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October 13, 2011

Any recommendations or predictions for today's Rajaratnam insider-trading sentencing?

One of the highest-profile white-collar cases in recent years finally gets to sentencing this morning, as detailed in this Bloomberg piece headlined "Rajaratnam to Be Sentenced Today."  Here are the basics:

Galleon Group LLC’s Raj Rajaratnam will be sentenced today for masterminding the biggest hedge-fund insider trading scheme in U.S. history, facing a federal judge who has broad discretion in setting his punishment.

U.S. District Judge Richard Holwell in Manhattan presided over the jury trial in which Rajaratnam was convicted of 14 counts of securities fraud and conspiracy.  He will consult federal sentencing guidelines and his own “gut feeling,” one legal expert said.  Depending on the result, Rajaratnam, 54, may spend much of the rest of his life in prison.

Holwell will consider additional factors including the sentences given to other defendants in the ring and the utility of “sending a message” to those who might be tempted to trade on illegal inside tips, according to Anthony Sabino, who teaches law at St. John’s University in New York.  “He is supposed to look at everything,” said Sabino, who predicted Rajaratnam will get almost 15 years. “It’s always a matter of discretion or gut feeling.”

Prosecutors called Rajaratnam a “serial insider trader” who illegally made $72 million by corrupting friends and business associates.  The government is asking Holwell to sentence Rajaratnam to 19 1/2 years to 24 1/2 years, which, prosecutors said, is the term suggested by the federal guidelines.

Rajaratnam’s lawyers said the government overstated the amount of money their client gained in the fraud and miscalculated other sentencing factors, resulting in a “grotesquely severe” recommendation. Rajaratnam is seeking a sentence “substantially below” the guideline range. Rajaratnam made only $7.4 million, they said.  They argued for a guideline calculation that would call for a sentence of 6 1/2 to 8 years....

Rajaratnam has also asked for leniency based on medical conditions he said would be life-threatening if he’s sent to prison. He hasn’t publicly disclosed the nature of his ailment, and Holwell has kept court papers discussing it secret....

Sabino said he would be surprised if Holwell gives Rajaratnam the sentence the government is seeking. “This is a nonviolent crime,” said Sabino. “He’s not a drug kingpin, he’s not a terrorist, he didn’t murder anybody.  And most of all, this is his first offense.”

Holwell is also unlikely to sentence Rajaratnam to eight years or less, according to Sabino. The judge will probably use the sentence to try to deter would-be Wall Street inside traders, Sabino said.   “A message needs to be sent to the Street,” Sabino said. “This was a very serious crime by Rajaratnam. It must be punished and it must be punished severely.”

In court papers, the government urged Holwell to make an example of Rajaratnam, saying he “represents the worst of illegal insider trading.”  Prosecutors compared him to Enron Corp.’s Jeffrey Skilling and WorldCom Inc.’s Bernard Ebbers, convicted in what prosecutors called “the worst of accounting frauds,” and Bernard Madoff, the man behind history’s biggest Ponzi scheme.  Skilling was sentenced to 24 years in prison, Ebbers to 25 years and Madoff to 150 years.

Judges have sentenced defendants convicted in connection with the Galleon investigation to an average of about three years.  Last month, U.S. District Judge Richard Sullivan gave Zvi Goffer 10 years for leading a Galleon-linked ring that bribed lawyers for inside tips about transactions involving their law firm’s clients....  Craig Drimal, another ex-Galleon trader, was sentenced to 5 1/2 years in prison. Danielle Chiesi, a former analyst at New Castle Funds LLC, got 2 1/2 years for passing tips to Rajaratnam and others. Drimal and Chiesi both pleaded guilty.

As of February, almost half of the 43 defendants sentenced for insider trading in the New York court from 2003 to 2010 avoided jail altogether, according to a Bloomberg analysis of court records.  Many of those defendants cooperated with the government or pleaded guilty, which often results in a lesser sentence....

Yesterday, prosecutors told Holwell that Rajaratnam shouldn’t be granted bail pending his appeal because he’s a flight risk. Rajaratnam, a naturalized U.S. citizen, has ties to Sri Lanka, where he was born, they said in court papers.

I think 15 years' imprisonment is a pretty good prediction for what Rajaratnam is likely to get.  In my view, the 10 years given to Zvi Goffer serves as a kind of floor and the roughly 20 years urged by prosecutors serves as a kind of ceiling.  I would not be surprised if the sentence ends up a little higher or a little lower than 15, perhaps in part to avoid the impression that the outcome here was just a split-the-difference choice between these poles.

Some related recent posts:

UPDATE:  Rajaratnam got "only" 11 years, as reported in this new post.

October 13, 2011 at 10:13 AM | Permalink


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"'It’s always a matter of discretion or gut feeling.'"

And that's exactly why we need mandatory guidelines. Neither the defendant nor the government should be at the mercy of "gut feeling." The WHOLE PURPOSE OF LAW is to replace gut feeling with considered rules.

There is, of course, a place where gut feeling holds sway. The jungle.

Posted by: Bill Otis | Oct 13, 2011 11:08:55 AM

11 years for Raj Rajaratnam for $7-50 million in gains/losses
10 years for Zvi Goffer
5 years for Eric Butler of Credit Suisse for a $1.1 billion fraud.
Does this make sense to anyone?
We need mandatory minimums of at least 10-20 years for frauds over a certain dollar amount, say $10 million.

Posted by: Michael | Oct 13, 2011 11:41:51 AM

Re: Michael-

Yes. Because man-mins have worked so exceedingly well in other sentencing contexts.

And Bill-

There was a time when "gut feelings" were all the rage as the basis for decision-making. And less than ten years ago, even. But I'm sure you were highly critical of Dubya's basis for decision-making too, so I'll refrain from throwing charges of hypocrisy in your direction...

Posted by: ALB | Oct 14, 2011 9:15:33 AM

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