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October 13, 2011

Notable reasons district judge gave Raj Rajaratnam a below-guideline sentence

This updated New York Times account of today's sentencing of insider-trader Raj Rajaratnam provides this interesting account of the reasons articulated by U.S. District Judge Richard J. Holwell for his sentencing decision:

At 11 years, the sentence lacks the symbolic heft of the range of 19 to 24 years that the government had sought under federal sentencing guidelines. At Thursday’s hearing, Reed Brodsky, a federal prosecutor, said Mr. Rajaratnam deserved an outsize penalty because his crimes were “brazen, pervasive and egregious” and “there is no one who is Mr. Rajaratnam’s equal in terms of the breadth and scope of his insider-trading crimes.”

In imposing his sentence, Judge Holwell cited a number of mitigating factors that he said caused him to hand down a term that was substantially lower than the nonbinding federal guidelines. He said Mr. Rajaratnam’s “good works figure into the equation,” citing his financial help for victims of the tsunami in Sri Lanka, the earthquakes in Pakistan and the Sept. 11 attacks.

Judge Holwell also disclosed that Mr. Rajaratnam had advanced diabetes that was leading to kidney failure, and said that prison “is a more intense experience for people with serious health conditions.”

“Some form of forbearance, however constrained by circumstance, is fundamental to our system of justice and appropriate here,” the judge said.

Meanwhile, this new CNBC commentary by John Carney is headlined "Raj's Sentence Is Too Long," and here is a taste:

Rajaratnam received the longest prison sentence ever for insider trading.  But unlike those convicted of any other kind of fraud, Rajaratnam’s sentence is not at all linked to the harm he inflicted on his victims.  The reason why Rajaratnam’s sentence isn’t linked to any victims is because no one has found any victims.  They just don’t exist....

You’d have a better case for the actual inflicting of harm if a company were intentionally concealing information so that insiders could trade on the information while outsiders traded on ignorance.  But no one alleges the companies Raj was convicted of trading were in cahoots with him. 

Eleven years for a crime without a victim. Does that seem like justice?

Some related recent posts:

UPDATE:  Writing this new New York Times piece, Peter Henning has a terrific account of the legal and prison realities facing Raj in the wake of his sentencing Thursday.

October 13, 2011 at 07:23 PM | Permalink


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The victims of insider trading may be diffuse and hard to locate, which is why we task enforcement of this kind of securities fraud to the state rather than individual victims in private causes of action, but it is surely not a victimless crime. Every dollar that Mr. Rajaratnam was enriched by and would not have been enriched by had he not traded on insider information ultimately came out of another blameless investor's pocket.

Insider trading isn't any more or less culpable than any other sort of non-violent property crime. It is basically just a particularly subtle form of embezzlement and ought to be punished accordingly.

Posted by: ohwilleke | Oct 13, 2011 9:52:48 PM

No one should be surprised at this departure. As I pointed out yesterday on the Hill, departures are given in 40% - 45% of the cases, and they favor the criminal by more than 20-1. Thus, simply as a statistical matter, this Wall Street crook (otherwise furiously denounced by the Left) stood an almost even chance of getting one.

There is little downside, from the judge's point of view, to giving a way below-guidelines sentence. The business interests that dominate lower Manhattan want it, and the majority of the bar wants it. The Department of Justice isn't about to appeal, since, post-Booker, a successul sentencing appeal is as rare as hen's teeth. When there's no law to stop the court or even very much slow it down, and local politics favors ditching the guidelines, you don't have to be a genius to figure out what's going to happen.

Posted by: Bill Otis | Oct 13, 2011 10:45:42 PM

Insider trading may be a malum prohibitum. If I research a firm' s garbage (See "Wall Street" the movie), and learn something no outsider knows, that is research, not a crime. Furthermore, only insiders make real money, via high salaries, and stock options. The rest of us get the crumbs. Indeed, some stock tip newsletters follow company officials' SEC filings of plans to buy or sell their own company stock. These insiders always say stuff like, I sold because I needed tuition money for my college age daughter, but we know otherwise. Insider trading is legal in other countries. It is legal in this country if one is a real insider, a big shot.

