Halting the senseless civil war against white-collar offenders: “the conduct undermined the integrity of the markets” and other fallacies

White-collar offenders understandably attract a significant amount of resentment and animosity. They often make large profits through cheating the financial system. The antipathy the community feels towards these offenders has resulted in increasingly tough sanctions being meted out to them. In the United States, it is not uncommon for white-collar offenders to be sentenced to imprisonment for over a decade. This approach is fundamentally flawed. It is an illustration of collective community venting prevailing over sound evidence-based policy. This Article focuses on white-collar offenders who cheat the stock market. We argue that the reflexive unabated practice of increasingly harsh penalties for offenders who commit insider trading and market manipulation offenses has resulted in the community punishing itself by directing scarce public resources into the prison industry and away from demonstrable social goods in the form of education and health, without any corresponding benefit to the community. The two main reasons for imposing harsh sentences on market cheats are the desire to deter others from committing similar offenses and to maintain the integrity of the markets.

In this Article, we demonstrate that these rationales are flawed. The weight of existing empirical data establishes that long prison terms do not deter people from committing similar offenses. We also examine the impact of high profile market offenses on the value of shares. The article contains an empirical analysis regarding whether there is a link between white-collar offenses and the integrity of the markets (which is an assumption made by courts). The study shows that there is no demonstrable link between major stock market crime and a lowering in the value of the market. The value of the stock market does not normally fall in response to high profile financial market offenses. This Article argues that the civil war against white-collar offenders should stop. The humanistic toll on white-collar offenders (as a result of being subjected to disproportionate punishment) and the financial burden on the community stemming from the burgeoning cost of imprisonment have already produced too much self-inflicted harm. Imprisoning fewer white-collar (and other fraud) offenders will assist in ameliorating the incarceration crisis in the United States while at the same time ensuring that proportionate penalties are imposed on such offenders. It will also hopefully provide the impetus for more wide-ranging evidence-based reforms to the sentencing system, which has resulted in more than two million Americans being incarcerated—the highest in history.