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July 20, 2012

"Insider Traders Face Longer Sentences as Judges Get Tough‎" (except for cooperators)

The title of this post is drawn from the headline of this Bloomberg article, which my editorial addition in parenthesis. Here are excerpts:

Inside traders have more to fear when they stand before Manhattan federal judges for sentencing.  Since Jan. 1, 2011, the judges have sent the average violator to prison for more than 22 months, according to an analysis of sentencing data by Bloomberg News.  That was a 20 percent increase from the average term of 18.4 months during the previous eight years.

The harsher sentences come three years into a federal crackdown on insider trading on Wall Street.  Since August 2009, federal prosecutors in Manhattan have charged 71 people with insider trading and won 65 convictions, with six cases still pending.  Some of those convicted, including former Goldman Sachs Group Inc. director Rajat Gupta, are awaiting sentencing.

“There are different insider-trading cases now,” Ellen Podgor, a professor at Stetson University College of Law in Gulfport, Florida, said.  “You look at the individuals they’re going after now -- it’s a higher level.”

Judges in Manhattan federal court are also slightly more likely to send offenders to prison. Twenty-one of 36 defendants sentenced for insider trading since the start of 2011 -- or 58 percent -- were jailed.  By comparison, 24 of the 43 defendants sentenced from 2003 through 2010, or 56 percent, lost their freedom.  Of late, most of those who avoided prison cooperated with the government.

The longer terms for insider trading are consistent with lengthier terms nationally for all forms of fraud.  According to U.S. Sentencing Commission statistics, the average sentence in fraud cases in fiscal 2011 rose to 23 months from 14.4 months eight years earlier, a 60 percent increase.  “White-collar sentences all across the U.S. are going up,” Podgor said in a phone interview....

Cooperating with the government has kept some of those convicted out of jail.  Since the start of 2011, judges have sentenced 12 defendants who admitted their guilt and agreed to provide evidence for prosecutors.  Cooperators have secretly recorded their friends and colleagues, interpreted documents and worked in other ways with federal agents.  Eleven of the cooperators avoided prison altogether, according to the data.  One got six months.

“It’s important that cooperating witnesses do get lower sentences,” said Christopher Garcia, former chief of the securities fraud unit in the U.S. Attorney’s Office in Manhattan.  “The hope of reduced sentences is a powerful tool for prosecutors in persuading and encouraging people to make cases against others.”

Anil Kumar, a former McKinsey & Co. director who testified against both Rajaratnam and Gupta, was sentenced yesterday to probation.  U.S. Circuit Judge Denny Chin cited Kumar’s “extraordinary cooperation” and his effort to “make amends for what he did.”

Judges in most insider cases imposed terms less than those recommended by the Sentencing Commission’s guidelines, according to court records.  Rajaratnam, facing from 19 years to 24 1/2 years under the guidelines, got 11 years behind bars.  Holwell explained at sentencing that Rajaratnam was sick and had a history of doing charitable works.  In another case, James Fleishman, a Primary Global executive convicted of leaking tips, got 30 months when the guidelines called for a term of 87 to 108 months.  U.S. District Judge Jed Rakoff, who has been critical of the sentencing guidelines, handed down the sentence.

James Felman, a lawyer in Tampa, Florida, who serves as the American Bar Association’s liaison to the Sentencing Commission, said many judges are willing to undercut the harsh terms urged by the guidelines in white-collar cases.  The U.S. Supreme Court ruled in 2005 that the guidelines were no longer mandatory.  “All guideline sentences have been increasing,” Felman said in a phone interview.  Of the recommended white-collar sentences, he said that “even the government is aware they’re frequently too high.”

Still, a conviction for insider trading almost always means prison time for non-cooperating defendants.   Of 24 non-cooperators who pleaded guilty or were convicted at a trial during the period measured here, 20 were ordered imprisoned for an average of 33 months.  The four spared played minor roles in the schemes, judges said.

July 20, 2012 at 07:15 PM | Permalink


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It's not clear whether the sentences are actually tougher or if the people being punished are higher level/involved with bigger, more sophisticated wrongdoing. The difference is important. If I commit a bigger crime and get a harsher sentence, that's deserved - and it is a different case than if the same crime is now being punished more harshly than 8 years ago.

Posted by: Paul | Jul 20, 2012 9:12:53 PM

I eye to eye with your statements! there weather really couldn't clear. actually last month i went there for the tour. i seen there weather situations. really it's not good. please take the require-able step. thanks.......

Posted by: manhattan | Jul 26, 2012 6:49:08 AM

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