March 11 (Bloomberg) -- Zvi Goffer, a former Galleon Group LLC trader whose 10-year prison term is the third-longest sentence in a recent federal crackdown on illegal insider trading, asked an appeals court to reduce his sentence.
Goffer, 36, is one of dozens of traders, executives and lawyers convicted in a wide-ranging U.S. attack on illegal trading on Wall Street. He was convicted at a 2011 trial of trading on tips from junior lawyers at Ropes & Gray LLP and has spent the last 16 months at a prison camp in Lewisburg, Pennsylvania.
Defense lawyer Alexander Dudelson today told the U.S. Court of Appeals in Manhattan that Goffer’s 10-year term is illegal because it is “disproportionate” to other insider-trading sentences. Judges voiced skepticism about the argument.
“He paid kickbacks,” U.S. Court of Appeals Judge Richard Wesley told the lawyer. “Mr. Goffer was the center of this.”
Goffer was convicted of 14 counts of conspiracy and securities fraud for using information leaked by two Ropes & Gray lawyers to trade on shares including 3Com Corp. Prosecutors said he and others to whom he passed the information earned $10 million. The defense said most of the profits were pocketed by another trader, Craig Drimal, who earned $6.2 million.
At the trial, prosecutors said Goffer, then working as a trader at New York-based Schottenfeld Group LLC, used the tips to impress Galleon co-founder Raj Rajaratnam and land a job at the firm. Goffer started Incremental Capital LLC after he was fired from Galleon.
In court today, Goffer’s lawyer compared his 10-year term to the 11 years received by Rajaratnam after he was convicted of leading a $50 million insider scheme. Dudelson reminded the three-judge panel that Rajat Gupta, a former Goldman Sachs Group Inc. director convicted of insider trading last year, got two years.
U.S. Circuit Court Judge John Walker suggested that a two-year term for a 64-year-old, like Gupta, might be comparable to a 10-year-term for a younger man.
Prosecutors argued in court papers that Goffer’s sentence was below recommended federal guidelines by one month and that he, unlike other insider traders, didn’t plead guilty and accept responsibility for his crime. Doing so generally entitles a defendant to a reduced sentence.
“Goffer planned, organized and initiated the scheme,” Assistant U.S. Attorney Andrew Fish wrote in a legal brief. “Goffer set up an entire criminal infrastructure for insider trading activity; carried out that activity for a period of more than a year; and paid cash bribes to lawyers.”
Goffer is raising other legal arguments challenging the conviction itself. The appeals court didn’t rule.
Goffer was tried with his brother, Emanuel, and another trader, Michael Kimelman. Both were convicted. Emanuel Goffer didn’t appeal. Kimelman, who was recently released from prison after serving a 30-month sentence, is appealing his securities fraud conviction but not his conspiracy conviction.
Defense attorney Michael Sommer said the government secretly recorded hundreds of wiretaps of Kimelman’s phone calls and came away with “zero evidence” that he traded illegally. Fish said other evidence pointed to his guilt.
Drimal, who pleaded guilty and received a 66-month term, is also appealing his sentence. His lawyer didn’t argue in court today. The two Ropes & Gray lawyers, one of whom cooperated with prosecutors, also pleaded guilty.
In a New Jersey case unrelated to the Galleon probe, lawyer Matthew Kluger was sentenced to 12 years in prison for stealing information about corporate mergers from four law firms and passing it to a friend, who in turn gave it to a stock trader. That 17-year scheme earned $37 million in profits.
Goffer may already have won part of his appeal because of a change in how forfeitures are calculated. In addition to the 10-year term, U.S. District Judge Richard Sullivan ordered Goffer in 2011 to forfeit $10 million, representing illegal gains from the trades.
Prosecutors recently told the appeals court that the $10 million sum may need to be recalculated and reduced because the appeals court in August changed the rules for determining forfeiture amounts.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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