Raj Rajaratnam doesn’t want to spend the next 20 years in prison, which would be understandable for anyone, really, but especially for him given his unmentionable but Extremely Serious assortment of illnesses. But this perfectly sensible desire to not go away for two decades runs up against a problem, which is that the US Sentencing Guidelines call for a 19.5 to 24-year sentence.
Fortunately, those guidelines aren’t mandatory, so his lawyers are working to convince the judge that Raj shouldn’t get the longest insider trading sentence ever just because he is, according to the government, “arguably the most egregious offender of the insider trading laws prosecuted to date.”
I find insider trading sentencing a bit perplexing and took Raj’s case as a reason to try to make some sense of it – and to try to predict how long Raj is going down for.
This starts with the sentencing guidelines. A while back, Forbes discussed an online sentencing guidelines calculator that lets you do the math on how much time you’ll get in prison for doing various bad things. Forbes and the calculator and I will all point out that this is not legal advice, there are lots of factors, the sentencing guidelines are advisory, there are all sorts of things you can get charged with, and your mileage will generally vary a whole lot. (Also, just generally: don’t insider trade.)
Still. You can use the calculator to mock up a naive prediction of the tradeoff between (1) cash, whores, etc. now vs. (2) time in prison later. I focused only on three things that are likely to matter for insider traders:
1. Are you “(i) an officer or a director of a publicly traded company; (ii) a registered broker or dealer, or a person associated with a broker or dealer; or (iii) an investment adviser, or a person associated with an investment adviser?” Then you really shouldn’t be insider trading.
2. Did you plead guilty? That helps – going to trial and getting convicted is a bad idea. (Going to trial and getting acquitted is, however, an excellent idea.)
3. How much did you steal? This can be controversial, since the government is fond of finding ways to maximize the amount they’ll hold you responsible for. So, for example, in Raj’s case the government is claiming that he made some $60 million, by subtracting buy price from sell price – ignoring the fact that stock prices can move for reasons unrelated to inside information. His lawyers think the amount is more like $40 million. In any case, this is one of those circumstances in which mo money can indeed lead to mo problems.
Just for fun we ran this for a variety of amounts of profit for (1) public-company officers/directors and financial-industry types who go to trial, (2) non-financial types who plead guilty, and (3) the middle category who has only one bad thing (being in the financial industry or going to trial), which happen to have the same enhancement. And we plotted a bunch of the Galleon sentences on the same graph to see how it looked. It looked okay:
Again! Not legal advice! Don’t try this at home! In fact, this ignores most of what really happens in these cases. If you insider trade you can be accused of a whole complex of related things – from wire fraud to obstruction of justice – some of which will make your sentence worse. For example, this model predicts only about 10 years for Raj, while prosecutors think his guidelines range is 19.5 to 24 years.
But – overall this chart sort of works, in that the real sentences mostly more or less fit its naive predictions. Which suggests that the online calculator is a decent guess for how much each dollar of ill-gotten gains is going to cost you. And that Raj has some hope of getting out of prison before his constellation of ailments catches up to him.
——————————————————————
Technical notes that you should probably ignore:
* x-axis is log of amount of profit in dollars; y-axis is years of sentence.
* Curves calculated using the calculator at www.sentencing.us:
- Uses 18 U.S.C. § 1348) as the statute of conviction (and a statutory maximum of greater than 20 years, as the maximum for insider trading is 25).
- Assumes no criminal history, zero victims, and no enhancements checked except, for “Industry” curves, the box for:
The offense involved a violation of securities law and, at the time of the offense, the defendant was (i) an officer or a director of a publicly traded company; (ii) a registered broker or dealer, or a person associated with a broker or dealer; or (iii) an investment adviser, or a person associated with an investment adviser?
- For “Trial” curves, assumes no acceptance of responsibility. For “Plea” curves assumes acceptance of responsibility with brief from prosecutor.
- Graphs bottom of guidelines range
* Dots are based on recent insider trading sentences in the Southern District of New York, mostly for Galleon-related matters, as follows (amounts of profit cobbled together from various sources and somewhat unreliable):
- Robert Moffat, 6 months, amount of gain unclear but argued in sentencing it’s less than $5,000
- Ali Hariri, 18 months, gain $200-$400k
- Mark Kurland, 27 months, $900k
- Arthur Cutillo, 30 months, $378k
- Danielle Chiesi, 30 months, $900k
- Donald Longueuil, 30 months, $1.25mm
- Jason Goldfarb, 36 months, $1.1mm
- Craig Drimal, 66 months, $10mm
A chart out of spite?
