Judges Hammer Down on Insider Trading

Judges Hammer Down on Insider Trading

The judiciary is taking an increasingly jaundiced view of white collar crimes such as insider trading according to a report by Bloomberg.

A federal crackdown on insider trading since 2009, has resulted in 71 people being charged with 65 convicted. 6 cases are still pending. The thrust by prosecutors met with a fitting response from the judges. According to the report, the average prison term awarded for these offences has increased by almost 20 percent since January 2011. More importantly, judges now are more amenable to send perpetrators to prison – since January 2011, 58 percent of offenders were jailed, in contrast to the 56 percent jailed during the period of 2003 to 2010.

These statistics are in line with an overall trend in the U.S. to punish all kinds of fraud with longer prison sentences.

Though the Bloomberg report analysis is based on Manhattan cases only, the record for the longest sentence for insider trading is held by attorney Matthew Kluger who got 12 years.

In the high profile Galleon case, Rajaratnam was sentenced to 11 years while trader Goffer got 10 years. Sentencing for Rajat Gupta is expected on October 18 (read about it on Valuewalk here).

In fact, the longer sentences reflect the judges’ annoyance with insider trading becoming a systemic problem, and are  supporting the issue of a deterrent, through a longer prison term.

It therefore appears that it is much better to avoid a jury. Since January 2011, all cases going to trial, i.e. seven defendants, were convicted. In contrast, defendants who elected to co-operate with the investigation avoided imprisonment. Investigators laud this as an essential bait to get people to tell on fellow perpetrators, thus aiding investigation. In the Galleon case, Anil Kumar, McKinsey director received only probation, in return for his cooperation in the investigation.

Though sentencing patterns do differ amongst judges, it is agreed that the quantum of money realized through the illegal activity is of extreme importance in the sentencing. The larger the amount, the higher the sentence. For example, an accountant in the Marvell Group case was sentenced to only probation on the grounds that no ill-gotten gains accrued to him. On the other hand, a Galleon trader Craig Drimal got 5 ½ years because he made $6.5 million.