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Sept. 22 (Bloomberg) -- An ex-Galleon Group LLC trader and expert-networking consultant were sentenced to a combined 14 years in prison for their roles in a nationwide insider trading scandal, just three weeks before Raj Rajaratnam, the man at the center of the investigation, is to learn his fate.
The sentences imposed within hours of each other yesterday by two different federal judges in the same Manhattan courthouse showed widely disparate perspectives on how insider trading should be punished.
Zvi Goffer, 34, the former Galleon trader, was given 10 years, the longest prison sentence so far in the crackdown, for leading a scheme to trade on inside information provided by lawyers. Winifred Jiau, 43, a former consultant with expert- networking firm Primary Global Research LLC, was given a prison term of four years for passing information on technology companies to fund managers.
Goffer’s sentence matches the longest term imposed for insider trading in Manhattan federal court in at least the past eight years. For 12 defendants who have been sentenced in cases linked to Galleon, the average prison term has been 35 3/4 months, or almost three years.
“I view this as a tragic day,” U.S. District Judge Richard Sullivan said as he issued Goffer’s 10-year sentence. “Anything less than that would send the wrong message.”
Goffer, convicted in June of all 14 counts of conspiracy and securities fraud against him, had asked for a lenient sentence, claiming he’s a changed man since committing his crimes. Prosecutors recommended more than 10 years.
U.S. District Judge Jed Rakoff denied prosecutors’ request that Jiau serve as long as 10 years in prison.
Rakoff criticized federal sentencing guidelines for their “arithmetic certainty” and rejected the 78 to 97 months the guidelines suggested in favor of the shorter prison term.
Prosecutors claimed Goffer led an insider-trading ring that used information misappropriated by two lawyers to make more than $10 million trading in shares of 3Com Corp., Axcan Pharma Inc., Kronos Inc. and Hilton Hotels Corp.
Goffer’s wife, Dana, began to weep openly after Sullivan sentenced her husband to a decade behind bars.
“What am I going to do? It’s so unfair,” she cried out in the courtroom.
After a courtroom spectator who was consoling Goffer’s wife shouted out an expletive, Sullivan halted proceedings, stood up and threatened to have her arrested.
“This is a courtroom,” he said. “This is not a street corner.”
Goffer’s sentence came about three weeks before his former boss, Galleon co-founder Rajaratnam, is scheduled to be sentenced in the same courthouse for directing the biggest hedge fund insider-trading scheme in history. Rajaratnam’s court date, originally set for Sept. 27, was postponed yesterday until Oct. 13. Rajaratnam was convicted in May.
Goffer, who worked as a trader at New York-based Schottenfeld Group LLC, used the tips to impress Rajaratnam and get a job at Galleon, according to the government. Goffer started Incremental Capital LLC after he was fired from Galleon in 2008.
Goffer was tried with his brother, Emanuel, and Michael Kimelman, both of whom were convicted of the three conspiracy and securities fraud counts they faced. Emanuel Goffer and Kimelman haven’t been sentenced.
‘Getting an Edge’
Goffer read from a prepared statement, apologizing to his family, to investors and to the government for his crimes.
“I thought I was getting an edge so I could compete with the large hedge funds,” he said.
Goffer was visibly emotional when he mentioned his wife and his brother, who was also in the courtroom. He said he had avoided thinking about the sentence, which will take him away from his wife and their two young sons.
“Today I have to face it and I am terrified,” he said yesterday in court.
Yesterday, James Fleishman, a former executive at Mountain View, California-based Primary Global Research LLC, was convicted of two counts of conspiracy for his role in a separate insider-trading scheme in which he passed tips to fund managers. His sentencing is scheduled for Dec. 21.
Goffer was charged in an investigation by the office of U.S. Attorney Preet Bharara in Manhattan targeting insider trading at hedge funds. The Goffer and Rajaratnam trials both featured phone conversations secretly recorded by the Federal Bureau of Investigation.
Craig Drimal, another former Galleon trader, was sentenced to 5 1/2 years in prison. Danielle Chiesi, a former analyst at New Castle Funds, got 2 1/2 years for passing tips to Rajaratnam and others. Drimal and Chiesi both pleaded guilty.
In 2008, former Credit Suisse Group AG banker Hafiz Muhammad Zubair Naseem, convicted of leading a $7.8 million scheme unrelated to the Galleon probe, was sentenced to 10 years.
In the hearing yesterday, Sullivan cited wiretaps in which Goffer was caught talking about people buying call options on a stock on which he had inside information.
“‘That’s a ticket right to the big house,’” Sullivan quoted Goffer saying on the wiretap. “‘That person is dead. That is so illegal.’”
“You clearly understood the consequences of what you were doing,” Sullivan told Goffer. “This statement reflects you clearly understood the risks of this conduct.”
Sullivan also pointed to Goffer’s payment of bribes to get inside information, his use of prepaid cell phones in an attempt to avoid detection and his actions in recruiting lawyers and traders into the scheme.
In addition to the prison term, Sullivan sentenced Goffer to three years probation after he’s released. Goffer must also forfeit $10 million.
“Insider trading is very, very hard to detect and because of that it has to be dealt with harshly to send a message,” Sullivan told Goffer.
Jiau, of Fremont, California, was convicted by a jury in June of one count each of conspiracy and securities fraud in Manhattan federal court for passing earnings and other information about Nvidia Corp. and Marvell Technology Group Ltd. to hedge fund managers Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and Samir Barai, founder of New York-based Barai Capital Management LP.
Assistant U.S. Attorneys Avi Weitzman and David Leibowitz sought a prison term of eight years to 10 years, saying Jiau “sold out her employer and her friends in the name of greed.”
Prosecutors argued that Jiau befriended and recruited a Marvell accountant and Nvidia analyst who provided her with confidential earnings information that she shared with Freeman and Barai during consulting sessions with Primary Global. The firm links investors with industry experts at public companies.
A fund manager testified Jiau worked with him and a group of friends under an agreement in which Primary Global paid her $10,000 a month and they had exclusive access to her confidential information.
The U.S. sought a prison term of eight to 10 years for Jiau. Assistant Manhattan U.S. Attorney Avi Weitz said Jiau failed to show any remorse or any charitable works.
“You see a self-interested individual who did what she needed to make money,” Weitzman said.
Jiau’s lawyer, Joanna Hendon, said her client deserved a term similar to the 18 months Rakoff imposed on a co-defendant in the expert-networking investigation.
“There are certain things the court can’t ignore,” Rakoff said. “This was a serious crime, going to the integrity of the financial markets, engaged in for a period of up to two years. That alone requires some meaningful sentence.”
Rakoff said he would impose a forfeiture order of $3.1 million.
Jiau, a naturalized U.S. citizen born in Taiwan, has been in custody since her arrest in December after Rakoff ruled she was likely to flee if freed.
“I’m truly sorry for being here,” Jiau said yesterday in court. She apologized to her family and friends as well as to her golden retriever, Hunter: “I’m sorry I broke my promise to take care of you and be with you.”
The cases are U.S. v. Goffer, 10-cr-00056, and U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Cullen Wheatley in New York. Editors: Andrew Dunn, Mary Romano
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