A former trader at the Galleon Group hedge fund was sentenced on Wednesday to five-and-a-half years in prison, a term the judge said should serve as a warning to Wall Street that insider trading was a serious crime.
Craig Drimal, 55, who pleaded guilty in April, was arrested as part of a sweeping government crackdown on insider trading that has resulted in almost 50 guilty pleas or convictions.
At the sentencing proceeding in Manhattan federal court on Wednesday, U.S. District Judge Richard Sullivan said he would impose a more severe prison term than Drimal's defense had requested to put the financial industry on notice.
``There has to be a message sent here to hedge fund managers and traders and lawyers that this is not going to be tolerated,'' Sullivan said.
Drimal must report to prison on Oct. 31 and was ordered to pay $11 million in restitution. Prosecutors said Drimal used to work in the offices of the Galleon Group hedge fund, but not at the time of his November 2009 arrest. Galleon's chief, Raj Rajaratnam, was convicted in May and is scheduled to be sentenced on Sept. 27.
When he pleaded guilty in April, Drimal told the judge that he traded in shares of former computer network equipment maker 3Com Corp and Canadian drug company Axcan Pharma Inc based on illegal tips from lawyers at the law firm Ropes & Gray working on merger transactions. Drimal pleaded guilty to securities fraud and conspiracy charges.
In court papers, federal prosecutors said that Drimal made around $6.5 million off the trades in 3Com and Axcan. They also said that Drimal lied to the Securities and Exchange Commission when he was questioned about his Axcan trades.
3Com was acquired by Hewlett-Packard Co in 2010 and Axcan Pharma was acquired by private equity firm TPG Capital in 2008.
``I understand that I committed a crime and I deserve to pay that price,'' Drimal said through tears.
The case is USA v Goffer et al, U.S. District Court, Southern District of New York, No. 09-01184.