* 11-year sentence fell below federal guidelines
* Follows trends in other insider-trading cases
By Andrew Longstreth
NEW YORK, Oct 13 The 11-year prison term handed
down on Thursday to Raj Rajaratnam is the latest example of an
inside trader receiving a lighter sentence than suggested by
U.S. District Judge Richard Holwell said that under the
federal guidelines, the Galleon Group hedge fund founder had
faced a minimum of 19-1/2 years in prison. In opting for a
substantially lighter sentence, Holwell took a number of
factors into consideration.
Among other things, he cited Rajaratnam's charitable works
and "impending kidney failure" due to advanced diabetes.
The U.S. Sentencing Guidelines, which went into effect in
1987, were meant to bring more consistency to sentencing.
After a U.S. Supreme Court decision in 2005, the guidelines
became advisory, giving judges greater flexibility.
Judges, in fact, often find reasons to depart downward,
according to a Reuters analysis of sentences imposed in 2009
and 2010. That analysis looked at 15 insider-trading cases
brought by the U.S. Attorney in New York.
Of the 15 sentences handed down in that time period for
insider trading, 13 were lighter than the terms prescribed by
Compare that record to the sentences handed down for all
cases considered by New York federal judges over roughly the
same time period. Sentences in that period were lighter than
suggested in 57 percent of cases, according to U.S. Sentencing
The trend has continued in 2011. Out of the 17 individuals
sentenced this year in insider-trading cases brought by the
U.S. Attorney in New York since August 2009, only four
defendants received sentences within the guidelines.
But while sentences are lighter than guidelines suggest for
inside trading, defendants are still facing significant jail
time. In 2011, 15 out of 17 defendants were sentenced to
prison, and many of them received prison sentences very close
to the guidelines. Zvi Goffer, a former Galleon employee, for
example was sentenced to 120 months, or 10 years. The
guidelines called for a minimum sentence of 121 months.
Given the high-profile nature of the Rajaratnam case, some
were expecting a sentence that would fall closer to the
"I think there clearly is a difference between the way
judges are willing to sentence someone convicted of insider
trading and what they're willing to sentence people convicted
of other kinds of securities fraud," said Michael Perino, a
professor at St. John's University School of Law.
Perino said Rajaratnam's sentence was less than half the 25
years handed down to former WorldCom CEO Bernard Ebbers and the
24 years for former Enron executive Jeffrey Skilling for their
roles in accounting frauds at those companies.
"Maybe judges see far greater injuries arising from
accounting fraud cases than they do from insider trading
cases," he said. "They can see all the investors who have lost
so much money. That's hard to see in an insider trading case."