Former SAC Analyst Who Aided U.S. in Probe Sentenced to Jailby
Lee secretly recorded calls to SAC Capital's Steven Cohen
Defense lawyer urged U.S. judge to spare Lee prison time
At least two dozen traders and fund managers charged in the crackdown on insider trading avoided prison by helping the U.S. build cases against former colleagues. Not so for Richard Choo-Beng Lee, who turned to his lawyer in shock on Wednesday as a judge sent him to jail for three weeks.
The former analyst at SAC Capital Advisors LP provided crucial evidence as the government built a case against the fund founded by Steven A. Cohen, going so far as to secretly record phone calls with his ex-boss. Even after prosecutors called Lee’s assistance “extraordinary,” U.S. District Judge P. Kevin Castel sent Lee to prison and ordered him to pay a $100,000 fine.
"I have discretion,” said Castel, who was sentencing his first cooperator in the probe. “There is a lot of good in this person but the undeniable facts are he engaged in a criminal offense. This is a crime, a crime for which people go to jail.”
The sentencing marked the unofficial finale to the seven-year insider trading probe that led to more than 80 convictions, the jailing of billionaire fund founder Raj Rajaratnam and Goldman Sachs Group Inc. director Rajat Gupta, an aggressive investigation of SAC Capital, and an appellate court ruling that made it harder for the government to prosecute corrupt traders. Lee was one of the last cooperators to be sentenced.
“Your honor, I ask you to reconsider,” Lee’s lawyer, Jeffrey Bornstein, said in court. He noted that Lee’s partner at another hedge fund -- who also pleaded guilty and aided the government -- had earlier been sentenced to probation by another judge. ‘‘Mr. Lee is being treated more harshly than his partner” or “any other cooperator that has come before this district in this investigation.”
Lee pleaded guilty in October 2009 and then provided what prosecutors said was “substantial assistance” in sometimes overlapping insider investigations. Prosecutors said he provided crucial evidence against SAC, detailing how the firm encouraged traders to gain an “edge” by using inside tips while maintaining a culture of “institutional indifference” to unlawful conduct. Prosecutors asked that Lee’s sentence reflect his assistance.
Lee made secret recordings of telephone calls to Cohen on the pretext of wanting to return to the fund, Assistant U.S. Attorney Arlo Devlin-Brown said in court papers. During those calls, Lee provided “trading ideas based on inside information to the portfolio manager to whom he reported and the SAC owner,” Devlin-Brown said.
Cohen wasn’t charged with wrongdoing. Jonathan Gasthalter, an outside spokesman for Cohen’s firm, declined to comment on Lee’s sentence. SAC pleaded guilty in November 2013 and agreed to pay $1.8 billion and close its investment advisory business. It changed its name to Point72 Asset Management LP.
The U.S. relied heavily on cooperators, who recorded colleagues, directed federal agents to corrupt firms and took the witness stand for prosecutors. Among those who avoided prison after helping the government were Ali Far, Lee’s former partner; David Slaine, an ex-Morgan Stanley managing director and former partner at Rajaratnam’s Galleon Group LLC; and Karl Motey, who spent four years assisting in a probe of firms that advise hedge funds.
Another cooperator, Roomy Khan, who admitting passing illegal tips to Rajaratnam, was sentenced to a year in prison, but it was her second conviction for insider trading.
Lee, who was born in Malaysia and is a naturalized U.S. citizen, earned a bachelor’s degree in electrical engineering from Duke University, according to his lawyer. He worked as a semiconductor engineer in Silicon Valley and then became a technology industry analyst at Needham & Co., where he met Rajaratnam, his lawyer said. Lee worked as a technology analyst at SAC from 1999 to 2004.
In addition to helping the U.S. win convictions of more than a dozen people tied to Galleon, he also provided information about so-called expert networking firms like Primary Global Research LLC, his lawyer and prosecutors said. In that probe, which looked into businesses that sold fund managers access to company insiders for a fee, another dozen people were convicted.
Working at the direction of prosecutors, Lee made at least 170 recorded phone calls with 28 different people, Bornstein said.
“I am thoroughly ashamed of what I have done,” Lee told Castel. “It has been truly a black period in my life. Again I am sorry.”
In court on Wednesday, a sentencing that started out as routine turned dramatic once Castel said a 21-day sentence was warranted.
“It is completely unjust,” Bornstein said. “I mean no disrespect but he should be treated the same as all the other people who cooperated."
The judge appeared to bristle at Bornstein’s comments, saying, "There is a very serious and compelling argument in this case that probation doesn’t fit," he said. A stint in prison "sends the message that the activities are crimes but also sends the message that cooperation is greatly valued."
Devlin-Brown took no position on Lee’s sentencing, saying the judge “has substantial discretion." Bornstein told Castel he planned to appeal before Lee surrenders to prison in San Jose, California, on March 1.
While the government continues to bring insider-trading cases, almost all of those growing out of investigations known as “Perfect Hedge” and “Matchmaker” have to come to an end. Bharara and the Federal Bureau of Investigation have won more than 80 convictions so far after some reversals and dismissals.
The case is U.S. v. Lee, 09-cr-00972, U.S. District Court, Southern District of New York (Manhattan).