Bloomberg News

Raj Rajaratnam’s Trades May Run From Stamps to Mackerel Packets

December 13, 2011

Dec. 5 (Bloomberg) -- Raj Rajaratnam leaves behind the ruins of a Wall Street career that made him a billionaire hedge fund manager to begin an 11-year prison sentence, the price for running a far-flung insider-trading conspiracy that turned tips from company executives and technology consultants into cash.

He will trade in suits for a uniform, a luxury Manhattan apartment for a cell, and credit cards and cash for postage stamps and mackerel packets, the black market currency of his new home. The millions of dollars he made on illegal trades will be replaced by manual labor that starts at 12 cents an hour.

Rajaratnam is set to report today to a federal prison in Ayer, Massachusetts, according to a person familiar with his assignment, where he will be fingerprinted, photographed, strip- searched and issued a number to serve as his identity. Though his prison may be changed at the last minute, the convicted co- founder of Galleon Group LLC -- two former inmates and an ex- U.S. prison official agreed -- faces very hard time.

Rajaratnam, 54, was sentenced in October after a federal jury in Manhattan found him guilty of 14 counts of securities fraud and conspiracy. He directed colleagues, consultants and corporate officers to leak information that made him tens of millions of dollars.

His was the longest sentence ever handed down for such a crime, and the culmination of a four-year nationwide probe of insider trading. Last week, a three-judge panel rejected his last-minute plea to remain free while he appeals his conviction.

Kidney Transplant

Rajaratnam was assigned last month to Federal Medical Center Devens, located on a decommissioned military base about 40 miles northwest of Boston, said the person familiar with the matter, who declined to be identified because it wasn’t public. Rajaratnam said in court papers that he has health problems including diabetes, and will probably need dialysis and a kidney transplant.

As he gets used to his new surroundings, the former inmates and ex-prison official predicted Rajaratnam will have a particularly difficult experience adjusting to the loss of control faced by many former executives when jailed.

“You’re a white-collar guy who’s running a company or a stock broker wearing a suit and tie,” said Jack Donson, a consultant who retired from the U.S. Bureau of Prisons in June after 23 years working as a correctional treatment specialist. “The hardest thing to get used to is being told what to do by a $30,000-a-year corrections officer.”

‘Shock For Him’

Devens houses 1,180 male inmates, said John Colautti, a prison spokesman. An adjacent minimum security prison has 124 men. John Dowd, a lawyer for Rajaratnam, declined to comment.

“A lot of things are going to be a shock for him. It is not by any means a country club,” said Joe Tomaso, who served 10 months at Devens in 2007 for mail fraud. “Everything is very rigid and structured.”

Rajaratnam, whose wiretapped telephone calls played a key role in his conviction, will be limited to 300 minutes a month on the phone -- 400 minutes during the holiday months of November and December. Except when he’s talking to his lawyers, his mail and calls will be monitored by prison staff.

He’ll have to be sure he’s in his assigned spot for the five daily counts or risk a trip to the Special Housing Unit, the high-security lockup that inmates call “the hole.”

He can move around the prison only during the 15-minute “open movement” periods, which are called every hour on the half hour. He’ll be told when he may eat, go to bed and buy extra food and supplies from the prison commissary. Prisoners can buy luxuries including fresh vegetables on the black market using postage stamps and packets of mackerel for currency, according to Tomaso.

Inmate Number

Today, after his formal prison intake, he’ll be given prison identification with his inmate number -- 62785-054 according to the BOP website -- which will be his identity to prison staff.

Rajaratnam’s street clothes and possessions -- with the exception of a wedding ring, glasses and a few other approved items -- will be taken away, according to the author of “Federal Prison: A Comprehensive Survival Guide,” who uses the pseudonym “Jonathan Richards” in the book and on his website.

Richards, who was released from Devens in April 2007 after serving six months for student loan fraud, spoke on condition of anonymity because he doesn’t want his prison record publicized.

New inmates coming to Devens from outside the prison system are typically sent to the Special Housing Unit for at least 48 hours while waiting for the results of a test for tuberculosis, said Colautti, the Devens spokesman.

Prison’s General Population

Rajaratnam may then be assigned a spot in the prison’s general population. Most inmates outside the 132-bed hospital unit are housed in cells or in “cubes,” which are surrounded by a 5-foot concrete wall, according to Richards. The open- dormitory style cubes are noisy and put inmates sleeping in the top bunks within sight of everyone in the unit.

Inmates are required to work, and Rajaratnam will probably be assigned a job, possibly with limitations required by his physical condition, said Donson, who advises lawyers, defendants and inmates on the workings of the federal prison system.

“If you can push a broom or if you can dust off a windowsill, you’re going to be doing something,” said Donson. New Devens inmates are typically assigned to work in the kitchen, one of the least popular jobs, according to Colautti.

Devens houses male inmates who need specialized or long- term medical or mental health care, according to the BOP. If he requires dialysis for his failing kidneys, Rajaratnam will probably spend the time surrounded by ex-drug addicts suffering the effects of prolonged intravenous drug use, Donson said.

Sex Offender Program

Devens is also the only federal facility that offers a high-intensity program for inmates classified as high-risk sexual offenders, the Residential Sex Offender Treatment Program.

