Chiesi Gets 30 Months For Insider Trading

Jul 20 2011 | 3:45pm ET

Danielle Chiesi, the former hedge fund executive and co-defendant of Galleon Group founder Raj Rajaratnam, was sentenced to two-and-a-half years in prison for insider-trading.

U.S. District Judge Richard Holwell imposed a 30-month sentence on the former beauty queen and New Castle Partners executive, a term unlikely to make either side happy. Prosecutors had sought between 37 and 46 months for Chiesi, while her attorneys had asked for significantly less time than the 27 months that her boss—and former lover—Mark Kurland received.

"I know that there is a punishment for breaking the law, but it won't happen again," Chiesi told Holwell, who suggested that the 250 hours of community service he sentenced her to would "adjust her moral compass."

"The message to Wall Street needs to be clear: If you trade on inside information, you will be caught," Holwell said.

What is less clear is what Chiesi's sentence means for Rajaratnam; some suggested that the severity of Chiesi's jail term could be a sign for the Galleon founder, who faces almost 20 years in prison at his sentencing. But Holwell neither threw the book at Chiesi nor offered much in the way of leniency.

Chiesi will report to prison on Sept. 20, one week before Rajaratnam is sentenced.

In addition to the prison term and community service, Holwell also sentenced Chiesi to two years of supervised release and mandatory mental health and alcohol treatment, as well as a $25,000 fine.

"We continue to believe that Dani's sentence should not have been any longer than the sentence received by her boss at New Castle," her lawyer, Alan Kaufman, said. But we respect the judge's thoughtfulness and thoroughness."

Chiesi, who cried before the sentence was imposed, gave an impromptu press conference after leaving the hearing. Dressed in a tight pink dress, Chiesi offered the assembled hacks a taste of the flirtatiousness heard on the tapes in Rajaratnam's trial.

Chiesi, who spoke briefly with the Federal Bureau of Investigation agents at the hearing, told the press that she told the Feds, "if they're ever going to knock on my door again, do it in the afternoon." Chiesi was arrested in the early morning hours.

Asked about her impending stint in the pokey, Chiesi said, "I anticipate to survive."

Chiesi pleaded guilty to conspiracy and fraud in January, just a month before Rajaratnam's trial began. Chiesi did not testify against the Galleon chief, but her flirtatious phone calls with Rajaratnam were played at his trial, which resulted in his conviction on all counts.

Chiesi blamed her relationship with Kurland for her misdeeds, with her lawyer arguing last month that her actions were "the manifestation of the psychological and emotional forces impacting" on her.

"For Danielle Chiesi, cultivating corporate insiders to gain an illegal trading edge was the ultimate elixir," U.S. Attorney Preet Bharara said. "She was the vital artery through which inside information flowed between captains of industry and billionaire hedge fund managers, and she reveled in the conquest."

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