⚖️ Galleon insider trading cases ranked: Rajaratnam got 11 years

Rajaratnam got 11 years, a $10M fine and $53.8M forfeiture; he insisted he had done nothing wrong. Gupta got two years, Smith probation. 🗣️

By , money desk · Desk editor Laima Ērkšķe-Kreicberga · · 4 min read

Raj RajaratnamRANKEDPhoto: Shankar2001 · CC BY-SA 4.0

Photo: Shankar2001, CC BY-SA 4.0, via Wikimedia Commons. Desaturated and cropped by MrScandal.

What we know

  • A federal jury in Manhattan convicted Raj Rajaratnam on all 14 counts of conspiracy and securities fraud on May 11, 2011, the New York Times reported.
  • On Oct. 13, 2011 Rajaratnam was sentenced to 11 years in prison, a $10 million fine and forfeiture of $53,816,434, according to the U.S. Attorney's Office in Manhattan.
  • Rajat Gupta, a former Goldman Sachs director, was sentenced to two years in prison and a $5 million fine for passing boardroom tips to Rajaratnam, the U.S. Attorney's Office says.
  • Former Galleon trader Zvi Goffer received 10 years; former Galleon portfolio manager Adam Smith received two years' probation, the New York Times reported.
  • Prosecutors had sought 19 to 24 years for Rajaratnam, the Times reported.

Raj Rajaratnam, founder of the Galleon Group hedge fund, was sentenced on Oct. 13, 2011 to 11 years in prison, a $10 million fine and forfeiture of $53,816,434, the U.S. Attorney's Office in Manhattan says. The New York Times called it the longest prison sentence ever for insider trading at that point.

What follows is the penalty ledger for the Galleon cases that the documents read actually cover, ranked by prison time first and probation length second. It is not a ranking of every insider-trading prosecution brought by the SEC (the U.S. markets regulator) and the Justice Department. The documents read do not carry the other cases' penalties, so they are left out rather than guessed.

RankDefendantPrisonFineForfeiture
1Raj Rajaratnam11 years$10 million$53,816,434
2Zvi Goffer10 yearsNot stated in documents readNot stated in documents read
3Rajat Gupta2 years$5 millionNot stated in documents read
4David R. SlaineNone (3 years' probation)Not stated in documents readNot stated in documents read
5Adam SmithNone (2 years' probation)Not stated in documents readNot stated in documents read

The ranking

01

Raj Rajaratnam: 11 years, a $10M fine and $53.8M forfeited

A federal jury in Manhattan convicted Rajaratnam on all 14 counts of conspiracy and securities fraud on May 11, 2011, and Judge Richard J. Holwell sentenced him on Oct. 13, 2011 to 11 years, a $10 million fine and $53.8 million in forfeiture, the Times reported. Prosecutors had asked for 19 to 24 years, the paper said. They accused him of using a network of tipsters to gain about $72 million; he fought the charges and insisted he had done nothing wrong, according to the Times.

See the receipt (opens in a new tab)
02

Zvi Goffer: 10 years, one short of the boss

Zvi Goffer, a former trader at Galleon, received a 10-year prison term, matching the longest previous sentence for insider trading, the Times reported. The paper put the average sentence of the 13 other defendants connected to Rajaratnam's case at about three years. The documents read do not state a fine for Goffer.

See the receipt (opens in a new tab)
03

Rajat Gupta: two years, a $5M fine and a denial on file

Gupta was convicted on June 15, 2012 of one count of conspiracy to commit securities fraud and three counts of securities fraud, and acquitted on two other counts, the U.S. Attorney's Office says. Judge Jed S. Rakoff sentenced him to two years in prison, one year of supervised release and a $5 million fine. Fortune noted the term was about four times less than federal sentencing guidelines. A lawyer for Gupta had denied the SEC's charges in 2011, the Times reported.

See the receipt (opens in a new tab)
04

David R. Slaine: three years' probation for a helpful informant

Slaine, a former trader at the hedge fund Chelsey Capital, was sentenced in January 2012 to three years' probation, the Times reported. He admitted to crimes and then provided key assistance to the government, the paper said. The documents read state no prison term and no fine.

