Rajaratnam Sentenced To 11 Years In Prison

Oct 13 2011 | 11:51am ET

Galleon Group founder Raj Rajaratnam was sentenced to 11 years in prison for leading one of the largest insider-trading rings in history.

The sentence is the longest ever for insider-trading, but fell far short of the 19½ to 24½ years sought by prosecutors. U.S. District Judge Richard Holwell ordered Rajaratnam to report to prison within 60 days; it is not yet clear where he will serve his sentence. Until he goes to jail, Rajaratnam will remain in home confinement at his Manhattan apartment, as he has done since his arrest and release on $100 million bail.

At the hearing this morning, Holwell indicated that the 54-year-old's ill health was a factor in his decision—Rajaratnam's lawyers, who had pushed for a sentence of between six and eight years, had called the sentence called for by prosecutors "grotesquely severe" and warned it would amount to a death sentence.

For the first time, the judge enumerated some of what's wrong with Rajaratnam's health, information that he sought to keep secret. Holwell said that Rajaratnam is suffering from advanced diabetes and will likely need a kidney transplant.

Rajaratnam was convicted in May of reaping tens of millions of dollars using a web of insiders and other tipsters. His attorneys plan an appeal focusing on the prosecution's use of wiretaps in the trial, a key piece of evidence that was a first for an insider-trading case.

A jury found Rajaratnam guilty of leading one of two insider-trading rings—the other was headed by former Galleon trader Zvi Goffer, who was sentenced to 10 years in prison. Twenty-seven people have been charged in the case, with 22 pleading guilty, four being convicted by a jury and one a fugitive.

During his trial, prosecutors accused Rajaratnam of reaping $63.8 million in illicit profits over a seven-year period. The government went through Rajaratnam's allegedly illegal trades, and heard from several former employees and tipsters who pleaded guilty in the case. The government even called Goldman Sachs CEO Lloyd Blankfein to the stand to testify that information that Rajaratnam allegedly received from Rajat Gupta, the former head of McKinsey & Co. and a former Goldman board member, was confidential and privileged.

The defense, for its part, hammered away at the credibility of the government's star witnesses and tried to show that Rajaratnam was only doing his job while drumming up information, none of which was material and confidential, as defined by the insider-trading statutes.

Following the sentencing, Janice Fedarcyk, FBI Assistant Director in charge of the New York field office, released the following statement: “Raj Rajaratnam is no different from a host of others who falsely attributed impressive investment results to superior research and acumen. In fact, as his trial determined, he relied on—indeed, actively cultivated—insider information. His considerable fortune was built on a clandestine network of corruption and concealment. Raj Rajaratnam did not merely bend the rules; he broke the law. There is a price to pay for that.”


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