Wharton alum gets 11 years behind bars

Under new federal initiatives meant to curtail Wall Street corruption, Raj Rajaratnam was sentenced Thursday to 11 years in federal prison — the longest ever for insider trading and a judgment critics say is unusually harsh and meant to set a precedent.

The 1983 Wharton MBA graduate and founder of the Galleon Group hedge fund was also fined $10 million on nine counts of insider trading and five counts of conspiracy and was forced to relinquish $53.8 million in profits.

United States Attorney Preet Bharara, who spearheaded the government’s crackdown on insider trading, said during a talk at the Wharton School last week that this kind of activity is “rampant” on Wall Street trading floors.

Federal prosecutors originally asked U.S. District Judge Richard Holwell, who presided over the case in the U.S. District Court for the Southern District of New York, for up to a 24-year sentence, until Rajaratnam’s lawyer Terence Lynam argued that his client deserved leniency because of health issues like diabetes and kidney failure and charitable work with a Harlem-based youth organization.

Philadelphia attorney William J. Brennan — who is not affiliated with Rajaratnam’s case — explained that U.S. law allows for leniency in sentencing when the defendant has medical problems. Charitable acts, he said, are another mitigating factor that show the defendant has helped the community.

In addition, hundreds of letters were written on the defendant’s behalf, but according to Philadelphia attorney Patrick Artur — also not affiliated with the case — this had no effect on the sentence. “In every case, someone writes letters,” he said.

Artur added that the amount of money fuels the sentences, and that the more money stolen, the longer the sentence. “They’re following the money,” he said.

Artur also explained that criminals in these types of cases argue that there is no victim and that sentences should be shorter. But according to Artur, they’re illegally taking money from the U.S. economy and cheating the system.

“It’s like going into everyone’s bank account and taking two cents out,” Artur said.

One of the main pieces of evidence that led to Rajaratnam’s conviction was recordings from phone conversations. Without his knowledge, the government had wiretapped his phones. Brennan said the wiretap is a commonly used federal tool because it’s difficult to cross-examine a tape.

“It’s very powerful evidence for the government,” especially since insider trading is so difficult to detect and prove, Brennan said.

Artur pointed out that wiretaps had previously only been approved for cases of national defense.

Rajaratnam and his lawyer are trying to appeal the sentence on the grounds that the authorization for the wiretap wasn’t proper. Artur believes the defense may have some success, in part because the defendant can afford the best lawyers in New York.

However, the climate is such that people are becoming more fed up with corporate greed. “The courts will reflect that,” he said. “Lately the Feds have been targeting — very rigorously — hedge-fund owners.”

Brennan, on the other hand, believes it’s highly unlikely that an appeal will be granted. “The higher you are in the appellate courts, the more refined the arguments,” he said, making it harder to appeal the decision.

Artur concluded that insider trading “is ruining the legitimacy of Wall Street.”

“The ultimate loser is the American economy,” he said.

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