Sentences for insider trading have been on the rise since the Justice Department began its latest crackdown in 2009 that started with the arrest of Raj Rajaratnam. The past year had the highest sentences ever given for this type of crime, including the 11-year prison term for Mr. Rajaratnam.

Under proposed amendments to the Federal Sentencing Guidelines announced last week, recommended punishments for insider trading are likely to increase in response to Congressional pressure to ratchet up sentences for securities fraud. That will put even more pressure on defendants to cooperate with the government in the hope of receiving a reduced penalty.

Section 1079A(a)(1)(A) of the Dodd-Frank Act requires the United States Sentencing Commission to review its guidelines for securities fraud offenses “in order to reflect the intent of Congress that penalties for the offenses under the guidelines and policy statements appropriately account for the potential and actual harm to the public and the financial markets from the offenses.” That is another way of telling the sentencing commission to bump up the recommended sentences for crimes like insider trading.

The proposed amendments to the insider trading guideline would increase the “offense level,” which determines the recommended sentence, by two points if the violation involved “sophisticated insider trading,” and four points if the person was an officer or director of a public company or affiliated with a brokerage firm or investment adviser. More points can mean a longer sentence.

The charges filed last week against Anthony Chiasson, co-founder of the now-closed hedge fund Level Global, provide a good illustration of how the proposed changes to the insider trading guideline would impact punishments. Mr. Chiasson was accused of trading in Dell stock and options ahead of two quarterly earnings announcements in 2008 that resulted in more than $57 million in profits for the hedge fund.

Among the factors that would be considered to determine whether the insider trading was “sophisticated” are the number of transactions, their value and the duration of the trading. Realizing over $57 million in profits from multiple trades in Dell over a period of about four months would appear to be sufficient to show the sophistication of the violation.

The Dodd-Frank Act requires most hedge funds to register with the Securities and Exchange Commission as investment advisers. That means any insider trading involving employees at firms like Level Global or the Galleon Group, the hedge fund Mr. Rajaratnam founded, will be subject to the proposed four-point increase.

If Mr. Chiasson were convicted of insider trading, the recommended sentence under the current sentencing guidelines would be 121 to 135 months, assuming no other enhancements applied. The amendments would increase that to 235 to 293 months, nearly twice as long. The potentially higher recommended punishment would only apply to insider trading that occurs after the amendment goes into effect, which would be later this year at the earliest if approved by the sentencing commission. The new guidelines would not apply to Mr. Chiasson’s case because the alleged insider trading occurred in 2008.

Read More: http://dealbook.nytimes.com/2012/01/23/greater-penalties-for-insider-trading/