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Galleon chief Rajaratnam gets 11 years in the slammer

Tech insider trading doesn't pay

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Raj Rajaratnam, the former heard of the former Galleon hedge fund that was the epicenter of several insider trading rings that came to light two years ago , was sentenced in New York today to 11 years in prison for his kingpin role.

Rajaratnam was the founder and managing director of the $7bn Galleon Management hedge fund, and before the insider trading ring was busted up by wiretap-wielding US Attorneys and FBI agents, he had a net worth of $1.3bn.

Rajaratnam and his many co-conspirators engaged in insider trading in the stocks of Goldman Sachs, Intel, IBM, Akamai, Polycom, Clearwire, and AMD, and collectively the inside traders netted over $50m in ill-gotten gains or avoided losses.

Because of his role as a provider of inside dope on IBM and its negotiations to acquire Sun Microsystems, and his knowledge of AMD's chip foundry spinoff plans, Robert Moffat, formerly general manager of IBM's Systems and Technology Group and one of the few heirs apparent at the company, was convicted and sent to prison for six months. Moffat never traded on any of this inside information or benefitted monetarily from it.

Rajaratnam was convicted of 14 felony counts in May of this year after an eight-week trial, and has been awaiting sentencing since that time. The US Attorney in charge of the case, Preet Bharara, had been pushing for more than two decades of jail time for Rajaratnam to make a statement about the evil that insider trading does – this being the largest ring that has been discovered and prosecuted to date.

US District Judge Richard Holwell received over 200 letters from people speaking on Rajaratnam's behalf, attesting to the substantial charity work he does. Rajaratnam also is on dialysis and is in need of a kidney transplant. Even with these factors taken into account, however, Judge Holwell didn't pull the punch much: he gave Rajaratnam the longest sentence anyone has ever gotten for insider trading in the United States, at 11 years, but well short of what the Feds wanted.

In his sentencing, Holwell said that insider trading "is an assault on our free markets," and added that "the crimes and scope of the crimes reflect a virus in our business culture that needs to be eradicated."

"It is a sad conclusion to what once seemed to be a glittering story," Bhahara said in a statement issued after the sentencing. "We can only hope that this case will be the wake-up call we said it should be when Mr. Rajaratnam was arrested. Privileged professionals do not get a free pass to pursue profit through corrupt means. The message is the same for everyone no matter who you are or how much money you have – obey the law or face the fate of those who don't."

In addition to the 11 years of jail time, Rajaratnam, who is 54, has to forfeit $53.8m in ill-gotten gains and pay a $10m fine. He is also going to be placed on two years of supervised release once his time is served. ®

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