This post is actually kind of interesting. You now suck a little bit less Matt.
insider trading for >$5,000 profit is the NKI
Matt – you lay low all day fluffing about and then come out with Raj… Well played sir, well played.
I'll tell you pikers how much! ZERO!
-Stevie Cohen
thanks for the disclaimer that this isn't legal advice. i almost sent a link to my contingency based defendor at O'Melveny & Myers suggesting he use this as my defense.
Shana Madoff Swanson
I find your posts hot. Come have a drink with me.
I don't think > means what you think it means.
Matt, you forgot to multiply by the weight of his head then divide by the degrees his mouth is off form a normal face.
UBS Quant
Common, you can find better action at the Chucke-e-Cheese in Edgewater, NJ. Don't sell yourself short hun.
"I knew Mahatma Gandhi, he was a friend of mine, Raj, you're no Mahatma Gandhi"
Let this be a lesson to you …It's best to leave all the Inside Trading & Financial Chicanery to us pros as its an intricate part of our rich and celebrated golden cultural heritage.
-the Tribe
examine your motives
Use of the royal "we"; numerous links to other articles; running a model "just for fun"; a colored chart with lines, rectangles AND diamonds; technical notes; and not changing your writing style one bit, thus demonstrating your total disdain for the Commentariat. Freaking genius son.
Whale > Whale Shit > worm who lives in whale shit > CFA > UBS Employee > Matt Levine > ?
Yup, place has hit rock bottom!
Best piece since the "What did Uncy Warren pay for BAC?" work. But enough about Raj, what about me?
–D. Sokol
just what i was thinking. Touche Levine. Touche.
You cocksucker.
Well, at least I know no matter what happends..they'll never get to me Whoo Hoo!
-Raj's Neck
Oh I get it. It's funny because he's fat.
Sherman Klump is going to jail?
- Guy who doesn't look at Playboy for the articles
TLDR
I bet you have a Whaaburger with a side French Cries every day for lunch!
Make sure you caress Matt's balls while you slob on his pecker.
But uses this picture of Raj after all other glorious choices Bess has bestowed upon this site in prior posts? Don't you see the poor editorial choices being made even with the extra time taken to make them?
YOU MANIAC, YOU BLEW IT UP! DAMN YOU MATT! DAMN YOU ALL TO HELL!
Tip #352 for Indians heading to the Big House.
Shave your head. Pretend to be a brotha with a speech impediment.
Who is this "we" you speak of? You got Raj there?
I knew there'd be a chart, but I was hoping it would plot insider trading gains vs expected number of prison ass-poundings.
Matt is to insider trading posts what Bess is to humor
Who's we? You got a turd in your pocket?
Lets make everyone happy…
Clearly folks here can't appreciate your talent Matt.
How about a seat on my defense team?
-Raj
?=that post
It is I says me and all who agree are more than three cause they're we.
Get it now dick head?
That Raj is a Tamil from India who apparently gave contributions to the Tamil Tigers or their aboveground organization and thus backed the losing side in the Sri Lanka civil war and is decidedly non-Anglo has nothing to do with anything.
Yes, he's guilty guilty guilty. But so are thousands more.
Matt: Mom?
Could have used a "mo money, mo problems" tag here Matty… That was the best line of the entire piece.
he is Sri Lankan. But same diff
I believe it's standard DB operating proceedure not to tag their own words
You mean Ceylonese.
-Lord Curzon
Hi Mr. Morris,
Can safely say that you are completely out of your element here. You strike me as the type of guy that thinks due diligence is reading a news article title or a 'tweet'.
Let this be a lesson to the kids in college who pollute this site daily; this is the kind of person you'll be if you get below a 3.0 out of 4.0.
Dot. Not feather.
Nice Wiki citation Bob.
Fat ain't the half of him.
jail time with Raj > jail time with Matt
All you need to know is he's not a ho.
Shitty model.
M. Milken
It's more of fair laws. The SEC has a poor record of convictions until this latest streak. Anello (http://www.hotfrog.com/Companies/Robert-J-Anello-Attorney) said on CNBC about how they get in this rut because of the laws being so vague. Tighten that up and you will see them serving more time for sure with mandatory sentencing.
The hardest part about prison for Raj, besides the mandatory ass-rape, is the definite lack of curry.
- guy who is of mixed race so gets away with all his remarks…examining his motives now while wanking off furiously into a cup
Shut the fuck up…now take off all your clothes and give me your money!
curry will be raj's only defense against ass poundings……..
no KY – just curry