By Jonathan Stempel

NEW YORK (Reuters) - "There is not even a chance we will do one day in jail," Danielle Chiesi declared early last year in an interview with Reuters.

On Wednesday, the former high-school beauty queen and hedge fund trader is expected to learn how many days -- or years -- she will in fact spend behind bars for insider trading.

Chiesi, 45, pleaded guilty in January to three conspiracy counts. She is the first major defendant to be sentenced in the government insider-trading probe, unveiled in October 2009 and centered on Galleon Group hedge fund founder Raj Rajaratnam.

Prosecutors have called Chiesi the "consummate Wall Street insider." They said the former trader at New Castle Funds, a now-closed New York hedge fund that was once part of Bear Stearns Cos, schmoozed powerful sources to get inside tips about corporate activity and tried to hide her tracks.

Not true, Chiesi's lawyers said in court papers arguing for leniency. They called her an emotionally scarred victim of a gnarled love affair with her former boss. "Dani," they said, had an unhealthy desire to please and to avoid rejection.

"The question is whether the mitigating factors were much more severe or pronounced than what a typical defendant would have," said Stanley Twardy, a partner at Day Pitney and a former U.S. attorney in Connecticut. "Courts do not typically give great weight to a failed relationship in deciding whether to lower a sentence."

CROSSING THE LINE

U.S. District Judge Richard Holwell in Manhattan will impose Chiesi's sentence.

Prosecutors recommended a 37- to 46-month prison term, reflecting federal guidelines that Holwell need not follow.

Chiesi is seeking fewer than 27 months, the punishment that the former boss, Mark Kurland, got for his guilty plea from a different judge. Last week, she agreed to a $540,535 settlement of a related Securities and Exchange Commission civil probe.

Holwell has leeway in sentencing to consider such factors as Chiesi's mental state, her motivations, and the pressures she faced, said Mark Rankin, co-chairman of the National Association of Criminal Defense Lawyers.

"Given that her boss got 27 months I could see the judge at least sentencing her below the guidelines range," said Rankin, who is also a partner at Shutts & Bowen in Tampa, Florida.

Chiesi is one of just two women among the 26 people charged criminally in the Galleon probe.

Twenty-one pleaded guilty, including the other woman, Roomy Khan. Four were convicted at trial. One is missing.

At her January plea hearing, Chiesi tearfully admitted to "crossing the line" by leaking tips about companies such as Advanced Micro Devices Inc <AMD.N> and International Business Machines Corp <IBM.N>.

Recorded telephone calls, some risque, played at Rajaratnam's trial had shown Chiesi gloating that getting inside tips was a "conquest." Prosecutors contended she made $4 million from insider trading.

But her lawyers maintained she never paid or was paid for tips and never traded in her own account.

Chiesi has been diagnosed with borderline personality disorder and "greed and venality" did not drive her actions, her lawyers said. Indeed, it was her relationships with men that were a much bigger factor, they said.

Among these men: former IBM executive Robert Moffat, who pleaded guilty in the case and was freed from prison on May 3.

Another was Kurland, her lover for nearly 20 years and who Chiesi's lawyers said exploited her as his "virtual servant."

IMPACT ON RAJARATNAM

The fates of other defendants could guide Holwell in sentencing Chiesi, said Jeff Ifrah, co-author of the book "Federal Sentencing for Business Crimes."

"A judge could look at how Chiesi compares to similarly situated co-defendants and slot her based on the egregiousness of her conduct," Ifrah said. "One factor is how much personal financial gain there was. Rajaratnam is at the top of that list while Chiesi is at the bottom."

Holwell's actions could also hint at the type of punishment he might mete out for Rajaratnam, lawyers said.

Still, Rajaratnam's larger crime and refusal to settle will result in a far harsher penalty, they added.

A jury convicted Rajaratnam on May 11 on 14 counts related to insider trading, which prosecutors said led to $63.8 million of illegal gains. He could face up to 19-1/2 years in prison under federal guidelines. His sentencing is set for September 27.

Holwell's "manner and tone" in describing Chiesi's behavior could be a harbinger for Rajaratnam, Twardy said.

"If he suggests that people were really hurt, then he might come down hard," he said. "If he suggests the conduct was typical Wall Street conduct, it might signal he would not be as tough."

The case is U.S. v. Chiesi, U.S. District Court, Southern District of New York, No. 09-01184.

(Reporting by Jonathan Stempel; additional reporting by Matthew Goldstein and Andre Grenon; Editing by Maureen Bavdek)