Rajaratnam sentencing may be a fight to the death
* US seeks up to 24-1/2 years prison for Galleon founder
* Galleon Group founder seeks shorter term, cites health
By Jonathan Stempel
NEW YORK, Aug 10 (Reuters) - A U.S. government request that Galleon Group hedge fund founder Raj Rajaratnam spend as much as 24-1/2 years in prison -- a term associated more with murder than financial crimes -- raises the ante in the biggest individual insider trading case in a generation.
Whether Rajaratnam, like Ponzi schemer Bernard Madoff, deserves the type of sentence often given to drug kingpins and Mafia bosses comes down, fundamentally, to the strength of the case against him, and the assessment of his presiding judge.
"I think what he did was terrible, corrosive and harmful to the markets," said James Cox, a securities law professor at Duke University. "At the same time, where are the bodies, where is the blood?"
Cox and other legal experts believe Rajaratnam will get a substantial sentence, but less than the prosecutors requested in a sentencing memorandum filed with the court on Tuesday.
Prosecutors said a 19-1/2 to 24-1/2 year term, reflecting nonbinding federal sentencing guidelines, is appropriate for Rajaratnam, a Sri Lankan-born former billionaire whom they called "the modern face of illegal insider trading."
A Manhattan jury convicted Rajaratnam in May on 14 criminal counts for trading on tips from bankers, company directors and traders in eBay Inc (EBAY.O), Goldman Sachs Group Inc (GS.N), Intel Corp (INTC.O) and other stocks, netting an illicit profit of $63.8 million over seven years.
U.S. District Judge Richard Holwell will pass sentence on Sept. 27.
Rajaratnam's lawyers asked for a term "substantially below" the guidelines range, citing their 54-year-old client's otherwise "exemplary" life and philanthropic efforts, and the "unique constellation of ailments ravaging his body." A long prison term, they said, would amount to a "death sentence."
There is no parole in the federal prison system, though a sentence can be reduced by 15 percent for good behavior.
Created in 1984, the sentencing guidelines have long been criticized as too severe, even draconian, for their emphasis on the size of crimes.
In 2005, the U.S. Supreme Court declared them "advisory" to avoid a conflict with the Constitution.
The next year, Holwell's colleague, Judge Jed Rakoff, criticized the guidelines as he imposed a 3 1/2-year prison term on Richard Adelson, a former chief operating officer of Impath Inc, for overstating results of the cancer diagnosis testing company. Prosecutors sought 85 years, which was permitted under the guidelines.
There can be an "utter travesty of justice that sometimes results from the guidelines' fetish with abstract arithmetic, as well as the harm that guideline calculations can visit on human beings if not cabined by common sense," Rakoff wrote.
Twenty-four years is a long time. A person finishing such a term today would have entered prison when Ronald Reagan was U.S. president, Margaret Thatcher was Britain's prime minister, and actress Lindsay Lohan was a year old.
U.S. Attorney Preet Bharara is seeking a prison term that exceeds some of the longest in earlier insider trading cases.
The financier Michael Milken, for example, was sentenced to 10 years in prison after pleading guilty in 1990. Former Credit Suisse Group AG (CSGN.VX) banker Hafiz Naseem got the same term in 2008 over a $7.5 million scheme.
Other financial criminals got more time behind bars.
In 2009, Madoff got 150 years for his Ponzi scheme, while the lawyer Marc Dreier got 20 years for his own. The guidelines called for 145 years in prison for Dreier.
Former WorldCom Inc chief Bernard Ebbers got 25 years and former Enron Corp chief Jeffrey Skilling got 24 years for their roles in accounting frauds.
Federal judges in Manhattan regularly impose shorter sentences on insider trading defendants than the guidelines recommend, including 13 of 15 in cases brought by Bharara's office in 2009 and 2010. [ID:nN06117549]
That trend is continuing. Rakoff on July 29 imposed a 2-1/2-year term on former SAC Capital Advisors LP portfolio manager Donald Longueuil, who, he predicted, "in the fullness of time, will lead a productive and useful life." Prosecutors sought four to five years under the guidelines.
Holwell is part of that trend. Last November, he sentenced Ali Hariri, a former vice president of chipmaker Atheros Communications Inc, to 1-1/2 years in prison. Prosecutors wanted two to 2-1/2 years under the guidelines.
And on July 20, Holwell sentenced Rajaratnam's one-time co-defendant Danielle Chiesi, a former New Castle Funds trader, to 2-1/2 years in prison. Prosecutors wanted three to four years, but Holwell said substituting community service for some prison time would help Chiesi "adjust her moral compass."
On the other hand, at Chiesi's sentencing, Holwell gave Wall Street what he called a "loud and clear" warning that people who commit insider trading will be caught, and if convicted, will go to prison. [ID:nN1E76J16F]
And Rajaratnam has fought the government from the beginning. That makes him unlike Longueuil and Chiesi, who may have gotten shorter sentences in part because they pleaded guilty.
Prosecutors said that a long sentence is just punishment for Rajaratnam's "brazen, arrogant, harmful and pervasive" criminal conduct, some of which they memorialized in recorded phone calls played to jurors at the trial.
Rajaratnam is expected to appeal the admission of wiretaps, new to insider trading cases, as evidence. He is also challenging the conviction.
While legal experts agree that Rajaratnam will get a substantial sentence, they disagree on the length.
"The judge will be motivated not so much by the high-profile nature of the case, but by the evidence," said Solomon Wisenberg, co-chairman of the white-collar defense practice at Barnes & Thornburg in Washington, D.C., and author of "White Collar Crime: Securities Fraud."
Gerald Lefcourt, a former president of the National Association of Criminal Defense Lawyers, is among those who argue that Rajaratnam's case is unusual given "the breadth of the crime and the number of people involved."
"While the defense may argue that the crime of insider trading is less harmful to individuals than crimes by officials at public companies, confidence in the markets is crucial to capitalism," Lefcourt said.
Lefcourt predicts Holwell will reaffirm his message to Wall Street by imposing a 15- to 20-year prison term on Rajaratnam.
Cox meanwhile said a six- to eight-year term, together with a substantial monetary penalty, might send the right message.
And he added that it appears "very clear" that Wall Street should have learned its lesson. (Reporting by Andrew Longstreth and Jonathan Stempel. Editing by Robert MacMillan)
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