October 13, 2011

Galleon’s Rajaratnam Sentenced to 11 Years for Insider Trading

Longest sentence ever for this crime, but far short of expectations

Raj Rajaratnam outside court in Manhattan earlier this year. (Photo: AP) Raj Rajaratnam outside court in Manhattan earlier this year. (Photo: AP)

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Raj Rajaratnam, the 54-year-old co-founder of hedge fund Galleon Group, was sentenced to 11 years in prison on Thursday, one of the longest punishments ever handed down for insider trading.

However, the term fell far short of the 19 to 24 years that prosecutors requested, and many legal watchers expected, Rajaratnam to receive. In May, a jury convicted him of five counts of conspiracy and nine counts of insider trading. Prosecutors alleged it was one of the biggest insider-trading schemes ever uncovered, and asked Judge Richard Holwell to issue a sentence in line with his $72 million scheme.

“Other corporate executives, CEOs of financial institutions, and heads of hedge funds will almost certainly look to the sentence imposed on Rajaratnam for the message as to how seriously courts will punish offenders for insider trading,” prosecutors wrote, according to The Financial Times.

“Rajaratnam’s lawyers countered that he was no ‘mastermind’ and all but a fraction of his trades were based on legitimate research,” the paper reports. “They have argued the government inflated its calculation of profits, a key driver of prison terms, and are seeking a sentence of as little as six years based on $7.4 million in profits his lawyers say he personally made from the trades. His lawyers also sought seeking leniency for a “constellation” of medical problems.”

The judge appeared to accept their argument, and cited Rajaratnam's health issues and his charitable works in granting the lenient sentence. He said Rajaratnam is suffering from advanced diabetes and will likely need a kidney transplant in the near future.

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