See the receipt (opens in a new tab)
05

Adam Smith: two years' probation after 150 hours with the feds

Smith, a former Galleon portfolio manager, was sentenced on June 26, 2012 to two years' probation by Judge Jed S. Rakoff, who said, 'He has done everything one could reasonably ask to make amends.' Smith testified that his motivation was 'to improve the profitability of my firm and to help Raj.' He met federal authorities for more than 150 hours and secretly recorded calls with friends and colleagues, the Times reported.

See the receipt (opens in a new tab)

The crash-era tips

The tips that put Gupta in the dock date from the 2008 financial crisis. The U.S. Attorney's Office says he gave Rajaratnam a Sept. 23, 2008 tip about the Goldman board's approval of a $5 billion Berkshire Hathaway investment, and an Oct. 23, 2008 tip that Goldman was losing money for the quarter, which it had never done as a public company. According to the office, the September tip earned Rajaratnam and others at Galleon over $1 million in illegal profits, and the October tip helped avoid losses of several million dollars.

"Insider trading is an assault on the free markets."

Judge Richard J. Holwell at Rajaratnam's sentencing, as quoted by The New York Times, Oct. 13, 2011

Holwell struck a more measured note in a January 2014 interview with PBS Frontline. He said the trades proven at the criminal trial were a minuscule part of Galleon's $7 billion-a-year operations, and that the 23 trades or situations the government attacked produced illegal profits or avoided losses of $50 or $60 million. Rajaratnam's defense, per the Times, rested on the mosaic theory: his lawyers argued that his trading was grounded in public articles, analyst reports and company news releases.

MissFortune's note: on this list the largest line item was never a fine. It was whether you talked to the government. The two defendants who cooperated, Slaine and Smith, walked out with probation, and Judge Rakoff said cooperation in insider trading cases should be rewarded because the crime can be so difficult to detect.

Quick quiz · 3 questions

  1. On the record or still rumour?Rajaratnam: 11 years, a $10 million fine and $53,816,434 forfeiture; Goffer: 10 years; Gupta: two years and a $5 million fine; Slaine and Smith: probation, no prison.
  2. On the record or still rumour?The Times put the alleged profits at about $63 million at the verdict and about $72 million at sentencing; the figures differ.
  3. Which year?Sentenced to 11 years, fined $10 million and ordered to forfeit $53.8 million, per the New York Times

More games on the record: Price Tag · Timeline

By the numbers

  • 5 mofrom first to latest entry on recordMay 2011 to Oct 2011, 2 dated entries in the file
  • 8receipts behind this story7 news reports, 1 statement, 2011 to 2016
  • #5in biggest frauds by famous founders and celebritiesRaj Rajaratnam: Galleon Group insider trading case, 2011. Scandal Score 67 of 100
  • $80Min 2026 dollarsOn record: $53.8 million (2011), adjusted with US consumer prices

Counted by MrScandal from the receipts, the Files and our rankings.

Earlier on file: Biggest founder frauds ranked: Madoff tops, $170B forfeiture

The Raj Rajaratnam file

Last entry Oct 13, 2011
  1. Ruled

    Sentenced to 11 years, fined $10 million and ordered to forfeit $53.8 million, per the New York Times. Biggest founder frauds ranked: Madoff tops, $170B forfeiture

  2. Ruled

    Federal jury in Manhattan found Rajaratnam guilty on all 14 counts of securities fraud and conspiracy, the New York Times reported. This story

On file: The Raj Rajaratnam file · The Galleon Group file · The Securities and Exchange Commission file

The Ledger

On the record

  • Rajaratnam: 11 years, a $10 million fine and $53,816,434 forfeiture; Goffer: 10 years; Gupta: two years and a $5 million fine; Slaine and Smith: probation, no prison.

Still rumour

  • Penalties in other SEC and Justice Department insider-trading cases are not in the documents read, so no wider ranking is made.
  • Fortune reported in March 2016 that a court had agreed to rehear Gupta's appeal; the outcome is not confirmed in the documents read.
  • The Times put the alleged profits at about $63 million at the verdict and about $72 million at sentencing; the figures differ.

That's the record. The rest is rumour. - MissFortune

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