Insider traders in U.S. face longer prison terms, Reuters analysis shows

Tue Sep 2, 2014 7:52am EDT
 
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By Nate Raymond

NEW YORK (Reuters) - U.S. judges are imposing increasingly long prison terms for insider trading, a Reuters analysis shows. The rise is at least partly driven by the bigger profits being earned through the illegal schemes, defense lawyers said.

The trend is likely to continue on Monday when former SAC Capital Advisors manager Mathew Martoma is sentenced for what prosecutors have called the most lucrative insider trading case ever brought.

In the five-year period ending December 2013, insider trading defendants received an average sentence of 17.3 months, up from 13.1 months during the previous five years, or a 31.8 percent increase, the analysis of 207 insider trading sentences shows. Cases that were reversed on appeal were excluded from the study. 

The number of cases has increased, with 57 percent of the sentences imposed in the past five years. The last three years alone have seen two record sentences.

In 2011, former billionaire and Galleon Group hedge fund founder Raj Rajaratnam received an 11-year sentence for an insider trading scheme that netted him $63.8 million in illicit profits. That was topped a year later when a New Jersey judge issued a 12-year term on Matthew Kluger, a former corporate lawyer accused of providing illegal tips in a $37 million scheme.

The uptick in big cases partly reflects a wave of prosecutions led by Manhattan U.S. Attorney Preet Bharara. Since October 2009, his office has charged 89 people with insider trading and secured 81 convictions.

"The judges have seen a rash of these cases, so it may be there is a sense that harsher punishments are needed," said Paul Shechtman, a defense lawyer with Zuckerman Spaeder who has been involved in insider trading cases.

Federal judges have discretion to impose any sentence, though they are required to consider advisory guidelines set by the U.S. Sentencing Commission. Within the judiciary, opinions vary, with some judges saying that harsher sentences are important to act as a deterrent and others saying the punishments are greater than the crimes.   Continued...

 
Former SAC Capital Advisors portfolio manager Mathew Martoma walks out of the courthouse in downtown Manhattan, New York, February 6, 2014. REUTERS/Eduardo Munoz