A crook whose hedge fund ripped off investors to the tune of $46 million walked away with a 33-month jail sentence—slightly more than half what the government sought, less than the sentences of drug dealers involved in less lucrative crime.
Judge Janet Hall handed down that sentence late Tuesday afternoon to David Bryson after a seven-hour proceeding in U.S. District Court on New Haven’s Church Street.
Bryson, who lives in Fairfield County, ran a hedge fund called New Stream Capital. He and two fellow New Stream execs pleaded guilty to defrauding investors in order to keep their investments. The government proved that Bryson and his associates defrauded investors in 2008 of at least $46 million by knowingly and repeatedly misrepresenting critical information about the firm’s structure and financial condition. (Click here for details about the scheme, which involved covering up the fact that the fund’s largest investor was bailing out.)
Bryson alone pocketed more than $5 million in the scheme, according to the government. Judge Hall added three years of supervised release to Bryson’s 33-month sentence; the amount of restitution he’ll owe will depend on the outcome of a future hearing about an alleged $14 million-$15 million of newly discovered losses. (On Wednesday Hall sentenced Bryson’s partner, Bart Gutekunst, to 30 months in jail.)
Bryson, who is 46 years old, appeared Tuesday in the same New Haven federal courthouse where New Haven-drug gang members were tried in a case called “Operation Bloodline.” Mid-level dealers received prison sentences as high as 14 years in that case.
Judge Hall herself has been sentencing white-collar criminals in the same uber-air-conditioned courtroom for their roles in an unrelated mortgage-fraud ring that devastated low-income New Haven neighborhoods. Bit players—lawyers whose crimes earned them rewards in the four or low-five digits—earned 15-24-month sentences in that case. A broker who pocketed $10,000 got five years. Meanwhile Hall sentenced the ring’s mastermind—who pocketed a half-million dollars, recruited the others, then testified against them in order to lessen his sentence—to a 22-month sentence drastically downgraded from federal sentencing guidelines to reward his cooperation with the government and, she said, in light of the tear-filled tributes friends and relatives offered on sentencing day.
“Self-Punished” Rich Crooks
The amount of money improperly obtained and the losses to victims in the mortgage-fraud and Operation Bloodline cases paled in comparison to those in the hedge fund execs’ case. Unlike the defendants in the mortgage-fraud and Operation Bloodline cases—scrappy urban realtors, courthouse guards making side investments, ghetto youth from penniless families—the hedge funders appearing before Judge Hall this week hail from the upper echelons of the nation’s “1 percent.”
Dozens of Bryson’s supporters filled one half of the courtroom Tuesday.
The pews in the sparser other half included Teri Buhl, whose reporting about New Stream’s shenanigans led to the feds opening the case; a whistleblower named Frank Harrison; and an FBI agent who worked on the case.
At times the day resembled any other sentencing in Hall’s courtroom: A defendant who hasn’t fully come clean in the past seeking to sound as contrite as possible under his lawyer’s coaching. Teary relatives and friends testifying to his religious, community and family commitments and life obstacles. Judge Hall listening sympathetically and concluding that the crime in question, though premeditated and carried out over an extended period of time, was out of character from someone unlikely to repeat his mistakes.
At other times Tuesday—and more extensively in the pre-sentencing briefs—the sentencing turned into a debate over how to punish white-collar criminals.
The government’s lead attorney, Liam Brennan (who lives in Westville and successfully prosecuted ex-Gov. John Rowland for corruption), implored Judge Hall Tuesday to sentence Bryson to five years in prison. Thanks to a plea bargain, that itself was less than half the original potential jail sentence.
That sentence would send a message about “the importance of combating corporate fraud,” Brennan told the judge Tuesday.
“This number [$46 million] is so large, most of us cannot even comprehend it,” Brennan said. “What kind of sentence can they expect?”
Bryson asked to be sentenced only to probation. Bryson’s attorney, James Glasser of New Haven’s Wiggin & Dana firm, argued that the $46 million exaggerates the scope of the crime. He characterized the fraud as an out-of-character act by a pressured executive struggling to keep his business afloat as the economy crashed. “Hedge funds deal with a larger amount of money in the first place” than other entities do, so the dollar figures involved inevitably look bigger, Bryson said.
“He is not someone who poses a threat to society,” Kristin Bryson, Bryson’s wife, choked up, told the judge. “He wants to make the world a better place.” (Click here to read 29 letters of support submitted along with the sentencing memo Bryson’s attorney submitted.)
The defendants in this case have argued in sentencing briefs that white-collar criminals—unlike blue-collar criminals—often have a history of accomplishment and public service that make jail sentences unnecessary, because they’re less likely to re-offend. Defense attorneys have been advancing a theory that white-collar criminals “self-punish” because of the shame their crimes bring to their families, lessening the need for prison punishment.
