Published October 13, 2011
One-time hedge fund tycoon Raj Rajaratnam, convicted in the biggest Wall Street insider-trading case in decades, hears his punishment in court on Thursday with all signs pointing to a lengthy prison term.
Rajaratnam, 54, whose Galleon Group managed $7 billion at its peak, could face almost 25 years in prison. His lawyers are asking for a shorter term, arguing he is in poor health and does not deserve a two-decade prison term akin to what a violent offender would receive.
A sentence of 15 years for Rajaratnam may suit the crime and send a warning to others on Wall Street, said St. John's University business professor Anthony Sabino. ``The court has to balance he is a first offender, that this is stock fraud, not murder,'' Sabino said.
A Sri Lankan-born U.S. citizen, Rajaratnam is the central figure in a sweeping insider trading case that touched some of America's top companies, including Goldman Sachs Group Inc , Intel Corp, IBM and the elite McKinsey & Co consultancy. It is the biggest insider trading case since the 1980s-era prosecutions of speculator Ivan Boesky and junk-bond financier Michael Milken.
The Galleon founder was arrested in October 2009 after an investigation marked by the most extensive use of secret FBI phone taps in a white collar case. Such tactics usually are reserved for Mafia and drug trafficking investigations.
A jury convicted Rajaratnam on May 11 of all 14 counts of securities fraud and conspiracy. The government then asked for a prison term of between 19-1/2 years and 24-1/2 years.
The sentence will be delivered by U.S. District Judge Richard Holwell, who presided over the two month-long trial.
The Galleon case sent shock waves through Wall Street and the hedge fund industry, where traders can try to get an edge at all costs. Prosecutors say some traders crossed the line by pumping corporate insiders for corporate earnings or details of mergers that had not yet been announced.
Insider trading cases are often difficult to prove because evidence can seem circumstantial. But the secretly recorded telephone conversations proved hugely successful for the Galleon prosecutors. Out of 26 charged in two overlapping Galleon cases, Rajaratnam and three others were convicted at trial; 21 pleaded guilty and one defendant is at large.
In a separate investigation of so-called expert network consultants who advise hedge funds, two defendants were convicted at trial and more than a dozen pleaded guilty.
PRISON, OR BACK HOME?
Holwell is likely to hand Rajaratnam a sentence between about eight and 20 years, predict legal experts who are not involved in the case. It is not yet known in which prison he would serve time.
The judge also could allow him to remain under house arrest in his luxury Manhattan apartment on $100 million bail while he challenges the use of phone taps in the case. Typically, appeals can take two years or longer.
``What the court might do, even though I think it will be a much longer sentence than the defense want, it might twist around a little bit to allow bail pending appeal,'' said criminal defense lawyer Glenn Colton of law firm SNR Denton.
Insider-trading defendants often get sentences below what is prescribed in federal sentencing guidelines, out of the view that their crime is less harmful than other types of white-collar wrongdoing.
But judges have delivered some tough sentences recently. Former Galleon trader Zvi Goffer, 34, was sentenced last month to 10 years in prison and ordered to forfeit $10 million.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.