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Wall Street fraud sentencing prompts tears and debate

Louis Lanzano | Bloomberg | Getty Images

It was an emotional federal court sentencing, with the future of an Ivy League-educated former private equity executive hanging in the scales of justice.

The prosecution said Andrew Caspersen, a scion of a wealthy business family, should get as much as a 15-year-plus prison sentence for executing a Ponzi-like scam that collectively bilked about a dozen of his clients, family members, and his investment company out of roughly $46 million.

The defense said Caspersen never intended to steal and betray. Asking for leniency, his attorney, Paul Shechtman presented evidence to show the 40-year-old father of two had been gripped by a pathological gambling addiction.

On the bench in the 14th-floor Manhattan courtroom sat U.S. District Judge Jed Rakoff, a renowned legal independent and author of a recent essay that almost seemed to foreshadow the proceeding.

"Distinctions of intent frequently determine, as a matter of law, the difference between going to prison and going free," Rakoff wrote in The New York Review of Books in his examination of neuroscience and the law.

What ensued was a nearly three-hour debate over whether and how much gambling addiction should factor in the sentence — complete with references to "The Gambler," a short novel by Fyodor Dostoyevsky.

By the end, Caspersen and his wife, Christina, wept as they held one another in the courtroom. Shechtman brushed away tears of his own. And Manhattan U.S. Attorney Preet Bharara issued a statement that noted Caspersen had been sentenced — but made no comment on the punishment.

The prosecution attacked the gambling addiction defense from the start.

Assistant U.S. Attorney Christine Magdo argued that 2014-2016 scam run by the Princeton University and Harvard Law School graduate had been carefully calculated. In a sentencing memo to the court, she noted that Caspersen fooled his roughly dozen victims by incorporating sham entities with names similar to real private equity firms.

The victims lost millions. Some, investment professionals themselves, declined to present victim statements by name, fearing the reputational loss of being fooled.

Magdo added that Caspersen used much of the scam proceeds to pay the mortgage and two home equity credit lines on a Manhattan apartment, as well as a $3 million home in Bronxville, a wealthy suburb of New York City.

"Caspersen does not — and, in fact, he cannot — claim that his criminal conduct was the result of an irresistible impulse. Rather, it was a product of his own volition, a choice that was complicated by his addiction to gambling," she wrote in a sentencing memo.

Shechtman submitted dozens of support letters to the court, including pleas for leniency from Caspersen's wife, friends, and even the doorman of his Manhattan co-op. The defense also turned to scientific and financial trading experts.

Dr. Marc Potenza, a Yale University School of Medicine psychiatry professor and mental health expert on addiction, examined Caspersen and reviewed his health records in preparation for testifying at the sentencing hearing.

"Mr. Caspersen suffered from a severe gambling disorder, a mental illness, and there is little doubt that it contributed substantially to him losing his own money and seek money by fraud from others to continue on the same destructive path," Potenza wrote in a letter to the court.

"I think he still meets the criteria for a severe gambling disorder," Potenza testified.

The defense also recruited Bruce Rosen, a stock options trading expert, to examine the options transactions Caspersen executed with millions of dollars generated by the scam. Caspersen worked at the Park Hill Group, a spinoff from private equity giant Blackstone that's now owned by investment bank PJT Partners. He knew the financial world.

But Rosen, in a letter to the court, said Caspersen's options trading pattern "lacked rationality."

"Buying options in the way that he did may have satisfied some psychological need, but he was certain to lose all of his money," wrote Rosen.

Citing the experts' conclusions, Shechtman urged Rakoff to weigh the "tragic dimension" of Caspersen's gambling addiction.

Offering proof of the depth of that addiction, Shechtman recounted Caspersen's conduct while attending the hit Broadway show Hamilton with his wife — continually checking his cell phone for changes in the Standard & Poor's 500 index that would affect his options bets.

"Mr. Caspersen's criminal conduct cannot be excused," wrote Shechtman in a sentencing memo. "But it should not result in a life-destructive sentence at a time he is finding his way back to health."

Caspersen fought back tears as he addressed the court before being sentenced.

"I have committed serious crimes of fraud, and have no one to blame but myself," he said. "I stand before you asking for mercy."

Dr. Marc Potenza, a Yale University School of Medicine psychiatry professor and mental health expert on addiction, examined Caspersen and reviewed his health records in preparation for testifying at the sentencing hearing.

"Mr. Caspersen suffered from a severe gambling disorder, a mental illness, and there is little doubt that it contributed substantially to him losing his own money and seek money by fraud from others to continue on the same destructive path," Potenza wrote in a letter to the court.

"I think he still meets the criteria for a severe gambling disorder," Potenza testified.

The defense also recruited Bruce Rosen, a stock options trading expert, to examine the options transactions Caspersen executed with millions of dollars generated by the scam. Caspersen worked at the Park Hill Group, a spinoff from private equity giant Blackstone that's now owned by investment bank PJT Partners. He knew the financial world.

But Rosen, in a letter to the court, said Caspersen's options trading pattern "lacked rationality."

"Buying options in the way that he did may have satisfied some psychological need, but he was certain to lose all of his money," wrote Rosen.

Citing the experts' conclusions, Shechtman urged Rakoff to weigh the "tragic dimension" of Caspersen's gambling addiction.

Offering proof of the depth of that addiction, Shechtman recounted Caspersen's conduct while attending the hit Broadway show Hamilton with his wife — continually checking his cell phone for changes in the Standard & Poor's 500 index that would affect his options bets.

"Mr. Caspersen's criminal conduct cannot be excused," wrote Shechtman in a sentencing memo. "But it should not result in a life-destructive sentence at a time he is finding his way back to health."

Caspersen fought back tears as he addressed the court before being sentenced.

"I have committed serious crimes of fraud, and have no one to blame but myself," he said. "I stand before you asking for mercy."

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Rakoff's essay signaled he might consider a scientific explanation that might help explain the crimes. "Cognitive neuroscience ... holds out the promise of helping us to perceive, decide, and explain how intentions are arrived at and carried out," the judge wrote.

After more than an hour of testimony and questioning of Potenza, Rakoff said he deemed it "more likely than not" that gambling addiction existed and could be a mitigating factor. Still, he stressed it must be weighed with other factors in the case.

"It was a substantial fraud," said the judge. "It was a fraud that involved the deception of people who had a lot of faith in the defendant."

Ultimately, Rakoff sentenced Caspersen to four years in prison, followed by three years of supervised release, and nearly $28 million in restitution.

"No purpose would be served by having him rot in prison for years on end," said the judge. He characterized federal sentencing guidelines that would allow the far longer sentence sought by prosecutors as "absurd." And, referring to the likelihood that some might question the leniency, Rakoff said outsiders didn't know all the facts of the case.

All Caspersen could hope for was a judge who would seriously consider all of the arguments, Shechtman told reporters afterward.

"And we got that today," he said.