* 11-year sentence fell below federal guidelines
* Follows trends in other insider-trading cases
By Andrew Longstreth
NEW YORK, Oct 13 (Reuters) - 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 federal guidelines.
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 the guidelines.
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 Commission statistics.
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 guidelines.
“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.”