Bloomberg News

Rajaratnam May Join Madoff, Blind Sheikh in ‘Crown Jewel’ Prison

October 15, 2011

(To see a list of prison sentences tied to the nationwide insider trading probe, please click here.)

Oct. 15 (Bloomberg) -- Raj Rajaratnam, the hedge fund manager given the longest sentence for insider trading, may serve that time at a North Carolina prison whose inmates include Ponzi scheme mastermind Bernard Madoff, corporate looter John Rigas and terrorist leader Sheikh Omar Abdel Rahman.

U.S. District Judge Richard Holwell, who imposed the 11- year sentence Oct. 13 in Manhattan federal court, said he would recommend that the Galleon Group LLC co-founder be sent to the federal medical center in Butner, North Carolina, because of Rajaratnam’s health problems, which include diabetes.

“It’s the crown jewel of the federal prison system,” said Alan Ellis, a former president of the National Association of Criminal Defense Lawyers and an expert on sentencing and prisons. “It’s a very well-run facility.”

The 5,045 inmates at the Butner prison complex, north of Raleigh in eastern North Carolina, also include Samuel Israel, the Bayou Group LLC hedge fund co-founder who directed a $400 million fraud, and Timothy Rigas, son of the Adelphia Communications Corp. founder John Rigas and a participant in the fraud that destroyed their company.

Central Figure

Rajaratnam 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 the hedge fund manager 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.

Holwell denied a request by Rajaratnam’s lawyers that the defendant remain free while appealing his conviction. Samidh Guha, one of Rajaratnam’s lawyers, said the defense would challenge the use of wiretaps in the case.

The choice of prison may be critical for Rajaratnam, 54, who, in addition to advanced diabetes, faces kidney failure and the necessity of transplant surgery, according to Holwell.

“Based on the information that we have provided there are serious doubts as to whether the Bureau of Prisons can provide the care that he needs,” Terence Lynam, a lawyer for Rajaratnam, told Holwell at the sentencing hearing. “Any lengthy term of imprisonment will surely shorten his life.”

Type II Diabetes

Information filed by Rajaratnam’s lawyers and unsealed by Holwell on Oct. 13 shows Rajaratnam was diagnosed with Type II diabetes in 1992 and has relied on insulin since 2003. He also suffers from high blood pressure, high cholesterol and sleep apnea, according to the filing.

“His diabetes remains under poor control,” Phillip Wise, a former warden at federal prison facilities in Minnesota and West Virginia, said in the July court filing. “As a result he has suffered diabetic nerve damage, diabetic eye damage, advanced diabetic kidney damage and chronic anemia.”

In 2007, Rajaratnam suffered a “severe cryptogenic stroke,” or a stroke of undetermined cause, Wise said. He will soon need dialysis and his doctors have begun the process of obtaining a kidney transplant.

Rajaratnam has been hospitalized several times this year, Holwell said at the Oct. 13 sentencing. In May, he missed part of jury deliberations in his trial because he required emergency foot surgery to treat a bacterial infection, his lawyers said at the time.

No Guarantee

Holwell’s recommendation doesn’t guarantee Rajaratnam will be sent to Butner. While U.S. prison officials frequently honor a judge’s request to assign an inmate to a particular prison, Rajaratnam’s selection will go before a Bureau of Prisons medical review panel in Washington. The panel will evaluate his condition before deciding whether to assign him to one of the few spots available in prison medical centers, Ellis said.

“They really don’t pay much attention to the recommendation in my experience,” he said.

Butner includes one of the four federal medical centers that provide care to male inmates. Butner also includes one low- security and two medium-security prisons, and a minimum-security prison camp, according to the Bureau of Prisons. The medical facility is a full-service hospital, equipped to provide emergency services, surgery, psychiatric care and cancer treatment.

Fellow Fraudsters, Terrorist

If Rajaratnam were assigned to Butner, he would be in the company of fellow fraudsters like Madoff and Rigas, as well as one of the spiritual architects of the first World Trade Center attack.

Omar Abdel Rahman was convicted in 1995 of inciting followers to carry out the 1993 bombing of the complex’s parking garage. His lack of sight earned him the nickname “blind Sheikh.” Rahman is assigned to the Butner medical center for treatment of his diabetes and heart problems.

Madoff, serving a 150-year term at Butner for perpetrating the largest Ponzi scheme in U.S. history, was transferred to the medical unit for about 10 days in 2009 for treatment of hypertension.

John Rigas, who has had heart disease and bladder cancer, is assigned to Butner’s low security prison. At his sentencing in 2005, U.S. District Judge Leonard Sand in Manhattan said he could be freed if doctors determined he had less than three months to live.

Genovese Family Boss

Butner was also home to Vincent “Chin” Gigante, the head of the Genovese organized crime family in New York. He was known for attempting to avoid prosecution by feigning insanity as he wandered the streets of Manhattan’s Greenwich Village and talked to himself. Gigante died in the Bureau of Prisons’ Springfield, Missouri, medical center in 2005.

In Rajaratnam’s case, Holwell unsealed a declaration by Sandra Howard, clinical director at the federal medical center in Devens, Massachusetts, that was filed by the government last month. According to the filing, the Devens facility has the capacity to provide dialysis to 125 inmates. Since 2004, 15 inmates have received kidney transplants at Devens, Howard said.

Another 31 inmates had transplants before being imprisoned. Once the Bureau of Prisons approves an inmate for transplant, he may be placed on a national organ donor list, on the same footing as other candidates, Howard said.

Unapproved Drugs

“Rajaratnam has medical conditions that are managed routinely by the Federal Bureau of Prisons at major medical centers such as FMC Devens and does not appear to have any issues that are not commonly dealt with on a daily basis at FMC Devens,” Howard said in the declaration.

Wise, the former warden, responded in a Sept. 22 letter to Holwell, also unsealed on Oct. 13, saying Rajaratnam requires two forms of insulin and a stroke-prevention drug, none of which is on the Bureau of Prisons’ list of approved drugs.

“Howard’s declaration does not explain whether, or how many times, inmates have died in BOP custody while receiving dialysis,” Wise said in the letter. “It also gives no indication of whether or not a deceased inmate was considered and rejected by BOP for a transplant.”

As many as half of all adults with diabetes develop advanced kidney failure that requires dialysis, said Vincent Canzanello, director of the diabetic nephropathy clinic at the Mayo Clinic in Rochester, Minnesota.

The five-year survival rate for diabetics getting dialysis is 30 percent, worse than most cancer diagnoses, said Canzanello, who hasn’t treated Rajaratnam and said he couldn’t speak specifically about his condition. After a kidney transplant, the five-year survival rate increases to 75 percent, he said.

“They are often in and out of hospitals, with heart attacks and angina,” Canzanello said in a telephone interview. “Diabetics are one of the most intense groups to care for.”

The case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Michelle Cortez in Minneapolis. Editors: Michael Hytha, Peter Blumberg

To contact the reporters on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net; Patricia Hurtado in Manhattan federal court at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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