United States v. Adelson

Richard Adelson (defendant) joined Impath, Incorporated as CEO in 2001, later becoming president. The government (plaintiff) alleged that a conspiracy at Impath to keep its stock price artificially high began in late 1999. The conspiracy continued until mid-2003, when accounting irregularities were discovered at Impath. When Impath revealed the accounting irregularities, its stock price declined by 88 percent. The loss to shareholders amounted to approximately $260 million. Adelson went to trial and was convicted of conspiracy, securities fraud, and three counts of false filings. All of these convictions related to filings made in mid- to late-2002. Adelson was acquitted of seven counts related to filings that occurred prior to mid-2002. The jury found that, presumably, Adelson did not participate in the conspiracy until well after it had commenced under Adelson’s predecessor CEO. The conspiracy had fooled outside auditors, but Adelson eventually discovered the fraud. Adelson chose to conceal the fraud once he became aware of it. Applying the sentencing guidelines, the court determined that Adelson had an offense level of 46 after adjustments and enhancements (originally a base level of 6). Part of the reason for such a significant enhancement was the large loss suffered by shareholders. The sentencing guidelines recommended a sentence of life imprisonment for all offenses over level 42. When the judge questioned the government regarding whether it sought life imprisonment, the government counsel patently demonstrated that it did not want the court to impose a life sentence despite giving lip service to the guidelines’ recommended sentence. Many letters were written on Adelson’s behalf indicating he was an upstanding member of society but for the fraud. The judge carefully considered the sentencing guidelines and 18 U.S.C. § 3553(a) to determine what sentence to impose on Adelson. Ultimately, the court reasoned that a sentence of three and a half years was appropriate based on the general considerations of § 3553(a). The government appealed.