Raj Rajaratnam was sentenced to 11 years in jail and 2 years of probation after being convicted of insider trading in May.The sentence is much lighter than the 24 years in jail that the prosecution asked for. It’s also a lighter sentence than the probation concluded was appropriate, which was 15 years. Raj was fined $10 million.
Raj’s “progressive, degenerative disease,” (advanced diabetes leading to kidney failure requiring a transplant) is the primary reason for the discepancy between the probation’s recommendation and Judge Holwell’s decision to sentence Raj to 11 years, not in jail.
“Prison is a more intense experience for people with serious health conditions,” said Holwell, who showed sympathy to Raj given his health condition.
Instead of prison, Holwell said he will recommend Raj do his time in a Federal Medical centre in Buttner, North Carolina for 11 years.
Holwell also made a point of saying there were no identifiable victims in Raj’s crime.
The prosecution had argued that there were countless victims of Raj’s crimes, as insider trading like his “makes a mockery of the principle that no one has an unfair advantage in the markets.” It’s the same as “thievery,” “theft,” and it’s no different than embezzling money or stealing information from a company. Four SEC officials, including Donaldson and Rudder, sent letters arguing that insider trading diminished confidence in the markets.
“Insider trading shakes the integrity of the financial markets,” the prosecution said.
And Raj is “arguably the most egregious insider trader to face trial to face trial.” They hoped that the fact that Raj “hasn’t taken responsibility” for his crimes should be taken into consideration.
Judge Holwell did not mention it when he explained his reasons for sentencing Raj to 11 years. However, Raj’s lying in his deposition factored into his decision, he said.Another point of contention that is evident in the judge’s decision is that while the probation did not consider Raj’s health condition a factor in his recommendation, Judge Holwell said that his decision to give Raj 11 years, which is the highest jail sentence ever given to an insider trader (10 years, which Galleon-linked Zvi Goffer was sentenced to recently, held the previous record), hinged particularly on Raj’s deteriorating health condition. An equally important factor in his decision, he said, was Raj’s good works, which include many charitable donations.
The defence argued that over 200 letters from friends attest to the fact that “the real Raj” is kind, considerate, and polite. Raj is not Skilling or Madoff, they argued. “He does not deserve to die in prison.”
Holwell seemed to agree. He also sympathized with Raj’s health condition on a personal level.
Holwell said that Raj earned well over $50 million, but less than $100 million via illegal insider trading. The judge did not consider the defence’s argument that because Raj personally only made $7.4 million, only that amount, and not the amount that he made for his investors, should be considered.
The defence asked that the amount of money that Raj made for his investors not be taken into consideration. But ultimately, Holwell said he calculated the gains that Raj made based on both Raj’s personal gains and his investor’s gains. He calculated the gains based on the increase or decrease in the share price the company after the public learned of the information.
The defence said they hoped that the media attention the case has drawn would not affect the judge’s decision. “This case has already sent a message to Wall Street,” said Terence Lynam, Raj’s lawyer in court, in John Dowd’s absence from court. The message: that insider trading “means a loss of career, a loss of life,” as well as being “subjected to ridicule,” and the “exposure of your most private affairs.” No one running a hedge fund would want to trade places with Raj no matter what the sentence, said Lynam.
Holwell said that it is indeed tempting to ignore individual circumstances in big media cases, but he did not.
On November 28th, Raj will submit to prison. Judge Holwell said it’s unlikely that Raj’s upcoming appeal on the motion of suppressed wiretaps will result in a re-trial, because the wiretaps found evidence that they were justified.
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