Court: New Sentence for Wal-Mart Exec

Tuesday, Aug. 28, 2007 | 7:59 a.m.

A federal appeals court said Tuesday that despite his poor health and good works, former Wal-Mart executive Thomas Coughlin got off too easy after admitting he had cheated his company and the IRS.

If anything, the 8th U.S. Circuit Court of Appeals said, Coughlin's standing in his community made his crimes appear worse. It directed an Arkansas federal judge to resentence Coughlin - rejecting a term that included only home detention and probation.

Coughlin pleaded guilty in January 2006 to felony wire fraud and tax evasion charges after embezzling cash, gift cards and merchandise from Wal-Mart Stores Inc., where he worked for 28 years and served as Sam Walton's protege. Wal-Mart estimated the loss at nearly $500,000.

The former No. 2 Wal-Mart executive faced more than 28 years in prison and fines of $1.35 million, but U.S. District Judge Robert T. Dawson handed down 27 months of home detention and 33 months of probation. Coughlin was fined $50,000 and ordered to make $411,218 in restitution.

The sentence "does not fall within the range of reasonableness," Judge William Jay Riley wrote for the majority.

While Dawson gave Coughlin credit for his being a pillar of the community, prosecutors still wanted him to impose a prison term of at least six months. The 8th Circuit, in a split decision, agreed with prosecutors that, based on what was said in court, Coughlin's sentence seemed too light.

"Perhaps Coughlin's family ties and station in the community, as well as his lofty corporate position of trust and power, exacerbate the nature of his crimes, especially for Coughlin's victims: Wal-Mart, and more generally, American businesses," the majority wrote.

In the new hearing, the court said, prosecutors and Coughlin could raise new arguments.

A spokesman for Bentonville, Ark.-based Wal-Mart declined to comment. In the past, Chief Executive Lee Scott has called the Coughlin case "an embarrassment" for the company. Prosecutor Bob Balfe said he appreciated the court's consideration. Coughlin did not return telephone calls made to his Centerton, Ark., home.

Coughlin can seek a rehearing before the full nine-judge panel in the 8th Circuit or appeal to the U.S. Supreme Court, said Sam Perroni, a former U.S. assistant attorney and white-collar crime defense lawyer in Little Rock.

"The fact that the decision was split could mean a better chance for a rehearing or a hearing before the full appeals court," Perroni said.

In Tuesday's decision, the court rejected arguments that Coughlin's health problems - heart failure, obesity, diabetes and gout - might not receive satisfactory treatment in prison.

Courts use sentencing guidelines that weigh the severity of a crime against aggravating or mitigating circumstances. Judges must justify their decisions when they part from them.

"The district court clearly erred in finding Coughlin suffers an extraordinary physical impairment and abused its discretion by departing downward eight levels" from the guidelines, the appeals court wrote.

In a dissent, Judge Kermit E. Bye said the district judge had properly found that Coughlin suffered from poor health and that the sentence should stand.

"I do not find the court abused its discretion in imposing a sentence of home detention rather than incarceration," Bye wrote.

Coughlin retired in January 2005. Months later, the company accused him of using Wal-Mart money and gift cards to pay for about $500,000 in personal items that ranged from hunting trips and hunting dog training to clothes, alcohol and work on his car.

In his guilty plea in January 2006, Coughlin specifically admitted defrauding the company to pay for the care of his hunting dogs, lease a private hunting area, upgrade his pickup truck, buy liquor and a cooler, and receive $3,100 in cash. Then 58, his lawyers argued against a prison term.

Coughlin's plea came two months after his former subordinate, Robert E. Hey Jr., agreed to testify for the government about the alleged embezzlement. Hey received parole instead of prison in return for his testimony and guilty plea.

Separately, Wal-Mart is trying to break a $12 million and $15 million retirement pact with Coughlin, saying it wouldn't have agreed to it if it knew about Coughlin's crimes.