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Rajaratnam Gets 11 Years in Insider-Trading Case

OCTOBER 13, 2011, 12:24 P.M. ET
By CHAD BRAY And SUSAN PULLIAM
http://online.wsj.com/article/SB10001424052970203914304576627191081876286.html?mod=WSJ_Markets_LEFTTopStories

Raj Rajaratnam, the face of the biggest trading scandal in a generation, was sentenced to 11 years in prison, one of the longest-ever terms handed down for an insider case.

"His crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated," U.S. District Judge Richard Holwell said in imposing the sentence. Judge Holwell also ordered Mr. Rajaratnam to pay a $10 million fine.

While Mr. Rajaratnam's prison term is among the longest sentences imposed for insider trading in New York in the past two decades, it is far less than what prosecutors had been seeking.

Prosecutors had sought a sentence of up to 24 years and five months behind bars for the former hedge fund titan. Mr. Rajaratnam's lawyers—citing health problems, among other factors—had been urging the judge to consider a much more lenient sentence.

The 54-year-old co-founder of Galleon Group, who was convicted of five counts of conspiracy and nine counts of insider trading in May, was accused by prosecutors of being at the center of the one of the biggest insider-trading schemes ever unearthed.

Federal prosecutors in Manhattan had accused Mr. Rajaratnam of persuading fellow hedge-fund traders, industry consultants and even corporate directors to provide him with confidential corporate information as he searched for an "edge" over the investing public. Prosecutors alleged Mr. Rajaratnam made profits or avoided losses of $72 million through his trading.

However, his lawyers have argued only about $7.46 million in alleged gains should be attributed to him personally. They have argued that the government has improperly inflated his potential guidelines range by including gains by Galleon, rather than profits he personally recognized, in the alleged scheme.

Mr. Rajaratnam, who arrived at the courthouse in lower Manhattan this morning wearing a dark suit with blue-and-silver striped tie, is the highest-profile person to be prosecuted so far as part of a broad U.S. government crackdown.

The judge, who cited Mr. Rajaratnam's health and his charitable works in granting a more lenient sentence, said Mr. Rajaratnam is suffering from advanced diabetes and "imminent kidney failure." He said Mr. Rajaratnam will likely need a kidney transplant.

In arguing for leniency, his lawyer Terence Lynam cited Mr. Rajaratnam's charitable giving and work with a Harlem-based youth organization.

"Raj Rajaratnam has attempted to make the world a better place," Mr. Lynam said. "If there is a ledger in one's life, he should have some credit to draw upon in that ledger now that things have gone bad."

He also argued that the sentence the government is seeking is comparable only to murder and greater than other violent crimes. "The sentence that the government seeks would create such disparity," Mr. Lynam said. "There's no precedent for it."

Mr. Rajaratnam himself declined to speak. "No, thank you, your honor," he said.

Assistant U.S. Attorney Reed Brodsky argued that insider trading wasn't a victimless crime. "Public companies suffered greatly because their inside information was stolen," he said during Thursday's hearing.

"He is arguably the most egregious insider trader to face sentencing in a courthouse in the U.S.," Mr. Brodsky said. He called Mr. Rajaratnam the "modern face of insider trading."

http://online.wsj.com/article/SB10001424052970203914304576627191081876286.html?mod=WSJ_Markets_LEFTTopStories