The trial of Raj Rajaratnam has been an interesting one for anybody interested in seeing how the federal government has responded to the wave of fiascos, failures and felonies that have stippled the financial services industry since late 2008, when AIG’s near-implosion touched off a shockwave so great that all kinds of behavior that had gone unnoticed previously earned fresh scrutiny, especially by federal financial cops looking to earn back some public trust after having failed so miserably to prevent a near-Depression and major financial crimes such as Bernard Madoff’s multi-billion-dollar Ponzi scheme.
The arrest, trial and conviction of Rajaratnam, head of the Galleon Group headge fund is a perfect example of what the government hopes to achieve in a new era of regulation and crackdowns. Rajaratnam earned as much as $75 million for himself from what prosecutors billed as a case of flagrant insider trading. The subject of an unprecedented two-year sting operation, in which other traders were pressured to wear wiretaps in order to gather evidence, Rajaratnam was intended to be the government’s head on a pike at the city gates. His case would be the legend to scare the rest of Wall Street into playing by the rules.
To do this, Rajaratnam was given 11 years in prison. To put this in perspective, it is the longest prison term ever given for insider trading (Michael Milken got only 10). and by white-collar crime standards, it is a pretty severe penalty. It is the result of new sentencing standards set in 1987 that intended to put an end to criminal financiers getting away with light sentences and/or stays in relatively comfortable prisons. No longer.
Another criteria of the new sentencing standards are to peg actual prison time to the amount of money illicitly gained by the convicted. This would account for Madoff’s incredible 150-year sentence, which essentially was a tool to ensure that he would die in prison. And while news reports have noted that Rajaratnam’s 11 years will certainly be enough to scare off other would-be inside traders, it still seems like the guy is getting off kind of light.
Let’s take, for instance, the federal notion of pegging prison time to money gained. If Rajaratnam got $75 million through insider trading, then his 11-year sentence means his money-for-time ratio comes down to $3.125 million per prison year. If his work in prison were meant to pay back what he gained illegally, that means he would have to have a job that paid $2,403 an hour. (This assumes he would work 52 weeks out of the year, five days a week, and five hours per day – as per the minimum-security prison work guidelines set by the North Carolina Department of Corrections.)