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October 12, 2011

"Inside-Trade Sentencing Gets Tougher"

The title of this post is the headline of this new Wall Street Journal piece, which gets started this way:

When disgraced hedge-fund titan Raj Rajaratnam, Wall Street's latest symbol of perfidy and excess, is sentenced in federal court Thursday, he will come up against a hard and unavoidable truth: Inside traders are facing considerably harsher sentences than they did in the past.  Mr. Rajaratnam is expected to receive among the longest-ever U.S. prison terms for his role in one of the biggest U.S. insider-trading cases ever, lawyers say.
 A higher percentage of those found guilty of such crimes are receiving significant time behind bars than in the past, according to a Wall Street Journal analysis. In the last two years, defendants sent to prison on insider-trading charges in New York federal courts have received a median sentence of about 2½ years, according to the Journal analysis of white-collar sentencing data from court records and archives involving 108 cases. Just Wednesday, hedge-fund trader Michael Kimelman was sentenced to 2½ years in prison for inside trading.

Those sentences compare with a median sentence of 18 months in the past decade and 11½ months from 1993 to 1999, according to the Journal analysis.  Meanwhile, a higher percentage of guilty insider-trading defendants on Wall Street and in corporate America have been incarcerated in recent years, according to the analysis.  In the past two years, 79% of defendants sentenced in New York have been sent to prison, compared with 59% in the 2000s and less than half from 1993 to 1999, the analysis shows.

October 12, 2011 at 05:29 PM | Permalink


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Sentences may be longer, but that does not mean they are tougher if the scale of insider trading is larger. That data - about how long these schemes went on, how many people were involves, the size of illicit gains, etc - were not reported. The conclusion, the should be that sentences are longer, which may mean tougher or may mean more serious wrongdoing.

Financial institutions, corporations and hedge funds have become larger and more significant players over the time period reported in the article. I'd guess that the scale of insider trading has as well, indicating that we are not really tougher on it.

Posted by: Paul | Oct 12, 2011 7:33:15 PM

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