Galleon Ex-CEO Raj Rajaratnam Sentenced to 11 Years

Bump and Update: Raj Rajaratnam was sentenced to 11 years, far less than the 19.5 to 24.5 years sought by the Government. The judge did consider his failing health (saying he's likely to need a kidney transplant and suffers from advanced diabetes) and charitable works, but also bumped his guidelines for both having a supervisory role and obstruction of justice in a related civil proceeding (discussed below.)

The Wall. St. Journal reports the judge denied Rajaratman's request for an appeal bond but allowed him to voluntarily surrender to the designated prison on November 28, so he wasn't taken into custody.(See below, the Government did not object to a voluntary surrender of 21 days.)

According to the Times and other media sources, it's the longest sentence ever imposed for insider trading. Raj will serve 85% of the sentence since there is no parole in the federal system, and everyone gets the same amount of good time -- 54 days a year after the first year. [More...]

Next up: Undoubtedly, Raj will appeal the denial of bond to the Second Circuit, emphasizing the wiretap issue. When it does come time to appeal, he will also have at least four sentencing arguments: The amount of loss, the enhancements for supervisory role and obstruction of justice and the disparity of sentences issue.

Original Post

Galleon hedge fund's ex-CEO Raj Rajaratnam, convicted by a jury in May of 14 counts of security fraud and conspiracy, will be sentenced today in federal court in New York. The Government is asking for 19.5 to 24.5 years. Rajaratnam is asking for 6 1/2 to 8 years.

Judge Richard Holwell will have to decide several issues, from the amount of loss (the Government puts it at $72 million, the defense argues only realized gain should be counted as loss and Raj personally only made $7.4 million in management fees and from Galleon trades) to whether Raj gets a supervisory role increase under the guidelines and an increase for obstruction of justice. The Government alleges Raj lied under oath to the U.S. Securities and Exchange Commission in a civil proceeding in 2007. The defense says he just provided general denials and DOJ policy is not to prosecute in such circumstances because general denials do not meaningfully obstruct or impede the government’s investigation. It says the same should apply to sentencing enhancements.

Raj says he suffers from chronic, life-threatening and degenerative diseases which warrant a lesser sentence. The Government says Bureau of Prisons facilities are prepared to treat him.

A huge issue today will be bail pending appeal. The test in federal courts is whether the defendant demonstrates that the appeal raises a “substantial” question of law or fact “likely” to result in reversal or a new trial. A question is #8220;substantial” in this context if if it is “a close question or one that very well could be decided the other way.”

The defense says in pleadings available on PACER that the wiretap applications and orders were improper, raising a substantial question of law or fact likely to result in reversal or a new trial.

Mr. Rajaratnam will argue on appeal...that the wiretaps, and the evidence derived from them, should have been suppressed because they were obtained on the basis of a sworn affidavit so riddled with reckless falsehoods and misleading, material omissions that this Court found it to be not merely deficient, but devoid of the content explicitly required by Title III and the Fourth Amendment.

Following a four-day evidentiary hearing during which the Court heard testimony from four witnesses and received over 230 exhibits into evidence, this Court specifically found that the government had recklessly “omitted and misstated important information” bearing on probable cause and had completely “failed to disclose the heart and soul of its [conventional] investigation, without which a reasoned evaluation of the necessity of employing wiretaps was impossible.”

Those factual findings mandated suppression of the wiretaps under Title III and the Constitution, as did the government’s use of wiretaps to investigate securities fraud, an offense not enumerated in Title III. The Court’s denial of Mr. Rajaratnam’s motion to suppress therefore raises a number of substantial questions for appeal.

What the Government failed to disclose:

[T]he government’s application completely failed to disclose that the SEC, FBI, and USAO had been conducting an “extensive” conventional insider trading investigation of Mr. Rajaratnam for a full year before the application was submitted and flatly told Judge Lynch, under oath, that the government could not obtain information that the government, in fact, had obtained and was continuing to obtain through conventional investigative techniques.

...As this Court found, the government’s conventional investigation yielded over twenty depositions and interviews (including three with Mr. Rajaratnam himself) and “a mountain” of relevant documents. But instead of disclosing these salient facts, the wiretap affidavit “blandly assured Judge Lynch” that interviewing Mr. Rajaratnam was “too risky,” and that relevant documents could not be located.

The judge found that the government’s omissions and misstatements were reckless, but denied the motion to suppress concluding that they were not material. The Defense argues the wiretap statute mandates suppression and the standard set out in the landmark case of Franks v. Delaware of materially false or recklessly made misstatements or ommissions doesn't apply to necessity challenges:

This Court concluded that the government’s “full and complete omission” was immaterial only because it considered and credited factual claims that the government never made in its original affidavit....[T]he Second Circuit has never applied the Franks standard to a necessity challenge; that court has never suggested that post hoc justifications can substitute for Title III’s demand for proof of necessity before the warrant issues; the Second Circuit’s decisions have resolved necessity challenges without reference to Franks.

