White-Collar Sentences: Too Harsh, or Too Soft?

Should Bruce Karatz spend half a decade in prison—or no time at all? Karatz, the ex-CEO of KB Homes, has been convicted of trying to swindle the company out of $11 million. The probation office says he should get eight months' home confinement. But prosecutors want to lock him up in jail for 6 1/2 years, because being grounded in a “24-bedroom Bel-Air mansion” isn’t much of a punishment. Why the discrepancy? Because the offices disagree over how much money was lost.

The probation office says no money was actually lost, while prosecutors count the $11 million Karatz hoped to make. It’s a prime example, critics tell the Wall Street Journal, of how loss calculations are warping sentencing guidelines. Losses, they argue, can be hard to define, letting some criminals off easy, while discriminating against executives at bigger companies. One judge recently refused to impose the recommended 17- to 22-year sentence on a securities swindler, for example, giving him five instead. “Here in the trenches,” he said, “there is a more nuanced reality.” (More securities fraud stories.)