{"id":272,"date":"2011-10-18T15:09:22","date_gmt":"2011-10-18T23:09:22","guid":{"rendered":"http:\/\/thenetwork.berkeleylawblogs.org\/?p=272"},"modified":"2011-10-18T15:09:22","modified_gmt":"2011-10-18T23:09:22","slug":"the-galleon-insider-trading-case-how-to-sentence-a-seemingly-victimless-crime","status":"publish","type":"post","link":"https:\/\/sites.law.berkeley.edu\/thenetwork\/2011\/10\/18\/the-galleon-insider-trading-case-how-to-sentence-a-seemingly-victimless-crime\/","title":{"rendered":"The Galleon Insider Trading Case: How To Sentence a Seemingly Victimless Crime?"},"content":{"rendered":"

In May 2011, Raj Rajaratnam, founder of the Galleon Group hedge fund, was found guilty on fourteen counts of insider trading. After having initially postponed the sentencing decision, US District Judge Richard Howell sentenced Rajaratnam to 11 years<\/a> in prison on October 13th<\/sup>. This constitutes the longest prison sentence ever imposed in an insider trading case, though well short of the prosecutions requested 20 to 24 year sentence.<\/p>\n

<\/p>\n

During the trial, Rajaratnam and other Galleon traders were convicted<\/a> of securities fraud and conspiracy under 15 USC \u00a778j(b)<\/a> and 17 CFR \u00a7240.10b-5<\/a>, allowing them to make tens of millions in profits trading on publicly unavailable information. <\/ins>The Justice Department and the Securities and Exchange Commission<\/a> successfully used wiretap<\/a> recordings to prove that Rajaratnam had received inside tips about public companies.<\/p>\n

The defendants based their arguments on the so-called \u201cmosaic theory<\/a>\u201d, according to which Galleon\u2019s investment decisions were made by combining publicly available information, coming from sources such as company announcements, newspaper argument and analysts\u2019 reports. In this way, Rajaratnam could have gotten an information advantage over other investors without having committed fraud. The jury, however, did not accept this theory and ruled that Rajaratnam had also sought and used confidential information to conduct illegal trading.<\/p>\n

Mr. Rajaratnam\u2019s sentencing has sparked a debate about the severity of the punishment for insider trading crimes when no clear victim can be designated. The prosecution<\/a> stressed the need for adequate deterrence: \u201cOther 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.\u201d The underlying rationale seems to be that society as a whole benefits from healthy, trustworthy capital markets.<\/p>\n

Mr. Rajaratnam\u2019s lawyers on the other hand argued<\/a> that he \u201ccannot be compared to insider trading defendants in some of the other\u00a0recent cases, such as lawyers who stole client information regarding corporate deals and traded on it.\u201d According to the defense, the Federal Sentencing Guidelines<\/a> used by the prosecution for calculating fraud loss were unsuitable in this case where there is no real or intended loss to a victim, and where \u201cthe amount of gain does not \u2026 bear any relationship to the underlying culpable conduct\u201d<\/p>\n

Indeed, we were not dealing with \u2018Madoff, the sequel\u2019. Contrary to some other forms of white-collar crime, Mr. Rajaratnam claimed<\/a> that his actions did not directly affect identifiable individuals. But is there really such thing as a victimless crime? Apparently not when it came to Galleon trader Zvi Goffer, who was sentenced<\/a> to ten years in prison on September 21st<\/sup> nor Mr. Rajaratnam himself.<\/p>\n

Berkeley Business Law Professor Eric Talley notes that \u201cso far, white-collar criminals have not had the best luck in convincing courts to ignore \u2013 even though they are voluntary \u2013 the Sentencing Guidelines.\u201d According to Professor Talley, \u201cthe thing that\u2019s very hard about this particular case is that the type of insider trading Galleon was involved with is right on the edge of legality. The real question is probably going to be about how much the judges will accept the invitation to treat the federal guidelines as voluntary, and to discount things that were reckless but not clearly willful.\u201d<\/p>\n

Of course, Mr. Rajaratnam will not go quietly into that good night. \u00a0Lawyers for Rajaratnam are currently preparing for an appeal<\/a> based on the government\u2019s failure to fulfill the requirements of the Wiretap Act<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

In May 2011, Raj Rajaratnam, founder of the Galleon Group hedge fund, was found guilty on fourteen counts of insider trading. After having initially postponed the sentencing decision, US District Judge Richard Howell sentenced Rajaratnam to 11 years in prison on October 13th. This constitutes the longest prison sentence ever imposed in an insider trading […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-272","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-09-24 16:33:16","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category"},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/posts\/272","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/comments?post=272"}],"version-history":[{"count":0,"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/posts\/272\/revisions"}],"wp:attachment":[{"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/media?parent=272"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/categories?post=272"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sites.law.berkeley.edu\/thenetwork\/wp-json\/wp\/v2\/tags?post=272"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}