The defense says the Seventh Circuit has ruled that a district court conducting Franks analysis may not consider supplemental information offered by the Government.

The Government filed a very long brief vehemently opposing an appeal bond. (It does not object to Raj staying out for the next 3 weeks while the Bureau of Prisons decides where to send him.) The Government asserts that Franks is completely applicable to the wiretap necessity challenge. It also says Raj is a flight risk and even though we've had an extradition treaty with Sri Lanka, where Raj is originally from, for a long time, it's never been used. Raj's attorneys argue:

These [medical] conditions not only make it impossible for Mr. Rajaratnam to flee without placing his own life in immediate jeopardy, they require intensive medical treatment not available within the Bureau of Prisons and would be irreversibly exacerbated if he were to be detained pending appeal.

Raj has been on a $100 million secured bond, with electronic monitoring and home confinement, for 23 months. The jury deliberated 12 days before convicting him of five counts of conspiracy and nine counts of securities fraud.

As for what sentence is reasonable and comparable to other insider trading sentences, Law Prof Doug Berman at Sentencing Law and Policy wrote in May,

It appears that nobody has received more than a decade for insider trading and that sentences of six year or much less are more common for this crime. Does this entail that the sentencing judges in Raj Rajaratnam's case ought to feel a special statutory obligation to impose a below-guideline sentence based on Congress's instruction in 18 USC 3553(a)(6) to consider at sentencing "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct"?

Team Raj argues in its sentencing brief:

Only nine defendants were sentenced for insider trading under § 2B1.4 last year. Eight of those nine defendants received a downward departure or otherwise received a sentence below the indicated Guidelines range. The ninth defendant received a sentence within the Guidelines range.

They also recite a litany of other defendants in securities fraud cases with larger loss amounts than that involved in Raj's case who received comparatively lesser sentences than being requested here, and point out:

...[A]s several courts have concluded, the sentencing Guidelines as applied to securities fraud have “so run amok that they are patently absurd on their face.”

Bloomberg News has this recap of the sentences imposed on other Galleon defendants and defendants in other insider trading cases.
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  • Display: Sort:
    Health Should Not Be a Factor (none / 0) (#1)
    by ScottW714 on Thu Oct 13, 2011 at 11:06:17 AM EST
    The criminal should consider his health before committing the crime, not the state.

    And charitable deeds, can I assume the deeds were done with ill-gotten gains.  Hardly a sign of character.

    That being said, 10 years is damn long sentence for what is, somewhat, a victimless crime.

    Now if they would start prosecuting the financial types this heavily for crimes that have many victims.

    that's not the law (none / 0) (#2)
    by Jeralyn on Thu Oct 13, 2011 at 11:32:08 AM EST
    Federal law provides the Court must take into account:

    the nature and circumstances of the offense and the history and characteristics of the defendant

    and the need for the sentence imposed to provide the defendant (among other things) with needed  medical care in the most effective manner.

    See 18 USC 3553(a).


    I Didn't Mention Legality (none / 0) (#7)
    by ScottW714 on Thu Oct 13, 2011 at 02:34:26 PM EST
    It's non-sense, two people commit the same crime and one gets less time because of illness.  That to me is in direct conflict with our criminal system in which all people are suppose to be equal under the law.

    Re: Charity Work (none / 0) (#3)
    by Jeralyn on Thu Oct 13, 2011 at 11:36:47 AM EST
    Your assumption is false that it was provided from illegal proceeds. He donated more than $45 million to charitable endeavors over more than a decade, well before committing any crimes.

    The list is impressive, you should read it sometime.

    Further uninformed and misleading comments will be deleted.


    My Quote Was: (5.00 / 1) (#8)
    by ScottW714 on Thu Oct 13, 2011 at 02:57:46 PM EST
    And charitable deeds, can I assume the deeds were done with ill-gotten gains.  Hardly a sign of character.

    Making an assumption that a criminal used proceeds of a crime on other ventures isn't exactly off base, I do apologize for tarnishing his character, he's a philanthropic felon.

    And no offense, but I clearly stated it was an assumption, I didn't try to pass it off as a fact or something I knew.  And not to be offend, but your entertainment bits are packed with assumptions.

    And if you are going to start deleting uniformed/misleading posts... well I don't think I even have to mention how ridiculous that statement is for a political blog.


    this is also a (none / 0) (#9)
    by Jeralyn on Thu Oct 13, 2011 at 05:54:18 PM EST
    legal blog and comments that misstate the law are not something I care to have associated with it. Opinions and assumptions are one thing, but to state it's improper for a federal court to consider medical history when determining a sentence is wrong. Since you implied it rather than stated it as fact, I corrected you rather than deleting your comment.

    It's also a criminal defense site with a stated goal of preserving and protecting the rights of those accused of crime, so comments mocking defendants are not well taken. Again, your comment was not deleted.


