Hedge fund traders who are convicted of insider trading are receiving prison sentences 31 percent longer than in the past and the number of such cases has increased, a Reuters analysis shows.

insider trading

Insider trading cases

From 2008 to 2013, those guilty of insider trading received an average sentence of 17.3 months, compared with just 13.1 months during the five previous years.  Reuters analyzed 207 insider trader cases, excluding those reversed on appeal.

The number of insider trading cases is also significantly higher.  57 percent of insider trading cases were brought from 2008 to 2013, with two record sentences being handed down in the last three years alone.  In 2011 hedge fund trader Raj Rajaratnam was slapped with an 11-year insider trading sentence, only to be topped the following year when former lawyer Matthew Kluger was handed a 12-year sentence.

The tougher sentencing could come into play on Monday, as former SAC Capital Advisors fund manager Mathew Martoma is scheduled to be sentenced in what could be the most lucrative insider trading case ever brought.

Martoma, 40, was convicted by a jury last February of in insider trading in a scheme that allowed SAC to make profits and avoid losses of $275 million.  Sentencing guidelines rely heavily on the size of profits in a case to determine the punishment.  If so, don’t be surprised to see a stiff penalty in an insider trading case in history. Some estimates have suggested a potential sentence of 235 months. However, this doesn’t appear to sit well with Martoma’s lawyers who, in a court filing, termed a potential 20-year sentence “outrageous.” The article noted the probation department ultimately recommended an eight-year sentence.  If an eight year sentence is handed down it would still be the sixth longest sentence.

Preet Bharara has charged 89 insider traders

The report notes the uptick is due in part to robust enforcement of insider trading by U.S. Attorney Preet Bharara, who covers the southern district in New York which includes the Wall Street area.  Since October of 2009 Bharara’s office has charged 89 people with insider trading, netting 81 convictions.

Bharara has himself has been a hawk, pushing for tougher insider trading penalties. “Based on our experience, the nature and scope of insider trading activity has evolved substantially, but the guidelines have not completely kept up,” he testified in 2011 before the U.S. Sentencing Commission.

While Bharara is aggressive with independent hedge fund traders, no charges have been brought against executives at large banks who have been linked to criminal activity associated with the 2008 mortgage derivatives crash or MF Global.