More On Legal & Compliancefrom The Advisor's Professional Library
- The Custody Rule and its Ramifications When an RIA takes custody of a clients funds or securities, risk to that individual increases dramatically. Rule 206(4)-2 under the Investment Advisers Act (better known as the Custody Rule), was passed to protect clients from unscrupulous investors.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
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.