Rajaratnam Sentence Sends the Right Message to Wall Street: View

Raj Rajaratnam, the Galleon Group LLC hedge fund executive who fought his insider-trading prosecution at every stage, today ended up with an 11-year prison sentence and an order to forfeit $53.8 million. Some are decrying the punishment as too lenient, but it is both appropriate and exemplary.

After Rajaratnam’s conviction in May, sentencing was left to U.S. District Judge Richard Holwell in New York. Prosecutors wanted a prison sentence as long as 24 1/2 years, and the return of the full $72 million they say he gained through illegal tips. Rajaratnam’s defense lawyers pushed for as little as 6 1/2 years in prison, the return of $7.4 million and the chance to stay free on bail while appeals proceed.

Holwell’s sentence to some extent splits the difference -- but it does so in a way that underscores the severity of Rajaratnam’s crimes. “Insider trading is an assault upon our free markets,” Holwell said, in meting out one of the longest sentences on record for such crimes.

Holwell acknowledged the 54-year-old Rajaratnam’s health concerns: diabetes and the need for a kidney transplant. But medical centers can be found in prisons, too. Holwell refused to grant bail pending appeals, and told Rajaratnam to report to a North Carolina prison in 45 days (where, appropriately, he will join convicted Ponzi-scheme artist Bernard Madoff).

Rajaratnam still faces a Securities and Exchange Commission lawsuit against himself and Galleon. More than two dozen people have been convicted in prosecutions related to Galleon. other than Rajaratnam have averaged 35.4 months.

The case has fascinated both Wall Street and the general public with its detailed disclosures of the ways that privileged information seeped out of boardrooms, law firms and other centers of power, to be exploited by traders looking for quick profits.

Every day, thousands of directors, lawyers, corporate officers and bankers are expected to keep privileged information secure. If any of them have trouble remembering why it’s necessary to do so, Rajaratnam’s 11-year prison sentence should help them regain their moral compass.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.