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January 22, 2012

By serving federal prosecutors, Galleon trader avoids serving prison time

This Bloomberg article, headlined "Ex-Galleon Trader Slaine Who Led U.S. to Probe Rajaratnam Gets Probation," provides a great example of the sentencing reality that cooperating with federal prosecutors can often provide the most effective means for serious criminals to avoid spending time in federal prison.  Here are some of the details of the latest sentencing from a high-profile white-collar case:

Ex-Galleon Group LLC trader David Slaine, who helped lead U.S. authorities to investigate the hedge fund firm’s co-founder, Raj Rajaratnam, was sentenced to three years probation for securities fraud.

Slaine wore a wire to record dozens of conversations with suspects including ex-Galleon trader Zvi Goffer who were later charged with insider trading.  He provided help that prosecutors from the office of Manhattan U.S. Attorney Preet Bharara called “nothing short of extraordinary.”

U.S. District Judge Richard Sullivan, who sentenced Slaine yesterday in Manhattan federal court, also ordered him to perform 300 hours of community service and pay a $500,000 fine. Sullivan praised Slaine’s cooperation, which began in 2007.   “Mr. Slaine, you have your life back,” Sullivan said at the end of the sentencing hearing.  “I think you’ve earned it, by virtue of the work you’ve done over the last five years.”

Slaine’s evidence helped spur what became the biggest probe of insider trading at hedge funds, prosecutors said in a letter to Sullivan this month.  His lawyer, Stephen Kaufman, said Slaine already has paid $836,000 in criminal forfeitures and to the U.S. Securities and Exchange Commission.

Slaine is now an investor at Spot, a Manhattan-based chain that provides training, grooming and daycare for dogs, according to Kaufman. Slaine also works there, Kaufman said....

Slaine, who pleaded guilty to conspiracy and securities fraud in December 2009, testified at the trial of Goffer, his brother Emanuel Goffer and Michael Kimelman, that he cooperated with federal agents for about 2 1/2 years to try to avoid prison.  He faced a sentence of as long as 25 years in prison.   Slaine testified that he became friends in the late 1980s or early 1990s with Craig Drimal, another former trader who pleaded guilty....

The SEC claimed Slaine used illegal inside information to trade for his own account and for Chelsey Capital.  He made more than 20 trades in his own account based on illegal tips, personally profiting by more than $500,000.  Both sides agreed for sentencing purposes that the total illegal gain attributable to Slaine was $2.5 million to $7 million.

Slaine was approached by the government in July 2007, according to the letter.  He told investigators about possible insider trading by Drimal, then agreed to wear a wire and record conversations with him.  The conversations with Drimal led to the Goffers and Kimelman, whom Slaine also recorded at the direction of the Federal Bureau of Investigation, prosecutors said.

January 22, 2012 at 11:31 AM | Permalink

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Comments

I have a feeling the Justice Department won't use this case as an example of criminals getting off light in white-collar fraud cases or of growing sentencing disparity. Why does the government have to bribe people to tell the truth?

Posted by: Thinkaboutit | Jan 22, 2012 12:16:52 PM

Thinkaboutit --

"Why does the government have to bribe people to tell the truth?"

Adopting your terminology arguendo, the government has to "bribe" people (generally co-conspirators) to tell the truth because their defense lawyers have instructed them to refuse to tell the truth until a bribe shows up.

Posted by: Bill Otis | Jan 22, 2012 1:04:15 PM

It is a bribe, isn't it? Often the cooperating co-conspirators won't even get sentenced until their cooperation is done because the government wants to make sure they perform. The promise of telling the truth is not sufficient; the government wants to make sure it succeeds in making its cases. This is giving a thing of value -a reduced prison sentence - in return for sworn testimony that ensures guilty convictions. (The government sometimes denies cooperation credit to those who tell everything they know if what those cooperators share doesn't allow the government to charge anyone. Thus, it is not simply about telling the truth; it is about making cases).

But my larger point is this: If you can call this guy getting probation and Zvi Goffer getting 10 years justice, then that word has no meaning. As I've said, and as you know, I've been there. I know the promises the government makes. It is not the case that people don't sometimes share what they believe to be the truth. You know that defendants proffer testimony under limited grants of immunity quite often and do not, in fact, stay silent. Ultimately, however, they have to say what the government believes and to say it in a way that helps win cases against others.

If guilty parties think they can get lower sentences by accepting responsibility, there is nothing wrong with that, in my view, and that should be sufficient incentive. But to hold back charges and give substantial assistance credit that knocks sentences up to 90 percent below what others got creates incentives for false and/or misleading testimony in certain cases. I don't know how they can be denied in theory or practice.

Posted by: Thinkaboutit | Jan 22, 2012 3:26:26 PM

LOL close bill but no cookie!

it's more like

"the govt has to "bribe" people (generally CO-CONSPIRATORS) to tell the truth becasue their defense lawyers have instructed them to keep their mouth shut TILL AN IRON CLAD DEAL WITH NO PRISON TIME IS SIGNED SEALED AND DELIVERED!"

Posted by: rodsmith | Jan 22, 2012 3:28:25 PM

On second thought, bribery might not the right term. Since it's the government doing it, it's extortion.

Posted by: Thinkaboutit | Jan 22, 2012 3:28:53 PM

Thinkaboutit,
Don't forget that government employees get to lie, distort the truth, etc. and never punished for it.

Posted by: JS | Jan 22, 2012 10:08:52 PM

JS --

A suggestion: Tomorrow, go down to your local federal courthouse, look for a courtroom where a felony trial is going on, and see for yourself which side is trying to present the truth and which side is trying to suppress/muddy/distract from the truth.

Posted by: Bill Otis | Jan 22, 2012 10:43:45 PM

Oh i'll give you that one bill. That's a big part of what has this country in such a mess. BOTH sides have lost sight of WHY they are there. To UNCOVER the TRUTH and to let JUSTICE BE DONE!

personaly i think most of them on BOTH sides are not worth the cost of the bullet's it would take to rid the world of them!

Posted by: rodsmith | Jan 23, 2012 2:22:50 AM

the only think i have not been able to decide one way or another is

If the defense people have went overboard in response to the govt's actions or the reverse!

what i'm kind of leaning toward is they have reached the point like both sides in a LONG LONG WAR.....they BOTH NO LONGER KNOW WHY THEY DID IT!

it just CONTINUES and get's WORSE as each tries to OUTDO the other!

Posted by: rodsmith | Jan 23, 2012 2:24:18 AM

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