“Self-sentencing in white-collar cases serves a purpose,” Judge Hall said at day’s end when it came time to pronounce her sentence. She credited (without evident irony) Bryson’s past in helping the U.S. prosecute the War on Drugs when he served in the military. Echoing family and friends who spoke on Bryson’s behalf at the sentencing, Hall credited him with having overcome difficult childhood circumstances: His parents divorced when he was young, and his mother struggled with alcoholism and mental illness. Moments earlier, pleading for mercy from the judge, Bryson came to tears as he described having the “talk” with his children about how he might have to go to jail.
Prosecutor Brennan, unlike the judge, was unmoved: He noted that drug dealers have “the same discussion with their children” before sentencing. Many nonviolent drug offenders grew up in broken homes, have friends who vouch for them. He argued that Bryson’s “driven” nature—which the defense and the judge argued led him to commit this fraud under financial pressure—suggests that his actions in this case may not have been out of character.
“If we tell the general public that it is ... immoral to steal—it is serious—it is equally serious for a hedge fund [executive] to steal ... and orchestrate a fraud to steal $46 million,” Brennan argued.
Judge Hall questioned Brennan on his characterization of the fraud as “stealing.” She distinguished Bryson’s crime from that of a person who takes money off a table and pockets it. She likened it instead to the actions of “the lawyer who borrows from his client and expects to pay it back. Then something happens and he cannot pay it back” because of unforeseen circumstances.
Brennan responded that based on internal memos obtained in this case, Bryson and his associates knew full well that money would be lost when they mischaracterized their fund to investors. Brennan said they basically told each other: “Let’s do this and not tell them… It was clear, foreseeable” that the money would be lost.
“It’s not exactly the same as stealing,” Brennan acknowledge to Hall. “It’s close.”
In his sentencing brief submitted prior to Tuesday’s proceeding, Brennan singled out this line from a defendant memo: “[P]otential white-collar offenders are much more likely to be deterred by informal sanctions, such as shame and loss of employment prospects, and financial penalties, both from civil suits and lost earnings.”
In the memo, Brennan took issue with the original sources on which that statement was based. (Click here to read the full memo.) He also questioned “how an impartial court of law could still hope to garner the respect of the public while providing lenient sentences to white collar defendants but doling out stiffer sentences to other defendants.”
“The Defendants contend that white collar defendants should be accorded special treatment by the Court—a lighter hand in sentencing and a consideration of their learned professions. They are incorrect. To give credence to the Defendants’ arguments would seriously impair the public’s respect for the law and create [a] two-tiered system that undermines the very idea of equal justice before the law.”
Seeking A Balance
Throughout the day, Judge Hall (pictured) engaged both sides’ attorneys in extensive debate, almost seeking to win their agreement that: 1) On the one hand, Bryson hadn’t been fully contrite and this is a serious crime; and 2) on the other hand, he’s not a thief deserving the long jail setnences envisioned in advisory (voluntary) federal guidelines.
As she has in unrelated previous white-collar sentencings involving New Haven mortgage fraud, Hall spoke from the bench, repeatedly, about how she struggled with how to send the right message. She said she had to balance Bryson’s lifelong record and, in her view, unlikeliness to repeat his crime with Congress’s direction to punish people severely for fraud.
She cited “the contribution [Bryson] made in fighting the Drug War” during his years in the U.S. Navy. She praised him for coming closer to taking responsibility for his actions in his “do-over” confession Tuesday, compared to his original statement when he pleaded guilty. Sometimes when white-collar criminals tell her they’re sorry for their crimes, she said, she feels they’re not truly sorry.
On the other hand, she disagreed with Bryson’s statement that he had his “head in the sand” when he took repeated actions to defraud investors in this case: “Your head was right up. When necessary, you were willing to [mislead people]. I don’t think you started out to defraud anyone ... You got yourself into a situation where you lied and misled and defrauded” investors and diminished their investments’ value without their knowledge.
Based on her experience sentencing drug offenders and white-collar crooks alike, Hall expressed doubts about how much “general deterrence” prison sentences create. She ends up sentencing more dealers from the same neighborhoods worked by prior convicts; after “Enron and [Bernie] Madoff,” financial fraud cases continued apace. On the other hand, she said she believes that sometimes a prison conviction can convince someone else not to commit the same crime.
In the end, given that Bryson did not run “a Ponzi scheme” or “a bank robbery,” she considered a 60-month sentence “longer than necessary” to accomplish the deterrence and punishment goals of the sentence. But she did see a need for Bryson to serve jail time.
“I would be very surprised if you ever get a speeding ticket” let alone commit fraud again, Judge Hall told Bryson.
Earlier, she told prosecutor Brennan: “I don’t think he’s going to pick this path again.”
“I hope you are correct, your honor,” Brennan responded.
“I’ve been wrong on this before,” Hall acknowledged. She said she has a feeling Bryson will prove her right in this case: “He’s driven. He’s been driven all his life.”