By Kara Scannell
When US Judge Richard Holwell sentences convicted hedge fund manager Raj Rajaratnam, this generation?s face of insider trading, his decision on Thursday will set a new standard for punishing Wall Street corruption.
Prosecutors with the US attorney?s office in Manhattan, which is behind the string of insider trading prosecutions, have asked the judge to sentence Mr Rajaratnam to between 19 and a half and 24 years. The longest insider trading sentence in recent memory is 10 years in prison.
Calling Mr Rajaratnam ?the worst of insider trading?, prosecutors have said in court papers that the judge should issue a sentence commensurate with his $72m scheme. ?Other corporate executives, CEOs of financial institutions, and heads of hedge funds will almost certainly look to the sentence imposed on Rajaratnam for the message as to how seriously courts will punish offenders for insider trading,? prosecutors wrote.
Mr Rajaratnam?s lawyers have argued that he is no ?mastermind? and all but a fraction of his trades were based on legitimate research. They have argued the government inflated its calculation of profits, a key driver of prison terms, and are seeking a sentence of as little as six years based on $7.4m in profits his lawyers say he personally made from the trades. His lawyers are also seeking leniency for a ?constellation? of medical problems.
Where the judge comes out on Mr Rajaratnam?s sentence will be watched by Wall Street. In recent insider trading cases judges have shown a willingness to dole out prison terms below or at the low end of sentencing guidelines.
Judge Richard Sullivan sentenced Zvi Goffer, a former Galleon trader convicted of participating in a scheme that resulted in $20m in profits, to 10 years in prison. In a related case, he sentenced trader Craig Drimal to five and a half years in prison for his role in an $11m scheme. ?This is a crime that really merits more serious punishment than the guidelines,? said Mr Sullivan.
Another judge rejected the government?s six-and-a-half year to eight-year sentencing recommendation for Winifred Jiau, the convicted former consultant to Primary Global Research, a California expert network firm, and handed her a four-year sentence.
Mr Holwell has shown a willingness to be reasoned with. He sentenced Danielle Chiesi, the former beauty queen turned hedge fund trader who pleaded guilty to tipping off Mr Rajaratnam but did not co-operate with the government, to 30 months in prison, less than the 37 to 46 months prosecutors requested.
At the time of her sentencing, he reportedly said: ?The message to Wall Street needs to be loud and clear: if you trade on inside information, you will be caught. And if convicted, you will be sent to prison.?
In the US, sentencing guidelines are driven by the amount of loss to victims or in insider trading cases the gains to the defendants. The guidelines, which are advisory, are not without controversy.
For first-time offenders of economic crimes ?to be facing significantly more severe sentences than individuals who commit violent crimes [makes me] think the system is broken,? said Barry Boss, a Washington DC lawyer who serves as co-chair of the American Bar Association?s criminal sentencing committee. He says that could explain why some judges have issued sentences below the guideline range. ?I think judges recognise that when they look at what the guideline determinations are and when they look at sentences produced by the guidelines they see the sentence is too high,? he said.
Mr Rajaratnam, 54, a Sri Lankan-born American, rose on Wall Street first as a semiconductor analyst at Needham before launching Galleon Group in 1997. He managed more than $6bn before it unravelled in October 2009 when Federal Bureau of Investigation agents mounted a dawn arrest of him at his New York home. After a seven-week trial and 12 days of deliberation Mr Rajaratnam was convicted by a jury in May on 14 counts of conspiracy and insider trading.
? The Financial Times Limited 2011