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Rajaratnam gets off easier than expected

Despite being the longest insider trading sentence ever, the hedge fund tycoon gets an 11-year prison term

The sigh of relief was probably heard from here to Sri Lanka. The subject of serious speculation in recent weeks, Raj Rajaratnam finally was sentenced today for his role in the Galleon Group insider trading scandal.

Rajaratnam’s sentence is far lighter than what many experts predicted. In fact, it’s only one year more than was recently given to his former employee, Zvi Goffer for his role in the scandal.

Prosecutors initially had requested that he be given a tougher sentence, and locked up for between 19 ½ and 24 ½ years, but Rajaratnam immediately spoke out against the quarter-century punishment. Calling the penance “grotesquely severe,” Rajaratnam asked for leniency so he didn’t have to die in prison. And the judge listened.

Rejecting the prosecution’s request, U.S. District Judge Richard Holwell said he took into account the defendant’s relatively serious health concerns when rendering his decision. Because of Rajaratnam’s “imminent kidney failure” and likely need of a transplant as a result of advanced diabetes, and charitable work aiding victims of natural disasters in his home nation of Sri Lanka and Pakistan, the judge decided upon a significantly lower jail term.

"Prison creates a more intense form of punishment for critically ill prisoners," Judge Holwell said when he sentenced Rajaratnam, but added that infirmity doesn’t afford "a get-out-of-jail-free card."

In addition to jail time, the judge fined Rajaratnam $10 million and ordered him to forfeit $53.8 million.

The average sentences for others related to the Galleon Group scandal have been just under three years.

In fact, longer sentences for insider trading are becoming the norm. The Wall Street Journal reported today that in the past two years, defendants sent to prison on insider trading charges in New York federal courts have received median sentences of about 2 ½ years. (InsideCounsel also noted this tougher sentencing trend in the August issue.) This term is more than double the median sentence of 11 ½ months from 1993 to 1999, and about a year longer than the 18-month median punishment over the past decade.

The Journal adds that advanced prosecution tactics and techniques such as wiretapping, formerly used mostly in drug or terrorist cases, is helping boost sentences. This was definitely the case in the Rajaratnam trial, where the prosecution played 45 recorded phone calls for the jury during his trial earlier this year.

For more on Rajaratnam and sentencing trends, read the Wall Street Journal.

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