Bruce Ackerman/Ocala Star-Banner, Mary Altaffer/Associated PressLee B. Farkas leaves court in June 2010 and Raj Rajaratnam after his conviction in May 2011.

6:24 p.m. | Updated

Lee B. Farkas received a 30-year prison sentence on Thursday for his role in a long-running mortgage fraud that federal prosecutors said caused about $2.9 billion in losses and brought down a bank with $12 billion in assets in 2009. For those who think the courts routinely go easy on white-collar defendants, this is the latest in a string of prominent cases in which judges have imposed substantial punishments, some of which may work out to virtually a life sentence.

Mr. Farkas, the former chief executive at the Taylor, Bean Whitaker Mortgage Corporation, was convicted on 14 counts for falsifying mortgages financed through Colonial Bank, which was closed partly because of losses from its dealings with the mortgage company. Prosecutors accused him of using company money to finance a lavish lifestyle, diverting $40 million in addition to his generous salary and bonuses.

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The Justice Department had asked Judge Leonie Brinkema in Federal District Court in Alexandria, Va., to sentence Mr. Farkas to the maximum term for all his convictions, totaling 385 years, to send a message to corporate executives. As I discussed in an earlier post on sentencing, it is questionable whether those executives will pay much attention to what happened in the case because the prison term is not outside what seems to have become almost ordinary in white-collar cases.

Although Judge Brinkema did not accept the government’s recommendation, there is a good chance the sentence means Mr. Farkas spends the rest of his life behind bars. Under federal Bureau of Prisons guidelines, he will have to serve about 24 years in a federal prison. Mr. Farkas, who is 58, will not be released until he is in his 80s, even accounting for the time he has been in custody since being charged in June 2010.

Mr. Farkas’s sentence is part of a continuing trend in white-collar cases in which federal judges have imposed substantial prison terms on defendants who abused their positions to engage in fraudulent schemes. Marc Dreier, a former New York lawyer, received a 20-year sentence for bilking hedge funds and other investors out of $700 million, while a $1.4 billion scam by Scott Rothstein, a Miami lawyer, brought a 50-year prison term.

Lengthy sentences have been around for fraud cases for more than a decade, since the United States Sentencing Commission’s sentencing guidelines ratcheted up the penalties for this type of case in 2001. The impact on white-collar defendants has been substantial, with chief executives like Jeffrey K. Skilling of Enron and Bernard Ebbers of WorldCom each receiving prison terms of more than 20 years for the accounting frauds at their companies.

Taking a case to trial like the one against Mr. Farkas did may also increase the sentence because federal prosecutors usually argue for the maximum punishment under the federal guidelines, with little incentive to cut a defendant any slack. And if a defendant testifies and is convicted, then there is the additional risk that, like Mr. Farkas, the judge will conclude that the person committed perjury, which is an additional enhancement to the sentence.

An interesting question is whether this trend toward longer sentences aimed at “sending a message” will have a greater impact on the sentence of Raj Rajaratnam, the Galleon Group hedge fund manager, for insider trading. That sentencing had been scheduled for the end of July, but late Thursday a federal judge postponed it until Sept. 27. As I discussed in a post about the Galleon case, the sentencing guidelines in his case call for a prison term of about 15 to 20 years.

Mr. Rajaratnam’s crime was hardly the type of Ponzi scheme perpetrated by Mr. Dreier or Mr. Rothstein, nor did it have the claims of falsified documents and fake mortgages for which Mr. Farkas was convicted. Unlike those defendants, Mr. Rajaratnam was accused of crossing the line by illegally using confidential information for the benefit of the Galleon Group, but otherwise there was no claim that his business was illegitimate or that he stole from individual investors.

Yet Mr. Rajaratnam was convicted of taking information from highly placed sources who breached their fiduciary duty to publicly traded corporations like Goldman Sachs, I.B.M. and Advanced Micro Devices, at least indirectly harming thousands of shareholders. The wiretaps played at trial demonstrate a rather brazen approach to gathering this information, with instructions on how to cover up the trading to make it appear to be innocent. Although Mr. Rajaratnam did not testify, the type of conduct portrayed on the wiretaps could lead the court to find that he deserves a significant sentence for abusing his position.

I would not be surprised if federal prosecutors sought a sentence above the guidelines recommendation for Mr. Rajaratnam to send yet another message to Wall Street, one that certainly would be noticed in the hedge fund universe. A substantial prison term, in the 25-year range, would also be consistent with the trend in white-collar cases toward harsher punishments.

Article source: http://feeds.nytimes.com/click.phdo?i=28ba407029532b0aa52c191384cb6dc3