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Thursday, October 13, 2011

Insider Trading Greed Gets Rajaratnam 11 Years

Former hedge fund operator Raj Rajaratnam received an 11-year federal prison sentence for his conviction on insider trading charges earlier this year.

The sentence, and the conviction, surely will be appealed.

Sentencing has several purposes, including the government objectives of retribution for past crimes and deterrence of future crimes.  Although some commentators argue this is a victimless crime, I believe these acts were prosecuted because insider trading skews the playing field away from the average, unconnected investor and towards the insider with privileged access to "inside" information.  In essence, insider trading is prohibited because it is an assault on fairness.

As for the propriety of the sentence, the reality is that Rajaratnam will be assigned to a federal medium-security facility, and not a prison camp, because his sentence exceeds ten years.  That is one reason to seek a shorter sentence.  In addition, he may be able to get credit for some sort of rehab (like the alcohol rehab that allowed former Port Authority chairman Charles Kushner to shave six months off his sentence).  Federal parole is not granted until a prisoner serves 85% of his sentence.  This means that Rajaratnam will serve at least eight years of hard time.

Eric Dixon is a New York lawyer.

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