Don’t throw the book at Caspersen

I’m not usually in the business of defending rich, privileged folks who break the law.

However, I believe U.S. District Judge Jed Rakoff should ignore federal sentencing guidelines and show some mercy on Andrew Caspersen, the former private equity restructuring guru who got caught running a sham $38.5 million investment scheme.

Rakoff, scheduled to sentence Caspersen today, should impose a sentence well below the 151 to 188 months the guidelines recommend for the crimes to which Caspersen pleaded guilty in July.

That’s not to say Caspersen shouldn’t spend time in prison for his fraudulent scheme – just not 15 years. He stole money; he could have single-handedly ruined a business. He destabilized the lives of his wife and two young children, not to mention his investors.

The key point to me is that Caspersen wasn’t motivated simply by greed. He was (and is) a truly sick individual with a gambling addiction made worse by tragedies that sent him into depression. To try and relieve the pain of losing his girlfriend (and likely future wife) in the attacks of Sept. 11, 2001, and of his father’s suicide in 2009, he gambled more, became obsessed with it.

It got to the point where he was recording “every tick of the S&P index from opening to close.” He used an iPad because it refreshed faster than his cellphone and kept him from missing a tick. He hid his cellphone under his pillow to sneak looks at the futures market, and awoke at 3 a.m. to check the European stock market at opening, according to his attorney, who asked Rakoff for leniency in a court filing.

And he wasn’t really trading by this time, in 2012, the filing said — this was pure gambling:

“He did not analyze individual companies or study economic trends. He bought S&P options at or near the money, mostly puts, betting that the S&P index would decline in value. Typically he purchased options that expired in a week, the shortest duration available. He did not want to wait a month to learn whether a trade would succeed. And he was always ‘all in’. Whatever money he had, he traded. When he cashed out a position, he bought back in the next day.”

Perhaps the best example of his addiction: After enticing friends, family, college roommates and the Moore Charitable Foundation to invest with him in what he claimed was an almost riskless debt note, and diverting that money into his trading account, his account in February ballooned to $126 million on trading gains.

At that moment, he could have paid off all investors and walked away with $60 million. He considered this, but the next day sank $100 million into the market and soon after lost almost all of it. His scheme unraveled after this. In all, he collected $38.5 million from more than 10 people, and unsuccessfully solicited for about $110 million more, according to court filings from the prosecution.

That just doesn’t appear to be the act of a man coldly calculating how to stockpile his winnings. This seems more like someone totally out of control.

He also didn’t use his winnings to buy fancy cars or take lavish vacations (at least according to prosecutors). Instead, prosecutors said that other than for trading purposes, Caspersen used his ill-gotten gains to pay off the mortgage and two home equity loans he took out on his Manhattan co-op; to make payments on a home in Bronxville, New York; and to make transfers to his wife.

But for a guy who one year received a $490,000 bonus, and the next year was set to collect a bonus of $4.25 million, these don’t seem like costs he couldn’t have handled with his regular pay. They weren’t luxuries that would have been out of his reach if not for his fraud.

Judge Rakoff stated back in July when Caspersen pleaded guilty that the sentencing guidelines “border on the irrational” and he would “consider them accordingly,” according to CNBC.

I hope he sticks to that, because Caspersen was driven by mental illness, rather than avarice, and for that I believe he deserves some leniency.

What do you think? Send feedback to cwitkowsky@buyoutsinsider.com or make use of our anonymous tip tool on PE HUB.

Correction: An earlier version of this article incorrectly stated hedge fund Moore Capital was a victim of Caspersen’s fraud. It was a foundation affiliated with Moore Capital called the Moore Charitable Foundation. The article has been updated.

Private Equity Editor Chris Witkowsky reflects at home. Photo by Wendy Witkowsky