Since Raj Rajaratnam was arrested in late 2009, federal agents have swept up more than 60 hedge fund employees, consultants, and corporate managers in the largest insider-trading crackdown in history. Most of those arrested are now in or on their way to prison for sentences generally measured in years.
The sweep already dwarfs the cathartic closure to the 1980s, when a couple dozen high-profile convictions and guilty pleas were won. But it looks like prosecutors still have plenty of work to do. In February, U.S. Attorney Preet Bharara disclosed that 240 more investigations are ongoing, and it’s likely that prosecutors will file charges against half of the people being investigated. If the mostly short prison sentences of the 1990s – many less than a year – provided a deterrent, it didn’t last long.
But not everyone thinks criminal prosecution of insider trading is the way to go. The Rajat Gupta trial has brought the insider-trading apologists, not to mention Gupta’s friends, out in force. Columnists in both Slate and Forbes argue that the government should have pursued its case against Gupta with civil charges instead. Either they are new to the case or they somehow overlooked the fact that it was Gupta who sued the government to upgrade his case from civil to criminal proceedings. He wanted his day in front of a jury, and he got it.
Breakingviews columnist Reynolds Holding’s provocative piece “Rajat Gupta goes down but insider trading may not” argues that the vagaries behind Gupta’s conviction might fail to deter would-be inside traders because it’s not obvious when they cross the line. He also argues that a better approach may be pursuing a greater number of lesser, easier-to-prove charges with smaller penalties, in part because the government doesn’t have the resources to do many Gupta-like cases.
Rajaratnam, the former CEO of the Galleon Group hedge fund, was convicted on 14 counts of insider trading and conspiracy last year and is now serving 11 years in prison. A former Cravath and Skadden lawyer, Matthew Kluger, and his trading partner, Garrett Bauer, were sentenced to 12 and 9 years, respectively in a Newark federal court earlier this month.