(Bloomberg News) Raj Rajaratnam, the Galleon Group LLC co-founder whom prosecutors called "the modern face of illegal insider trading," was sentenced to 11 years in prison, one of the longest terms ever for insider trading, though less than half of the maximum sought by the government.
Rajaratnam, 54, is the central figure in what U.S. investigators called the largest hedge fund insider trading case in U.S. history. The probe, which leveraged the widespread use of FBI wiretaps for the first time in such an inquiry, led to convictions of more than two dozen people. Prosecutors said he made more than $72 million by using illegal tips to trade in stocks of companies including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.
U.S. District Judge Richard Holwell sentenced Rajaratnam today before a packed courtroom in lower Manhattan, saying his term was enhanced due to his leadership role in the scheme and obstruction of a related Securities and Exchange Commission probe. Holwell also noted that he received more than 200 letters on the fund manager's behalf, and that Rajaratnam, who declined to speak, suffers from diabetes and needs a kidney transplant.
"This is a lighter sentence than anticipated," said Anthony Sabino, a professor at St. John's University in New York, pointing to the U.S. request for as many as 24 1/2 years. Sabino said the judge still sent a message with the 11-year term. "Holwell is clearly achieving a crucial goal here, that is, telling Wall Street that this kind of criminality will not be tolerated, and will be severely punished."
Holwell denied Rajaratnam's request to remain free on bail while he appeals his conviction, and told him to report to the medical center at the federal correctional complex in Butner, North Carolina, in 45 days. Bernard Madoff, the convicted Ponzi scheme mastermind, is serving a 150-year term at the facility.
The judge also ordered Rajaratnam to forfeit $53.8 million and go through two years of supervised release after his prison term is up.
"Insider trading is an assault on our free markets," Holwell said. He gave Rajaratnam a shorter term than the U.S. sought, citing the defendant's charitable works and poor health. "Prison provides a more intense punishment for critically ill prisoners," the judge said.
Rajaratnam said nothing to reporters as he left the courthouse and got into a black sport-utility vehicle.
"Two years ago, Raj Rajaratnam stood at the summit of Wall Street, commanding his own financial empire," Manhattan U.S. Attorney Preet Bharara said in a statement after the hearing. "Today, Mr. Rajaratnam stood once more and faced justice which was meted out to him. It is a sad conclusion to what once seemed to be a glittering story." Bharara said Rajaratnam's is the longest prison sentence given for insider trading.
The Galleon case helped trigger two other overlapping insider-trading investigations that relied heavily on wiretaps, a tool more commonly used to probe organized crime. In the past 18 months, Bharara charged more than 50 people in the three schemes with insider-trading crimes.