminologists and government officials.
Where junk-bond manipulator Michael Milken served two years and savings-and-loan cheat Charles Keating a little more than three, the Bureau of Prisons pegs Swanson's release date with good behavior at March 9, 2016. He'll be 73.
Swanson still proclaims his innocence and vows to carry on an appeal, but he's realistic about the message his long sentence conveys.
"I think it would deter anybody from doing anything that will attract the attention of the government," he said in an interview just before the holidays, as the children of fellow inmates romped past him in the visiting room. "You won't believe what the government is going to do to you. They're out there to get you, so beware. That's the only lesson you can learn."
Swanson's new life as federal prisoner No. 06614-028 got off to a rocky start.
On the eve of his Jan. 24 sentencing for looting a prominent farm cooperative based in Indiana, Swanson took a taxicab from Indianapolis to Chicago, then an Amtrak sleeper on to Seattle. He made a run for that city, he said, to avoid treatment for alcohol abuse at the Indianapolis jail.
When U.S. marshals finally brought him back to Indiana in March, U.S. District Judge Sarah E. Barker greeted the one-time fugitive with a sarcastic, "Long time, no see," then lowered the boom.
Even before his Seattle detour made him eligible for additional jail time, Swanson faced a stiff sentence. After a 15-day trial, a federal jury deliberated just eight hours before convicting him of sweeping tax evasion, fraud and money laundering charges. He accepted no responsibility for any wrongdoing.
Baker imposed 180 months out of a possible 188 under federal sentencing guidelines, noting that Swanson had abused his power as the chief executive of Countrymark Cooperative and destroyed the financial security of its employees and shareholders. She also ordered him to pay back $5.5 million and forfeit another $53.8 million.
After that, Swanson spent short stretches in the local jail and a federal prisoner transit center before landing on April 23 at the Federal Medical Center here on the decommissioned Ft. Devens military base.
Devens, as it's known, is primarily a prison hospital that also houses able-bodied inmates like Swanson to help maintain the facility. The Harvard and University of Chicago graduate said he is mostly employed scraping, mopping, waxing and buffing the dining-hall floor.
Swanson's sentence is too long for a "Club Fed"-style minimum-security federal prison camp, and he requested Devens to be close to his family four hours away in New York.
No country-club setting
Because it accepts inmates from across the federal system for medical treatment, Devens maintains a high level of security. Swanson's every movement is carefully controlled, behind brick walls topped with coils of razor wire.
He lives in a noisy 120-inmate dorm, sharing a bunk bed with a 22-year-old drug offender. With plenty of time on his hands, he has finished writing a history of New York's prestigious Explorer's Club for world travelers, which he once headed, and an unpublished novel of international intrigue entitled, "Betrayal on the Silk Road." He also teaches beginning Spanish.
Once chief executive of Central Soya Co. and a prominent figure in Chicago's commodity markets, Swanson has learned to cut a deal in the prison economy. Earlier this month, he traded three packs of preserved mackerel purchased in the commissary for a stylish haircut from an inmate using blunt-tipped scissors, he said.
Still an oddity
Although Swanson said he has met at least five fellow inmates who previously headed private companies, and others who were millionaires before Uncle Sam intervened, the prison population hails overwhelmingly from the bottom of the economic food chain.
His presence is a sign of the times, Swanson said. "They are treating CEOs like everybody else," he said. "They take the houses and attack the families just the same as for drug dealers. It's a fire-bombing."
If so, it's a new phenomenon.
Among a U.S. prison population of 2.16 million, barely more than a thousand are believed to be serving time for engineering corporate frauds.
Break with the past
For years, prosecutors shied away from those cases, critics say, reflecting in part the difficulty of winning a conviction against wealthy and powerful defendants involved in complex financial crimes.
Between 1992 and 2001, the Securities and Exchange Commission referred 523 cases to the Justice Department for criminal charges, according to the TRAC criminal-justice database at Syracuse University. In that same period, federal prosecutors declined to pursue nearly 300 referrals and won convictions on just 135.
"The creme de la creme virtually never get jail time," said Henry Pontell, an influential criminologist at University of California in Irvine.
Of the few charged in connection with the massive savings-and-loan fraud of the 1980s, for instance, sanctions were lower "than for burglars and car thieves," he said.
Minimum sanctions set
In 2002, however, the outlook changed with the passage of Sarbanes-Oxley. Under revised sentencing guidelines, an officer of a public company who defrauds a group of investors out of more than $1 million merits a minimum 10-year prison sentence, almost double the previous minimum term.
At the same time, the government established a corporate-fraud task force with the goal of pursuing more cases. In the past two years, the SEC made 129 referrals and prosecutors won 89 convictions, according to TRAC data.
Altogether, the Justice Department says it has brought 267 corporate fraud cases against 613 defendants in the past year and a half, according to spokesman Bryan Sierra.
Momentum is building as prosecutors develop more expertise, he said. "We're bringing cases that might not have been brought in the past because we have more experience."
Still, the numbers pale beside the 151,000 inmates in the federal system overall, and some of the get-tough policies primarily affect low-profile offenders who have no connection with corporate crime.
Indeed, some big cases appear to be languishing. Although both men deny wrongdoing, the absence of charges against Enron Corp. leaders Jeffrey Skilling and Kenneth Lay is widely viewed as evidence the task force reels in CEOs such as Swanson only in the rarest circumstances.
"I guess you'd call him one of the stupid ones," Pontell said. "He got nailed."
For his part, Swanson said he worries the crackdown will discourage corporate leaders from taking the chances necessary to build businesses.
"They're trying to kill off the CEO class," he said. "We're risk-takers. I'm a mountain climber, a marathon runner, an ambitious businessman. I ate good food and drank a lot."
As visiting hours concluded, Swanson had more modest plans. First, he would be strip-searched for contraband. Then he would prepare for the Spanish class he teaches, work a little on another novel he's writing and probably watch a basketball game on TV with other inmates.
"You have to accept it," he said. "Life as you know it is over."
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