I haven’t been following the Doug Whitman case that closely but I got the vague impression that he wasn’t that guilty. Like, he did his research and thought it was his job to dig up information about public companies, he sought “color” rather than clearly-material hard numbers from executives, and he thought that when insider-trading-trial-Zelig Roomy Khan was saying things like “I am giving you illegal inside information” it was all a big joke, presumably of the you had to be there variety. That all sounds plausible-ish to me, though maybe not much more than that.
Anyway a jury disagreed and now he “faces a maximum possible sentence of 50 years in prison, though he is expected to receive far less than that,” and so I guess it’s time to fire up the old Insider Trading Sentencing Machine and see how much. He seems to have made “over $900,000,” he worked for a hedge fund, and he went to trial, which is all the machine needs to spit out its verdict.*
Which is a sort of frustrating fact about the machine. (And, of course, the actual sentencing regime it represents. The machine faithfully replicates the world, or has so far, more or less.) Here is how you – I, anyway – sort of want it to work:
The axes being (x) amount of money involved, (y) how guilty you are, and (z) how many years you spend in jail. Just going around being like “let’s insider trade, it’s awesome, later we’ll throw hard drives in dumpsters” should get you more time than looking for “color” from tipsters with no duty of confidentiality and occasionally semi-honestly getting, um, vivid lifelike color from tipsters with such duties. Sadly the way it works is more like this:
With $900K hitting that wall of worry at right around 4 years. So, there’s my guess, 4 years, whatever: even if you’re just barely on the illegal side of the line, if the dollar values are enough, you go away for a long time. Though fortunately (?) for Whitman he’s got a judge who, per Peter Henning, is no Insider Trading Sentencing Machine**:
Judge Jed S. Rakoff of Federal District Court in Manhattan has a central role because he presided over the trials of Mr. Gupta and Mr. Whitman and will sentence them later this year. … At [Winifred] Jiau’s hearing, he criticized “the mirage of something that can be obtained with arithmetic certainty” in the sentencing calculations based largely on the gains from the trading. He gave her a 48-month prison term, well below the 10-year sentence prosecutors sought.
So maybe discount the calculator a bit – perhaps Judge Rakoff will look into Whitman’s soul, and his actions, instead of just the dollar amount that he made. Not that that will necessarily help him much: as Henning points out, “The jury decided the case after less than a day of deliberations, clearly rejecting Mr. Whitman’s version of events by returning a guilty verdict.” That sounds like at least “quite guilty” to me.
Hedge Fund Manager Found Guilty of Insider Trading [DealBook]
The Winning Record of Prosecutors on Insider Trading [DealBook]
* So. Look. I don’t normally like to talk about this, but no one is likely to overhear us down here, so let’s just say it: the Insider Trading Sentencing Machine is kind of a piece of crap is it not? Like, it’s just cobbled together from an online source whose accuracy I can’t really vouch for and my casual reading of insider trading case news reports and sometimes dockets. Here is a genuine human who says:
I think an enterprising sentencing researcher could discover a lot of interesting stories by analyzing in depth the ultimate sentences imposed on the “nearly 70 Wall Street traders and corporate executives charged with insider trading by federal prosecutors in Manhattan over the last three years [who] have either pleaded guilty or been found guilty.” I would be especially interested to see what recommended guideline ranges and ultimate sentences were imposed for all the different defendants (and whether and how different offense or offender factors may explain any apparent sentencing disparities).
Agreed! Someone really should do that, so that this horrible kludge won’t continue to be the state of the art and so that the poor Times won’t have to keep saying “he could get 50 years he could also not get 50 years WHO KNOWS?”
** That article also features a glamour shot of SDNY US Attorney Preet Bharara being all “I am awesome at winning trial,” and the memorable line “The Justice Department will not go undefeated forever, as the New England Patriots learned in 2007.”