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Friday, June 14, 2024 | Back issues
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Court Scoffs at Light Sentence for CEO’s Fraud

CINCINNATI (CN) - The seven-day sentence given to a former CEO whose money-laundering scheme cost investors more $18 million was as "unreasonably low," the 6th Circuit ruled.

Michael Peppel was president, CEO and chairman of the board of directors for MCSi Inc., a computer technology company, from 1998 to 2003, during which time he teamed up with the company's CFO to falsify earnings and elevate stock prices.

In December 2001, Peppel sold 300,000 personal shares of stock for more than $6 million and deposited the money in his personal accounts.

The Securities and Exchange Commission opened an investigation in February 2003, and Peppel was fired the next month. NASDAQ then delisted MCSi stock, and the SEC banned Peppel from serving as director of a public company.

Peppel eventually pleaded guilty to conspiracies to commit securities, mail and wire fraud, willful false certification of a financial report and money laundering.

After several evidentiary hearings, U.S. District Judge Sandra Beckwith in Dayton, Ohio, determined that Peppel's actions caused losses surpassing $18 million.

Peppel's crimes called for a recommended sentence between 97 and 121 months in prison, but he argued that probation was more appropriate and had witnesses testify as to his character, accomplishments and charitable works.

Against the government's insistence on sentence within guidelines, Beckwith ordered Peppel to serve just seven day in custody, plus three years of supervised release and a $5 million fine.

On appeal, prosecutors insisted that this sentence failed to reflect the seriousness of Peppel's crimes.

A three-judge panel agreed Friday and remanded for resentencing.

"The existence of additional components of Peppel's sentence does not cure the district court's failure to explain how a seven-day custodial sentence adequately reflects the seriousness of the offense," Judge Karen Nelson Moore wrote for the panel. "Moreover, as argued by the government, many of the statements made by the district court in this portion of its analysis are improper under our established law. For example, the district court considered collateral consequences of the prosecution and conviction: 'The court accepts Mr. Peppel and his family's representation that the last five years have been punishing, literally and figuratively, for Mr. Peppel, and the court takes that into consideration as well.'"

A seven-day sentence also does not advance the goal of deterring Peppel or others from committing similar crimes in the future, according to the ruling.

Quoting United States v. Martin, a 2006 decision from the 11th Circuit, the panel said that "the 7-day sentence imposed by the district court also utterly fails to afford adequate deterrence to criminal conduct. Because economic and fraud-based crimes are more rational, cool, and calculated than sudden crimes of passion or opportunity, these crimes are prime candidates for general deterrence."

The court also chided Judge Beckwith for placing undue weight on Peppel's stance in the community, business experience and personal history.

"The district court's heavy reliance on unremarkable aspects of Peppel's characteristics constituted an abuse of discretion," Moore wrote. "Nothing in the record establishes unique circumstances other than his chosen profession and status in the community, both of which are decidedly inappropriate to from the basis of such a large downward variance. Because the district court not only placed far too great of an emphasis on Peppel's history and characteristics, but also considered improper factors that we have previously repudiated, we conclude that the district court abused its discretion."

Peppel failed as well to challenge the trial court's amount-of-loss and number-of-victims calculations.

Moore summarized Peppel's argument as saying "that the victims were the thirty-nine non-insider shareholders that purchased shares after February 26, 2002, when the false year-end results were publicly announced," instead of all 284 shareholders.

The panel concluded, however, "the term 'victim' is defined as 'any person who sustained any part of the actual loss.'"

"Because we agree that all those who bought or held stock when the false information was disseminated by Peppel suffered a loss, as discussed above, we reject Peppel's contention that only those thirty-nine individuals who purchased the stock after the false information was released were victims under the guidelines," Moore wrote.

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