The Bayou case, especially given Samuel Israel’s status as a famous RV-dwelling fugitive, is on everybody’s mind these days.

Such matters are surely on the mind of Phillip Bennett’s attorneys. They’ve filed a reply to the government’s sentencing memorandum in his case that tries to draw a compelling Bennett-ain’t-Israel distinction.

Our HedgeWorld readers may remember the arguments of the government’s memo. To review: it suggested that the court should give Mr. Bennett, who once stood atop the Refco colossus, twenty or more years in prison because he “spent nearly a decade of his professional life … committing crime after crime, balancing and coordinating multiple acts of fraud on literally a daily basis,” on a scale that dwarfed … well, the Bayou matter, as well as many others of great notoriety.

The defense lawyers of course acknowledge that Refco’s “financial results were manipulated up through 2005 in order to meet budgetary targets and Mr. Bennett improperly misrepresented the extent to which Refco’s fortunes were improving.” But they take issue with the government’s contention that Refco as a whole was nothing but a Ponzi scheme.

“Mr. Bennett’s plan was not simply to deceive investors and leave them with a failing company,” they write, “but rather to try and improve Refco’s business in a manner that would permit him to eventually retire the receivable balance (whether through a sale or otherwise) and position the company for future success.”

The “receivable balance” in question was money owed to Refco by an entity under Mr. Bennett’s control. But the distinction drawn here is that between a fraudster who believes he can in time pay back the money he owes, and works to that end, and the sort of Ponzi fraudsters who are always, in effect, working to increase their indebtedness. This is at the heart of the defense effort to distinguish the Refco case from that of the Bayou defendants.

Bayou, the defense memorandum tells us, was just “a crooked 3-man boiler room operation.” Refco was utterly different, “the fourth largest derivatives brokerage in the United States, with thousands of employees and dozens of subsidiaries, many of which … have been successfully incorporated into other ventures.”

Oral arguments have been scheduled for July 3, so that Mr. Bennett could be ‘celebrating’ a rather grim future by the time firecrackers celebrating independence head upward into the sky.

Much might be said about the case for leniency I’ve just paraphrased. I’ll limit myself to this: It seems likely that every or nearly every Ponzi artist hopes to “retire the balance” at some point and make everybody happy, just as every draft horse hopes to catch that delicious carrot in front of his nose. Thus, the real distinction the defense is trying to insinuate in this case is the distinction between large scale and small.

They want the judge to see the obvious difference between a “crooked 3-man boiler room” and a large brokerage with thousands of employees.

Let it be said that though the numbers were smaller, Bayou had employees too. More importantly, the prosecution might appropriately counter that subverting an otherwise productive enterprise and turning it into a Ponzi scheme is a greater offense against the public good than just running a boiler room that’s fraudulent from the start (or nearly so).

This entry was posted on Friday, June 27th, 2008 at 3:35 pm and is filed under Daily News, Legal, People. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.