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May 1, 2013

Is adjective "draconian" fitting for a proposed 13-year prison sentence for insider trader?

DracoThe question in the title of this post is prompted by this lengthy new Bloomberg article about the defense's sentencing submission in a high-profile, white-collar federal sentencing scheduled for later this month.  The Bloomberg article is headlined "Chiasson Seeks Leniency From U.S. Judge Citing Charitable Deeds," and here are excerpts:

Level Global Investors LP co-founder Anthony Chiasson, convicted of an insider-trading scheme that reaped $72 million, asked a judge to give him less time in prison than the 13-year term called for by U.S. sentencing guidelines.

Lawyers for Chiasson, 39, called such a sentence “draconian” in a, April 29 court filing. They urged U.S. District Judge Richard Sullivan in Manhattan to impose an unspecified shorter prison term, saying the alleged crimes were “aberrant” and that Chiasson has led an “exemplary life.”

Defense lawyers Greg Morvillo and Reed Weingarten cited Chiasson’s charitable work, including his effort to save his Catholic Jesuit high school in Portland, Maine, from closure, the creation of a scholarship program for his alma mater, Babson College, and his contributions to the Robin Hood Foundation and the Michael J. Fox Foundation.  “Anthony Chiasson is an extraordinary man,” Morvillo and Weingarten said in a memo to Sullivan. “But for the conduct that brings him before the court, Anthony has led an exemplary life.”

Chiasson, who began his career on Wall Street at Solomon Brothers and left SAC Capital Advisors LP to start the hedge fund, is scheduled to be sentenced May 13.  While U.S. court officials said that based on non-binding guidelines Chiasson should serve 121 to 157 months in prison, his lawyers said the appropriate range is 78 to 97 months.

A Manhattan federal jury in December found Chiasson guilty of five counts of securities fraud and convicted former Diamondback Capital Management LLC portfolio manager Todd Newman of one count of conspiracy and four counts of securities fraud.  Newman is scheduled to be sentenced May 2.  The U.S. alleged that the two portfolio managers were part of a “corrupt chain” of hedge-fund managers and analysts and insiders at technology companies who swapped and traded on illicit tips.  The U.S. said Level Global earned $68 million as a result of the insider trading based on material nonpublic information Chiasson received from Spyridon “Sam” Adondakis, a former Level Global analyst who worked for him. 

Defense lawyers estimated the fund earned $11.7 million as a result of trading in the stocks of Dell Inc. and Nvidia Corp. They disputed the government’s allegation that Chiasson based the transactions on illicit information and argued that federal sentencing guidelines allow prosecutors to inflate profits generated as a result of alleged crimes.  “There is only one reason the range is so high: the guidelines’ unrelenting predisposition to punish profit,” Morvillo and Weingarten said.

Morvillo and Weingarten also argued that Chiasson “should not be required to forfeit gains of any co-conspirators.” They said that the fund earned more than $21.6 million on trades by David Ganek, a Level Global co-founder who was ruled by Judge Sullivan to be an uncharged co-conspirator in the insider- trading scheme.  Adondakis, who pleaded guilty, testified that he didn’t tell Ganek about the source of his tips.  Ganek hasn’t been charged with wrongdoing....

Chiasson’s lawyers argued that he deserves a sentence comparable to others convicted of insider trading, including former Goldman Sachs Group Inc. director Rajat Gupta, who was ordered to serve two years in prison, and former Primary Global Research LLC executive James Fleishman and Michael Kimelman, the co-founder of Incremental Capital LLC, who were both given 30- month prison terms.  In January, a federal appeals court allowed Gupta to remain free while he fights his conviction.  Both Fleishman and Kimelman were recently released from prison.

The adjective draconian is often used now as a synonym for unduly harsh punishments, and I am sure I have sometimes used the term this way in various settings. But the faint-hearted linguistic originalist in me cannot help but note that arguably no prison terms should be really called draconian because incarceration was largely an unknown punishment in achient Greece and Draco the lawgiver was (in)famous for prescribing death as a punishment for both major and minor crimes. (With tongue-in-cheek, I suppose maybe a different (but less real) Draco could be expected to be a proponent of long prison terms, though I this this character probably realized he and his family only narrowly avoid imprisonment in Azkaban.)

Historical and literary references aside, these latest insider-trader, white-collar sentencing cases are surely worth watching closely.  My sense is that, especially with the economy seeming to be improving, there is diminishing public and social pressure to "throw the book" at wall-street types like Anthony Chiasson.  And yet, as the arguments in Chiasson's case highlight, every below-guideline sentence given in major white-collar cases provide a strong defense argument in later cases that only below-guideline sentences are proper pursuant to the sentencing commands of 3553(a).

May 1, 2013 at 10:32 AM | Permalink

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"insider trading based on material nonpublic information Chiasson received from Spyridon “Sam” Adondakis"

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Is not "draconian" an Anti-Greek ethnic slur?

Posted by: Adamakis | May 1, 2013 1:34:04 PM

Other than this conduct he lived an exemplary life. Why should I believe that? Because he gave a lot of money over the years to charities (money that he likewise may have stolen by cheating the markets)? With a crime as tricky to detect as insider trading, what are the odds that the time you get caught is the first time you've ever crossed the line?

Posted by: anon | May 1, 2013 5:15:27 PM

I most liked the irony of giving money to the Robin Hood Foundation.
A few years ago, a local, elderly, businessman was sentenced in Federal Court in Detroit to serve one year, and to pay a fine of $750,000 or so, about one percent of his estimated net worth. One of the Detroit papers called it too harsh, but on the same day that happened, my client was convicted of selling $20 worth of crack to an undercover cop, for which the government wanted a prison sentence of up to 40 years, and actually got a sentence of 21 months to 20 years. Remembering those experiences, I can't bring myself to think that 13 years is too harsh. "Tuff-on-crime" advocates lament that harsh prison sentences, like the lower-class, poorly-educated, black, dope-seller got, don't stop dope dealing, yet think that sentences such as this are far too severe for middle-to-upper-class, well-educated, articulate, white, crooks. So long as we insist on the harsh penalties for the street criminals, I don't think there's a basis to give leniency to the crooks who don't use a gun to steal.

Posted by: Greg Jones | May 2, 2013 3:45:06 PM

..."every below-guideline sentence given in major white-collar cases provide a strong defense argument in later cases that only below-guideline sentences are proper pursuant to the sentencing commands of 3553(a)"
This is because fraud sentences are out of whack---it is not difficult given the available (and duplicative) enhancements for recommended sentences to encompass several lifetimes. Anything less than "several lifetimes" is merciful and "below guidelines"--leading to no real meaningful review.

Posted by: folly | May 2, 2013 8:19:20 PM

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