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Rajaratnam sentencing could be Wall Street warning

Raj Rajaratnam, convicted in the biggest US insider trading case for years, faces a sentence of up to 24 years prison next week at the close of a case seen as making an example of the hedge fund tycoon.

world Updated: Oct 09, 2011 09:40 IST

Raj Rajaratnam, convicted in the biggest US insider trading case for years, faces a sentence of up to 24 years prison next week at the close of a case seen as making an example of the hedge fund tycoon.

The sentencing hearing on October 13 before federal judge Richard Holwell in New York will be closely watched for the message it sends to Wall Street.

Sri Lankan-born Rajaratnam, 54, was convicted in May on 14 counts of conspiracy and securities fraud related to his use of illegal insider tips for an edge on multi-million dollar stock market trades.

The trial grabbed attention because it exposed deeply hidden corruption on Wall Street and also because of the ruthlessness of prosecutors who took the unusual step for a white collar probe of using telephone wiretaps to gather evidence.

According to prosecutors, the brilliant founder of the Galleon Group hedge fund netted about $72 million on the basis of those tips, which included deals on shares in Goldman Sachs, Intel Corp, and Google Inc.

In final pre-sentencing arguments on Tuesday, prosecutors demanded Rajaratnam be sentenced to as much as 293 months, or about 24-1/2 years, in prison, and a minimum of 19.5 years.

They told Holwell that Rajaratnam should be punished for personal gains and also for the money that his illegal trades earned Galleon.

Prosecutor Reed Brodsky argued that Rajaratnam further aggravated his crime by acting as leader of a wider conspiracy.

"Mr Rajaratnam is uniquely situated... (as) an individual at the top of a pyramid in his hedge fund" with "interlocking trading schemes," he said.

Defense lawyers made a combative last stand to save their client from spending what could be the rest of his life behind bars.

The core of their argument is that insider trading is mostly a victimless crime and that nothing Rajaratnam did caused others to lose money. In addition, they dispute government allegations that Rajaratnam led any sort of network, instead insisting that most of the time he was an above-the-board trader.

As a result, gains directly attributable to Rajaratnam were less than $8 million and his sentence should be as low as 6-1/2 years, the defense says.

Jacob Frenkel, a lawyer specializing in white collar crime and securities enforcement, told AFP that given tough sentences already handed down to lesser participants in the Galleon scandal, the judge will probably throw the book at Rajaratnam.

"If you look at the long sentences for his colleagues who pleaded guilty and the dollars involved, the only logical sentence is a long one," Frenkel said. "This will be a sentence in the teens."

That's certainly what the government hopes, Frenkel said, since its strategic goal in the high-profile case has been to create a deterrent.

Now "people understand the government may be taping and you may go to jail for a long time for insider trading," Frenkel said.

Prosecutors call Rajaratnam a "serial inside trader" and "egregious offender" who profited handsomely from special deals and now deserves none.

But in their pre-sentencing briefing, defense lawyers said that a sentence of 20 years would even be considered at the high end for manslaughter and child pornography convicts and would, in his case, "guarantee" death in prison.

According to the defense, Rajaratnam is in ill health, with a "constellation of ailments ravaging his body" -- although they have asked that details remain private.

Whatever Holwell's sentence, a new, smaller battle will immediately be fought.

Rajaratnam's lawyers have said they will appeal over the use of wire taps -- the key to the prosecution case -- and they are asking that the court allow the fallen trader to remain on bail pending that process.

The judge could allow this, or give Rajaratnam a much briefer grace period before going into prison, or have him led directly into custody.

First Published: Oct 09, 2011 09:37 IST

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