* 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 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
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
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)