Oct. 5 (Bloomberg) -- Galleon Group LLC’s Raj Rajaratnam, claiming that prosecutors overstated how much he profited from directing what they called the biggest hedge fund insider- trading scheme in history, said he should get a prison term of 6 1/2 to 8 years.
Rajaratnam, 54, was convicted in May of 14 counts of securities fraud and conspiracy. Prosecutors, who say he made $72 million from his crimes, asked for a term ranging from 19 years and seven months to 24 1/2 years, citing federal sentencing guidelines and the “historic nature of his crimes.”
At a hearing yesterday in Manhattan federal court, defense lawyer Terence Lynam said the calculations by prosecutors were wrong. Rajaratnam made only $7.4 million personally in management fees and from Galleon trades, Lynam said. Prosecutors rejected the defense position.
“The government has proved beyond a reasonable doubt that he was a serial insider trader,” Assistant U.S. Attorney Reed Brodsky told U.S. District Judge Richard Holwell, who will preside over Rajaratnam’s sentencing Oct. 13.
Lynam argued Rajaratnam didn’t deserve the enhanced sentence sought by prosecutors, saying the government improperly calculated Rajaratnam’s gains from trading on information from insiders, as well as losses he avoided through the schemes.
“The vast majority of the profits we’re talking about were never realized by Mr. Rajaratnam,” Lynam said, adding later, “We don’t dispute that insider trading is a serious offense, but the sentencing range overstates the seriousness of the offense here.”
Prosecutors contended yesterday that the Galleon Group co- founder deserved more time because he obstructed justice when he lied under oath to the U.S. Securities and Exchange Commission in 2007.
The hedge fund manager also deserves a tougher sentence, Brodsky said, because he was the leader of a conspiracy of five or more people, and because the gains or losses from his insider trading were greater than $50 million, prosecutors said.
Lynam argued that Rajaratnam hadn’t corruptly influenced or directed anyone in a scheme to commit insider trading, saying yesterday that if Anil Kumar, a former McKinsey & Co. partner, and Rajiv Goel, a former managing director at Intel Corp., provided the fund manager with inside information, they’d done so out of friendship.
“A lot of people just wanted to ingratiate themselves to Mr. Rajaratnam,” Lynam said.
Brodsky said he would provide Holwell with a list of individuals who knowingly or unknowingly engaged in insider- trading conspiracies with Rajaratnam.
“Mr. Rajaratnam is a uniquely situated individual compared with all the others,” Brodsky said. “He is an individual at the top of a pyramid, the head of a hedge fund who’s orchestrating and controlling interlocking insider-trading schemes. And, by far and away, he’s the clear leader and organizer.”
Samidh Guha, another defense lawyer, said the government didn’t have enough evidence to charge Rajaratnam with obstructing justice and is instead seeking a longer prison sentence based on uncharged conduct.
Brodsky disputed the argument, saying prosecutors didn’t charge Rajaratnam with “every crime he committed.”
“The government could’ve charged him with 100, 200, 400 maybe even 1,000 counts,” Brodsky said. “There are hundreds of trades he made based on inside information.”
Holwell didn’t rule on the matter, saying he will issue his decision on the day of sentencing.
In earlier court filings, Rajaratnam’s lawyers have called the punishment the U.S. seeks “grotesquely severe” and asked for an unspecified sentence “substantially below” that.
At trial, a Federal Bureau of Investigation agent testified that Rajaratnam earned $63.8 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.
During a two-month trial, jurors heard evidence that Rajaratnam engaged in a seven-year conspiracy to trade on inside information from corporate executives, bankers, consultants, traders and directors of public companies.
Prosecutors said yesterday that additional prison time is warranted. They asked Holwell to take into account that Rajaratnam also earned an additional $8.2 million while trading illegally in another Galleon fund which government witnesses testified was under his control.
The case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Peter Blumberg, Michael Hytha
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