    Charity work (none / 0) (#11)
    by Abdul Abulbul Amir on Fri Oct 14, 2011 at 10:06:57 AM EST

    Don't forget that he was a big Democrat donor as well.

    Betcha a nickle that the appointed judge was not an independent.



    That almost sounds like ... (none / 0) (#12)
    by Yman on Fri Oct 14, 2011 at 10:23:46 AM EST
    ... some sort of accusation.

    Don't forget that he was a big Democrat donor as well.

    Betcha a nickle that the appointed judge was not an independent.



    The point is (none / 0) (#13)
    by Abdul Abulbul Amir on Fri Oct 14, 2011 at 10:46:42 AM EST

    we will never know, one way or the other.  OTOH, if Raj gets consideration for being free with the bucks, its only fair to to know all of the beneficiaries of that largess.



    And yet, ... (5.00 / 0) (#14)
    by Yman on Fri Oct 14, 2011 at 11:17:47 AM EST
    The point is we will never know, one way or the other.

    ... you make the accusation anyway.

    BTW - Judge Howell was a GW Bush appointee.


    Nonsense. Do your research before accusing. (5.00 / 0) (#15)
    by Mr Natural on Fri Oct 14, 2011 at 11:21:44 AM EST
    The judge's name is public record, as are all campaign donations made.  His or her political affiliation is public record.

    Your post was nothing but crude innuendo.


    The facts (none / 0) (#16)
    by Abdul Abulbul Amir on Fri Oct 14, 2011 at 01:47:06 PM EST
    1. The judge gave a lighter sentence based on popularity of the causes Raj donated to.  

    2. Which causes in the judges opinion rate that status is not a matter of public record.

    Says who? (none / 0) (#17)
    by Yman on Fri Oct 14, 2011 at 03:18:35 PM EST
    1.  "Based on the popularity" of the causes he gave to?  Says who?  The judge gave a "lighter sentence" based on Rajaratnam's charitable/philanthropic gifting, as well as his serious health problems.  There's nothing to suggest it was based on the judge's determination of the "popularity" of those groups.  His sentence tied for the longest ever for an insider-trading conviction.

    2.  Any mitigating factors are inherently subjective, but the judge specifically cited his donations to victims of natural disasters in Sri Lanka, Pakistan and the US, as well as victims of the 9-11 attacks.

    Funny how the implications of the judge's political affiliation suddenly disappeared, though.

    not only not the law, but also not logical (none / 0) (#10)
    by Peter G on Thu Oct 13, 2011 at 09:02:44 PM EST
    A prison sentence imposes punishment by deliberately creating various forms of suffering: isolation from loved ones, inability to earn a living, loss of status and respect, etc. etc.  All equal for everyone who serves time.  But the physical suffering endured by prisoners who are sick and/or disabled is greater each day or each month than that endured by otherwise similarly sentenced individuals who are able-bodied and well.  To impose equal punishment on someone with a significant illness therefore requires the imposition of a shorter sentence.  In addition, the punishment imposed by the same number of years of imprisonment is greater to the extent that it represents a significantly larger portion of the prisoner's remaining life expectancy. This is true both of older defendants and of those who are seriously ill.

    this is NOT a somewhat victimless crime (none / 0) (#18)
    by ding7777 on Fri Oct 14, 2011 at 06:28:12 PM EST
    Anyone who has money (directly or indirectly) invested in the financial arena is a victim of insider trading

    Assume the federal taxpayer (none / 0) (#4)
    by oculus on Thu Oct 13, 2011 at 12:18:05 PM EST
    will be paying for the costs assoc. with the needed kidney transplant.

    The bureau of prisons contracts (none / 0) (#5)
    by Jeralyn on Thu Oct 13, 2011 at 01:27:16 PM EST
    for the cost, and I'm not sure if Medicare pays some, which yes, ultimately is us. There are Organ Transplant Services for inmates at the Medical Center for Federal Prisoners (USMCFP) located in Springfield, Missouri.

    U.S. Medical Center for Federal Prisoners (USMCFP), Springfield, Missouri

    Located in southwest Missouri, USMCFP Springfield is a major medical and psychiatric referral center for male inmates. ...It is the major
    kidney dialysis center for the BOP, and contracts with the University of Missouri to provide
    renal transplants to inmates with living-related donors

    See solicitation..

    Also, the University of Massachusetts provides renal transplant services through a contract with FMC Devens, to inmates who are appropriate candidates.


    Interesting. Thanks. (none / 0) (#6)
    by oculus on Thu Oct 13, 2011 at 01:41:23 PM EST
    Eleven years is a helluva long time to be caged. (none / 0) (#19)
    by Mr Natural on Fri Oct 14, 2011 at 11:48:05 PM EST
    Seems like more than enough, doesn't it?  Do any of the no sentence is stiff enough types ever think about what they're screaming for?

    More to the point, would they like to know exactly what Wall Street learned from this?

    Use encrypted cellphones.