Galleon Group hedge-fund founder Raj Rajaratnam, convicted in the largest insider-trading scandal in recent U.S. history, will find out this week whether his lawyers’ pleas for mercy have convinced a judge to resist calls for him to serve almost a quarter of a century behind bars.
Outside the Manhattan courtroom where he was tried and convicted in May, widespread public anger in the United States over the economic collapse has continued to mount. Now leftist demonstrators are occupying a Wall Street park to protest corporate greed.
It is against this backdrop on Thursday that U.S. District Judge Richard Holwell is to announce how long the former billionaire deserves to sit behind bars for his crimes, which included trading stocks using illegal insider tips from a network that allegedly included Rajat Gupta, a former director of Goldman Sachs. Prosecutors say Mr. Rajaratnam made $72-million (U.S.) from the scheme.
But lawyers for Mr. Rajaratnam, 54, who was convicted in May, say a lengthy prison term would be the same as a “death sentence” because of his poor health, the details of which have not been made public.
His lawyers have asked instead for a six-and-half to eight-year sentence. That’s a far cry from the 19-and-a-half to 24-and-a-half years prosecutors have demanded for a man they call “a billion-dollar force of deception and corruption on Wall Street” in their court submission.
Mr. Rajaratnam’s lawyers say they gave “sensitive and private information” about his medical issues to Judge Holwell, information that prosecutors have demanded be made public. But the convicted man’s lawyers have said doing so would spark a “salacious and morbid media feeding frenzy.”
The other ground on which Mr. Rajaratnam begs for leniency rests on math: His lawyers say he only made $7.4-million from the insider trades, not the $72-million that prosecutors claimed.
Observers say Mr. Rajaratnam’s chances of a light sentence are remote, given his apparent lack of remorse and the fact that prosecutors argue he lied under oath to Securities and Exchange Commission investigators in 2007.
John Coffee, a prominent securities law expert and a law professor at Columbia University in New York, said he thinks Mr. Rajaratnam will get 13 to 17 years, a few years shy of the term the prosecution asked for, which he said would have been an “all-time record” for insider trading.
“His medical condition may argue for mercy, but unlike most inside traders (who encounter a once-in-a-lifetime opportunity when they learn that their company is being purchased at a premium), he was a professional inside trader who built a huge network and did it on a daily basis,” Prof. Coffee said in an e-mail.
Other bit players in Mr. Rajaratnam’s insider-trading circle, some of whom pleaded guilty, have already been sentenced to much shorter prison terms. Whatever the sentence, his lawyers have said they plan to appeal his convictions.
INSIDER TRADING: A ROGUES’ GALLERY
* Stan Grmovsek, a former Toronto lawyer, pleaded guilty in 2009 for his part in Canada’s largest illegal insider-trading ring, which netted $9-million over 14 years. He was sentenced to 39 months in prison, a record for such offences in Canada, and ordered to pay $2.8-million. His accomplice, Gil Cornblum, killed himself.
* Martha Stewart, the businesswoman and home-decor icon, was convicted in 2004 of lying to investigators about her 2001 sale of shares in biotech company ImClone Systems Inc., right before the stock tanked. The sale saved her $50,000 (U.S.) in losses. She served five months in prison and five months of house arrest.
* Michael Milken, known as the 1980s junk bond king, was charged with insider trading but eventually pleaded guilty to other securities charges, including conspiracy, helping to file false information with the SEC and mail fraud. He was sentenced in 1990 to 10 years in prison, but would only serve 22 months.
* Former Toronto investment banker Andrew Rankin admitted in a 2008 settlement with the Ontario Securities Commission to tipping a friend about impending takeover deals. Mr. Rankin was fined $250,000 (Canadian) and banned for life from the securities business.
* Former Enron Corp. CEO Jeffrey Skilling was convicted in May, 2006, of 19 counts of fraud, conspiracy, insider trading and lying to auditors before the company’s spectacular collapse. He was sentenced to 24 years in prison.