Rajaratnam Sentenced to 11 Years in Record-Breaking Insider Trading Scheme — Fair?
11:33 am, October 13th | by Amy Tennery
Raj Rajaratnam, the ringleader in a massive insider trading scheme, was sentenced to 11 years in prison today, according to numerous reports this morning.
This sentence is far more lenient than it could have been: prosecutors had argued for a prison term between 19 1/2 and 24 1/2 years.
In May, the former Galleon Group head was convicted of perpetrating arguably the largest insider trading scheme in history. Despite a wallet-busting, $40 million defense, Rajaratnam was found guilty on 14 counts of securities fraud and conspiracy.
Rajaratnam’s insider trading scheme was, inarguably, a massive fraud — one prosecuted with bucket loads of damning evidence and wire-tapped conversations.
But was his sentence today fair?
In the weeks leading up to his sentencing, there was speculation over whether Rajaratnam profited from his scheme as much as prosecutors claimed he did (their estimate was upwards of $64 million). The defense team lobbied extensively to keep Rajaratnam’s prison tenure under a decade, arguing that he only pocketed around $7 million from insider tips, and claiming that the prosecution’s suggested sentence was “grotesquely severe”. Family members rallied for the cause, asking supporters to write to the judge on Rajaratnam’s behalf. And, when all other avenues were exhausted, the Rajaratnam team argued that the fallen hedge funder was simply too sick for a lengthy prison term. They said that there was a “unique constellation of ailments ravaging his body.”
Their overarching argument? He didn’t really hurt anyone. And he wasn’t a serial lawbreaker.
In a sense, they had a point: as I argued on Monday, Rajaratnam seemed extremely difficult to sentence. In cases involving Ponzi schemers, for example, there are often tangible victims you can quote-un-quote point to. That’s often not true in insider trading schemes — it can seem as though the system is more victimized than individual people are. And the roughly ten-fold difference between the prosecution and defense’s estimation of Rajaratnam’s spoils underscores how confusing this whole case has been.
Of course, prosecutors saw it differently.
They claimed he scammed the system for as much as $72 million. In sentencing papers, Assistant U.S. Attorney Reed Brosky described Rajaratnam this way:
“He is arguably the most egregious violator of laws against insider trading ever to be caught. He is the modern face of illegal insider trading.”
So, with that in mind — and with a U.S. Attorney seemingly hell-bent on cleaning up the financial services industry — is was not particularly surprising that prosecutors sought a record-breaking sentence.
And they had a point, as well.
Yes, there were phone taps and recorded evidence and lots of in-your-face material to support the prosecution of Rajaratnam. But that paints a false picture of just how difficult it can be to ferret out insider trading. They claimed that a long prison sentence would send a message. And they’re likely disappointed today.