Hundreds of physically healthy sex offenders, including child molesters and men serving sentences for Internet sex crimes, are assigned to Devens both for treatment and their protection, according to BOP documents. About a quarter of Devens inmates are sex offenders, said Colautti.

The Devens Federal Medical Center is classified as an “administrative facility,” which means it takes prisoners of all security designations. About one in five Devens inmates are considered medium- or high-security, Colautti said. Almost 20 are serving life sentences, he said.

‘White-Collar Guys’

“The white-collar guys sometimes don’t know how to take the real convicts,” said Donson. “I bet there’s a lot of heavy people he’s in there with.”

Richards’s cube-mate, or “celly,” was a crack-cocaine dealer from Washington, an eight-time felon who’d lost an eye in a failed attempted to rob another dealer, he said. Tomaso said his cellmate was a sex offender.

Current Devens inmates include C. Gregory Earls, the former chief executive officer of U.S. Technologies Inc. convicted of securities fraud. He’s due to be released in 2014. Also at Devens is Frank Locascio, who is serving a life sentence following his 1992 racketeering conviction with former Gambino family organized crime boss John Gotti.

The facility is surrounded by razor-wire fencing, with a perimeter patrolled by armed officers with authorization to shoot any inmate who tries to escape, according to Tomaso.

Rajaratnam is unlikely to face violence at Devens if he treats other inmates with respect, according to Richards, who said he witnessed a fistfight at the facility about once a month. Most fights get their start in the TV room, where inmates argue over where they can sit and what channel to watch. The conflicts are quickly broken up, he said.

“If there’s ever a fight, they’re on it in a heartbeat,” Tomaso said of the guards.

‘Good Time’

Fighting can cost prisoners some of the 54 “good time” days they get off their sentences after their first year, and can result in a trip to the hole. There is no parole in the federal prison system.

Still, an inmate who backs down when attacked can count on becoming a target for the rest of his time at Devens, according to Richards.

Both Richards and Tomaso agreed, however, that Rajaratnam may benefit from his notoriety.

“Some of the guys will look up to him because he stuck it to the system,” said Tomaso. “He got a lot of money.”

Additionally, since Rajaratnam is a high-profile inmate with lawyers and consultants, staff may treat him with more care than other prisoners, particularly in connection with his medical needs, according to the former inmates.

‘Lower Level’ Care

Before Rajaratnam was sentenced, Phillip Wise, a former warden at the federal medical center in Rochester, Minnesota, told the judge presiding over the case that the Galleon co- founder faced a “lower level of medical care” in prison.

Devens provides dialysis to about 85 inmates, with a capacity for as many as 125, Sandra Howard, Devens’s clinical director, said in an affidavit submitted in September in Rajaratnam’s criminal case at the request of prosecutors.

Since 2004, 15 Devens inmates have received kidney transplants, performed by specialists at the University of Massachusetts, she said. The prison has about 31 inmates who received transplants before they were in custody, she said.

“Rajaratnam has medical conditions that are managed routinely by the Federal Bureau of Prisons,” Howard said in her affidavit.

‘Bare Minimum’

Richards and Tomaso were critical of the care at Devens.

“BOP does not give its inmates stellar care at the public’s expense like some believe,” said Tomaso, a former emergency medical technician who has liver disease. “When you are actually in custody on-site, you get the bare minimum.”

Inmates called in late to the dining hall sometimes had to choose between eating and taking their medications, which were given at the same time, he said. Six times during his 10-month sentence, Tomaso said he had to be sent for care to an outside hospital, where he remained shackled to his bed. He said he doesn’t blame the poor care on the prison’s medical staff, who he said are overworked.

Richards, who said he was sent to Devens because he suffers from a chronic pain condition, claimed he was denied prescribed medication throughout most of his six-month sentence, leaving him frequently in intense pain. Despite a doctor’s order that he avoid prolonged standing and sitting, Richards said he was assigned a job in the kitchen that would have kept him on his feet for eight hours a day.

Routine Ailments

Other prisoners waited weeks to see specialists and routine ailments like the flu went untreated, he said. Richards said little care is given to inmates unless they are very ill -- having a seizure or heart attack, for example. The care that was given was generally inadequate, he said.

U.S. District Judge Richard Holwell in Manhattan, who presided over Rajaratnam’s case, said he considered the hedge fund manager’s medical condition in giving him less time than the 24 ½ year-term prosecutors had sought.

Rajaratnam had sought to serve his term in a federal medical facility at a complex in Butner, North Carolina, where convicted Ponzi scheme mastermind Bernard Madoff was assigned. The BOP has final say on where a prisoner is assigned.

Colautti, the Devens prison spokesman, said his facility is accredited by the Joint Commission, which reviews and certifies health care programs in the U.S.

While he cited privacy rules in declining to discuss individual cases, he noted that the commission recently gave Devens an outstanding rating.

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

Top legal stories: TLAW <GO> Bloomberg legal resources: BLAW <GO> Link to Galleon Group News: 2647380Z US <Equity> CN <GO>

--With assistance from Patricia Hurtado in Manhattan federal court and David Glovin in New York. Editors: David E. Rovella, Patrick Oster

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.

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


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