October 13, 2011

Insider traders are facing longer sentences than ever before, a fact confirmed by Raj Rajaratnam's 11-year sentence that was handed down to him today -- the longest sentence imposed for insider trading in New York in the past two decades.

Over the past two years, defendants sent to jail on insider trading charges in New York have been sentenced on average to two and a half years, according to analysis by the Wall Street Journal.

Just over a decade ago, the median sentence for insider trading were of 18 months. In the 1990s, it was less than a year.

Half of 84 defendants sentenced for insider trading in the Southern and Eastern Districts of New York from 1993 to 2009 received prison terms of three months or less, the WSJ said. Two of the most notorious insider traders ever, Michael Milken and Ivan Boesky, spent just 22 months in jail, out of respectively 10-year and 3-year sentences.

But in the past two years, half the 24 defendants sentenced in New York for insider trading received prison terms of two years or more.

Today, there are more insider traders on trial being put behind bars than ever before. According to the Wall Street Journal, in the past two years, 79% of defendants who were sentenced in New York were sent to prison, compared to 59% in the 2000s and less than 30% in the mid 1990s.

Longer sentences for rogue traders come as prosecutors expand their investigative toolbox against insider trading. The Raj Rajaratnam Galleon Case case marked the first time wiretapping was used to detect a similar crime. Evidence recorded in phone conversations is more difficult for defendants to refute.

At the same time, judges are also more focused than ever before on the alleged gains insider traders have benefited from and are therefore more prone to handing out harsher sentences.

It is also no longer true that white-collar criminals are likely to only serve a small portion of their sentence. Since parole has been abolished in the federal system, insider traders and other white-collar criminals must serve 85% of their prison time. For Rajaratnam, that means he will have to serve a minimum of 9.35 years behind bars.

Oh and given that he has been sentenced to over 10 years in prison, Rajaratnam will have to go to a low security jail, rather than a minimum security one. So life behind bars will definitely not be a laughing matter for the disgraced hedge fund titan whose scheme a judge recently called "brazen," "arrogant" and "pervasive."

Potential insider traders be warned: it's the worst time in history to think about committing such a crime.

ABOUT THE AUTHOR
Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in ...