Yesterday, Emanuel Goffer, convicted alongside his brother Zviand another trader for their role, was sentenced to three years in prison. The other individual, Michael Kimelman, will learn his fate on Wednesday. But the main event is Thursday, when Raj Rajaratnam, the once-invincible Galleon Group hedge fund manager – convicted of 14 counts of insider trading this past spring – will learn his punishment in a Manhattan federal court.
Will he really get 24 years?
That’s the question in advance of the Rajaratnam sentencing. Odds are that it will be the lengthiest prison term ever handed out for insider trading. Does he deserve it? As The New York Times noted, the 24-year sentence sought by prosecutors would exceed the average federal sentences for sexual abuse, kidnapping and even murder.
Glenn Colton and Artur Davis, partners with SNR Denton, have been watching the Galleon saga since it broke last year and know a thing or two about sentencing white collar defendants. Both are former federal prosecutors – Colton spent 10 years as an assistant US Attorney in New York’s Southern District (where he appeared before Judge Richard Sullivan, who is handling the Kimelman case) and in private practice has represented numerous companies and individuals in cases involving financial wrongdoing. Davis is a former five-term Congressman who served on the House Judiciary Committee. As an assistant US Attorney in Alabama, he led some 30 jury trials and turned in a nearly 100% conviction record.
Both Colton and Davis believe U.S. District Judge Richard Holwell will indeed go long in his sentencing hearing on Thursday, in a move they feel is short on fairness.
“The disparity between the proposed sentence for Rajaratnam and the sentences his co-conspirators received is excessive, well beyond what the guidelines contemplate when they allow credit for substantial assistance and acceptance of responsibility,” says Davis. “A fair sentencing regime should not reflect such a dramatic difference in penalty between individuals who committed the same core offenses.” He notes that former Galleon trader Zvi Goffer was sentenced to 10 years for his role in the affair, while Galleon go-between Danielle Chiesi – who was actively peddling stock secrets to Rajaratnam from her high-placed lovers – got only 30 months.
Davis goes further and questions just who was victimized by Rajaratnam’s conduct. “While Galleon was obviously unraveled by his actions, his crimes did not imperil the larger economic market or the hedge fund industry,” he argues. “It is also relevant that the vast majority of these cases are handled civilly, and in fact there are parallel civil proceedings still related to these crimes.”
Colton believes the judge will hand out the maximum sentence to deliver the strongest message that courts are tough on insider trading – which is not necessarily the right metric. “Sentencing should reflect the individual and the specific crimes committed, as well as the harm caused to others, the risk of recidivism and – as required by statute – not be any longer than necessary to achieve the goals of the sentencing statute,” he said. “Prosecutors are not allowed to ask juries to convict a defendant in order to send a message. That concept should apply to judges as well and be considered by the courts when it comes to sentencing.”
Colton adds that “these extreme prison terms reflect the unreality of the sentencing guidelines in white collar cases. The loss amount – which can be calculated into millions of dollars of improper gains – drives these sentences beyond what the most violent criminals would get, even when the loss is nowhere near the level of a Bernie Madoff.”
Editing by Alex Akesson
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