Say, I buy your farm land for a low price. You think I want to farm. I really plan to put up the Mall of America or Disney World. In fact, you are not even me, Walt Disney, but my secret agent, who tells you , yea, shucks, I plan to farm. Now, your price of $600 an acre is worth $60,000 or $6 million, if anyone knew. But no one else knows.

Doesn't every commercial transaction, every stock trade, involve inside thinking of unbalanced quality, where one party believes the price will fall, the other knows it will rise, but only one party will be right? Should the agent of Walt Disney be forced with the threat of prison to tell the farmer this is where Disney World will be built?

Such a malum prohibitum fully deters all business innovation. Thank the lawyer for the dire condition of our economy. This Commie DOJ is so hostile to business, I would locate any new business elsewhere to retaliate against the Commie traitor, rent seeking lawyers running our government.

This weekend, the Supremacy will be buying one share of every drug company in the US to get personal standing in every such false persecution. The Supremacy is the opposite of a knowledgeable insider trader. It is an outsider know nothing ignoramus. Then the Supremacy wants to do something no defense lawyer will ever do, to orchestrate the personal destruction of the Commie traitors on the bench, and of the prosecutors doing the witch hunt. To deter. These are not even human. They are vermin doing nothing about 20 million FBI Index crimes a year, while spending $millions on the witch hunt of the productive male.

This sentence is an utilitarian disaster. What is the benefit to the public of putting the defendant in a cage? High health costs to the taxpayer, including a potential kidney transplants, and advanced diabetes care. His prison is a networking opportunity to gather more insiders knowledge, which can easily be used.

Martha Stewart made a $billion by buying shares in her own company that fell after her conviction, likely more than she ever made in her life, and several orders of magnitude more than she made from her $40,000 profit from an insider trade in a drug company. So if the intent was to punish, the idiots at the DOJ and the mental cripple on the bench did an excellent job of massively rewarding her. Five months in Federal stir in 2004, after $millions were wasted on a false prosecution gotcha. A $billion in 2005. Nice rehab, feminist lawyer morons, by making her famous again. Prison even had her being nice. Her husband preferred to sleep in the barn with the animals, than with her. In prison, she served as liaison between the warden and the prisoners.

Posted by: Supremacy Claus | Oct 14, 2011 4:06:07 AM

I am a law student, but an older one. Anyone who thinks that this crime is victimless must have never tried to successfully invest money and make a decent return on their own. Just reading what is publically available is challenging enough to invest wisely, much less having to compete against those who have information that the rest of us don't have. Allowing insider trading is basically saying that the stock market is a stacked deck, and those everyday Americans whose retirement is invested there best be aware that their money is dangerously close to being swindled away, or at least, not worth any more when initially invested, less all of the fees to play the game in the first place. Cheating through insider information gives an unfair advantage over everyday investors. Is that premise so difficult to understand?
As the days of pensions are over, thinking insider trading has no victims is sheer lunacy. Statements like these drive lifelong (and generations long) Republicans like myself to the growing number of dissatisfied voters joining the quickly growing ranks of the independent (and possibly the Tea Party movement, depending on one's social agenda). I suppose what these voices are really saying is that not only should I take care of my own retirement, but I also should not complain while I am getting shafted out of the very money I am supposed to be using to take care of my own retirement.
I grow sick of the wealthy complaining about how hard they have it. My god, heaven forbid they should be disgraced to being forced to obey the law like all the rest of us poor suckers. Compare this sentence to the guy who stole a $348 Walmart TV reported on earlier on this blog. Eleven years too much? Give me a break. I have no sympathy for crooks simply because they wear ties or are more successful at stealing. A thief is a thief. Where are all the let's get tough guys now: why aren't they calling for us to cut off Raj's hand?
The problem with Supremacy Clause's logic is that there is a MASSIVE difference between the sale of real property, which due to its limited nature, would limit the scope of harmed individuals (not to mention that Disney is going to have to make massive improvements to make the property worth more), and stocks, which allows a fraud to be commenced on an untold number of people because it is not limited by its physical properties. The law has always recognized that distinction.

Posted by: Mark | Oct 17, 2011 12:52:36 PM

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