White & Case's Corporate Defense and Special Litigation practice provides counsel to corporations and their leaders in domestic and international civil and criminal enforcement, including criminal and securities fraud, health care fraud, financial institution fraud, antitrust violations, environmental statutory enforcement actions, criminal tax matters, international boycott and trade restriction cases, and Foreign Corrupt Practices Act matters.

On April 3, a federal appeals court ruled unanimously that federal prosecutors no longer have the exclusive right to determine whether a defendant's efforts to cooperate with the government can be grounds for reducing a criminal sentence.

In its decision in United States v. Mayra Fernandez, the US Court of Appeals for the Second Circuit expanded a sentencing court's ability to consider a defendant's cooperation efforts, even if those efforts are not credited by the prosecution. As a result of this decision, federal district courts can now take a defendant's cooperation with authorities into account in formulating a criminal sentence, even when government prosecutors do not request it in a "5K letter."

Lance Croffoot-Suede, a partner in White & Case's Corporate Defense and Special Litigation Group, led the team that achieved this precedent-setting result on behalf of a pro bono client. Croffoot-Suede received the assignment to represent the previously-convicted defendant through his appointment to the Criminal Justice Act panel for the Southern District of New York. After the district court imposed the sentence, he filed an appeal to the Second Circuit on behalf of the pro bono client, arguing, among other things, that the district court failed to consider certain aspects of the defendant's cooperation with prosecutors when determining the defendant's sentence.

"Non-5K Cooperation"

In general, when federal prosecutors determine that a cooperating defendant has substantially assisted in a prosecution or investigation of another person, the government submits a letter to the sentencing judge stating that the defendant has provided substantial assistance pursuant to Section 5K1.1 of the US Sentencing Guidelines. By submitting this letter, commonly referred to as a 5K letter, federal prosecutors empower the district court to reduce the defendant's sentence based on the defendant's cooperation.

Government prosecutors have complete discretion over whether defendants' cooperation justify 5K letters, and they occasionally choose not to file them with district courts. For example, defendants who lack significant information about other offenders may not receive a 5K letter, no matter how much they cooperate. In other cases, the government might be unable to utilize a cooperating defendant as a trial witness due to credibility concerns. In its ruling, the Second Circuit described this type of situation as "an inability to cooperate in a manner that satisfied the Government" and created a new phrase – "non-5K cooperation" – to describe it.

District Courts Must Consider Broad Range of Factors in Sentencing

In its ruling, the Second Circuit agreed with Mr. Croffoot-Suede that a federal sentencing judge may consider a defendant's efforts to cooperate with government authorities when setting a criminal sentence, even if prosecutors do not file a 5K letter.

According to the Second Circuit, sentencing judges are statutorily required to consider a defendant's "history and characteristics" at sentencing, since the statute is "worded broadly" and contains "no express limitations as to what 'history and characteristics of the defendant' are relevant." As a result, the "sweeping provision presumably includes the history of a defendant's cooperation and characteristics evidenced by cooperation, such as remorse or rehabilitation."

Therefore, the Second Circuit concluded, "in formulating a reasonable sentence a sentencing judge...should take under advisement any related arguments, including the contention that a defendant made efforts to cooperate, even if those efforts did not yield a Government motion for a downward departure."

Appellate Court Can Review Sentences for "Reasonableness"

The Fernandez decision included another notable holding: the Second Circuit's ruling that it has the statutory authority to review all criminal sentences for reasonableness. In making this ruling, the Court declined to hold that a properly-calculated sentence is presumptively reasonable. In fact, the Second Circuit stated that there is no "presumption, rebuttable or otherwise," that a criminal sentence is reasonable simply because a judge calculates it according to the relevant US Sentencing Guidelines range.

Significance for White-Collar Investigations

The impact of these rulings will affect white-collar investigations and criminal prosecutions. "Guiding companies and their executives through cooperation with government investigators, and zealously defending our white-collar clients have been key aspects of our corporate defense strategy for years," said Croffoot-Suede.

Two years ago, White & Case helped Royal Ahold, N.V. settle an SEC investigation without monetary penalties through substantial government cooperation and remedial actions. By establishing the concept of ‘non-5K cooperation,' this case has broadened the definition of government cooperation and now permits judges to reduce a defendant's sentence, even without specific authorization from prosecutors.

The section of the US Sentencing Guidelines applicable to corporate entities contains a provision similar to Section 5K1.1 which, upon government motion, provides a sentencing court the ability to credit cooperation when imposing a sentence on a corporation. In light of the Second Circuit's holding in Fernandez, it is a fair presumption that courts may need to consider corporate cooperation when imposing sentences, regardless of whether the government credits such cooperation.

"The good news is that this decision provides additional methods of reducing our white-collar clients' sentences when they cooperate with the government," Croffoot-Suede states. "We can now seek to have district court judges consider cooperation that doesn't result in a 5K letter when determining appropriate sentences. At the same time, in certain cases we may also request that appellate courts review criminal sentences for reasonableness, even when a sentence calculation falls within the appropriate range of the federal sentencing guidelines."

The team that assisted Croffoot-Suede includes Joseph Mack and Victoria Orlowski, both associates in the Corporate Defense and Special Litigation Group.

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