Risk & Compliance

White-Collar Crime

Leave the Clubs Home
Joseph McCaffertyOctober 1, 2002

Early last month, Alan Gauthier was sentenced to five months in prison after being convicted of consumer fraud. The former CFO of Exide Technologies admitted sending the Securities and Exchange Commission a false audit opinion letter involving a scam in which Exide sold defective batteries to retailer Sears, Roebuck & Co.

It’s been a busy year for prosecutors, who are bringing a startling number of criminal actions against finance executives. At least five CFOs have been sentenced to serve prison time this year for various frauds. Another, former Media Vision Technology Inc. CFO Steven Allan, was found guilty of financial fraud and awaits sentencing. CFOs in high-profile cases like Enron, WorldCom, and Tyco International also face charges that could land them in prison for years if they are found guilty.

What can these bad boys expect if they end up on the wrong side of a conviction? Certainly not the mythical country-club federal prison camp that has long been rumored to provide cushy digs for convicted white-collar criminals who are doing time.

“Nothing could be further from the truth,” says Herb Hoelter, director of the National Center on Institutions and Alternatives, which counsels executives facing trial and jail time. “It’s not an easy life. They do menial jobs, live in small cells, and are subject to strip searches and shakedowns.” Although minimum-security federal prisons are known to provide decent food and to be clean and safe, their reputation as “Club Fed” is way off, says Hoelter, who routinely visits clients in prison.

“You don’t want to be there,” concurs Stephen Loeb, a professor at the University of Maryland’s Robert H. Smith School of Business who runs a program where he takes his MBA students to visit federal prisons. “It’s not a pleasant environment.” He says students are usually shocked at the cramped, dismal quarters.

Matters could get a whole lot worse for those convicted of white-collar crimes. The law increases the maximum sentence for certain types of securities fraud from 10 years to 20. And executives sentenced to longer prison terms are likely to be sent to higher-security prisons, as their risk of flight increases. Sentences of more than 10 years are served in a medium-security facility or higher, with high walls and barbed wire. Says Loeb: “As undesirable as it is to serve time in a minimum-security facility, a medium-security facility is much worse.”