Court Says Hedge Fund Insider Trading Requires Jail Time

Oct 2 2007 | 12:20pm ET

The Securities and Exchange Commission has made prosecuting insider trading among hedge funds a priority. Now, a federal appeals court is giving that effort some teeth.

The First Circuit Court of Appeals in Boston has ruled that 36 months of probation for a hedge fund manager convicted of insider trading was too lenient, saying that the crime requires doing some time.

Michael Tom of Waltham, Mass., was convicted last year of making $750,000 in ill-gotten gains—for himself and his hedge fund, GTC Growth Fund—trading on insider information about Citizens Financial Group’s acquisition of Charter One Financial. The trial judge sentenced Tom to 36 months’ probation, including six months in a community confinement center, arguing that Tom’s tipster was the truly culpable culprit and was only hit with a years’ probation. He also said that prison time on top of the SEC sanctions Tom faced would be too much punishment for the crime.

The only problem, prosecutors said, was that federal sentencing guidelines called for a minimum of 37 months in prison. The First Circuit concurred.

“We agree with the government that the sentence is unreasonable and that it did not give adequate consideration to the seriousness of the offense, the need for general deterrence for white-collar crimes, and the need for some imprisonment,” the court wrote in its Monday ruling. It remanded the case to U.S. District Court for resentencing.


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Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

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