WASHINGTON - Patrick H. McCarthy 3d, a lawyer and top aide to former Pennsylvania Treasurer Catherine Baker Knoll, has been sentenced to three months in prison and fined $20,000 for obstructing the Securities and Exchange Commission's investigation of yield-burning abuses in connection with two 1994 Pennsylvania refundings.
The sentence was handed down late last week by U.S. District Court Judge Harvey Bartle 3d in Philadelphia. Bartle reportedly told McCarthy that his crime was "nothing less than insidious" and that he had "done serious injury to society itself."
McCarthy, who pleaded guilty to one count of obstruction of justice in January, destroyed and concealed documents in response to an SEC subpoena and concealed the extent of his involvement in the refundings when he testified before the commission, according to assistant U.S. attorney Michael A. Schwartz.
While the 55-year-old McCarthy reportedly appeared shocked during the sentencing Thursday at the idea of prison time, his sentence was much more lenient than the maximum sentences spelled out in federal guidelines.
U.S. attorneys had asked for leniency because McCarthy cooperated in other investigations, Schwartz said. "Mr. McCarthy cooperated in the investigations of others in all kinds of investigations," he said Friday. "There are ongoing investigations in which he cooperated." Schwartz refused to identify the ongoing probes. Schwartz said that Knoll, who currently is one of nine Democrats running for the lieutenant-governor post in Pennsylvania, was not implicated in the obstruction of justice case.
Under the statutory guidelines, McCarthy faced a maximum sentence of five years in prison, a $250,000 fine and a $100,000 special assessment. But under federal sentencing guidelines, which take into account the fact that he had no prior criminal history, he faced a maximum sentence of 12 months in prison and a $20,000 fine.
McCarthy, currently a consultant who resides in the Washington, D.C. area, reportedly told Bartle before he was sentenced, "At a time when I truly could have made a difference to the administration of justice as an attorney, in this critical moment, I had neither the courage nor the character to do what was right."
McCarthy's attorneys and Bobbie Greene, his fiancee and deputy chief of staff to former first lady Hillary Rodham Clinton, had asked the judge for leniency, claiming McCarthy's conduct was due to medication he was taking for manic-depression while serving as an unofficial fundraiser and aide to Knoll.
"He clearly was not properly treated during the period in question when he was leading two simultaneous statewide campaigns, continuing his legal practice, and filling the role of primary caretaker for his three teenage daughters," Greene said, according to the Daily News in Philadelphia.
McCarthy's attorneys also pointed out that he had won a Purple Heart and two Bronze Stars while serving in the Army in Vietnam.
As a result of the felony conviction, McCarthy either has lost, or will lose, his licenses to practice law in Pennsylvania, Massachusetts, and the District of Columbia, sources said.
The criminal case against McCarthy followed civil action that the SEC took against him two-and-a-half years ago. McCarthy agreed in November 1999 to pay $100,000 to settle SEC securities fraud charges and other violations in connection with a $494 million advance refunding done for the Commonwealth of Pennsylvania in March 1994. He was one of at least nine individuals and firms that paid a total of more than $16 million to settle charges in that case.
The SEC had alleged that McCarthy, who was never a state official but played a major role in the day-to-day operations of the treasurers' office, secured lucrative escrow and financial advisory business for the then-Baltimore-based Alex. Brown & Sons Inc. over the objections of some state officials. McCarthy then reaped huge fees for his law firm through secret fee-sharing and finder's fee arrangements with Alex. Brown and other firms involved in the refunding deals.
McCarthy was a partner at the law firm of Wolf, Block, Schorr and Solis-Cohen during the time he worked on the Pennsylvania refundings and counseled Knoll. He was with Wolf Block from December 1991 to July 1997. Wolf Block is also the firm of Jerome J. Shestack, who, as president of the American Bar Association in 1997 and 1998, was chief proponent of then-SEC chairman Arthur Levitt's campaign to get lawyers to take action against pay-to-play practices. Pay-to-play is the practice of making political contributions or other payments to state and local officials in return for obtaining business.
Wolf Block paid Pennsylvania almost $739,000 in an out-of-court settlement in June 1999 to avoid potential yield-burning claims over the actions taken by McCarthy in connection with three advance refundings that were done for the state in 1993 and 1994.
