What Are Your Intentions?

In most white-collar cases, the main driver at sentencing is the dollar amount of the victim’s loss, and in federal cases, the rule is that you’re responsible for either the actual loss or your intended loss, whichever is greater. We touched on the difference between actual and intended loss in this post from last spring.

But recently, an influential federal court of appeals had to decide a case in which the defendant stole his employers’ trade secrets but didn’t actually cause or intend any loss.

How so?

The defendant was a young financial analyst who, over a two-year period, worked for two securities firms. Both firms had created computer software to engage in high-frequency trading, where a computer trades at lightning-fast speed in response to market events. Each firm had invested time and money to develop the algorithms behind its software.

The defendant pleaded guilty to copying their computer programs for his own use, but he didn’t sell them, publish them, or take them to a competitor.

Instead, he used them to start making computerized trades himself, and he lost $40,000 in the process. There was no evidence he had any bigger plans for them than that. He got caught when the second firm grew suspicious of the activity on his work computer, which led to his being indicted for wire fraud, computer hacking, and theft of trade secrets.

At sentencing, everyone agreed that the two firms had suffered no actual loss, and there was no evidence the guy intended to cause them any loss at all.

The trial court, however, found that he intended to cause a loss of $12 million because that was the total labor cost that the firms incurred in developing their software.

That number made a big difference. Under the federal sentencing guidelines, it jacked up the guy’s suggested sentence from probation, which may have included some time in home detention or a halfway house, to a sentence of seven to nine years in prison. Based on that, the court sentenced him to three years in prison.

And yet, there was no evidence that the guy intended to cause the victims any loss, let alone a loss that equaled their internal cost of development. Although the trial court could consider such costs under the sentencing guidelines, it could not base its loss estimate on those costs alone without any proof of the defendant’s intent.

So the court of appeals sent the case back for resentencing.

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