NEW YORK - US judges are imposing increasingly long prison terms for insider trading, a Reuters analysis shows. The rise is at least partly driven by the bigger profits being earned through the illegal schemes, defence lawyers said.
The trend is likely to continue on Monday when former SAC Capital Advisors manager Mathew Martoma is sentenced for what prosecutors have called the most lucrative insider trading case ever brought.
In the five-year period ending December 2013, insider trading defendants received an average sentence of 17.3 months, up from 13.1 months during the previous five years, or a 31.8 per cent increase, the analysis of 207 insider trading sentences shows. Cases that were reversed on appeal were excluded from the study.
The number of cases has increased, with 57 per cent of the sentences imposed in the past five years. The last three years alone have seen two record sentences.
In 2011, former billionaire and Galleon Group hedge fund founder Raj Rajaratnam received an 11-year sentence for an insider trading scheme that netted him $63.8 million in illicit profits. That was topped a year later when a New Jersey judge issued a 12-year term on Matthew Kluger, a former corporate lawyer accused of providing illegal tips in a $37 million scheme.
The uptick in big cases partly reflects a wave of prosecutions led by Manhattan US Attorney Preet Bharara. Since October 2009, his office has charged 89 people with insider trading and secured 81 convictions.
"The judges have seen a rash of these cases, so it may be there is a sense that harsher punishments are needed," said Paul Shechtman, a defence lawyer with Zuckerman Spaeder who has been involved in insider trading cases.
Federal judges have discretion to impose any sentence, though they are required to consider advisory guidelines set by the US Sentencing Commission. Within the judiciary, opinions vary, with some judges saying that harsher sentences are important to act as a deterrent and others saying the punishments are greater than the crimes.
Bharara himself has pushed for tougher sentences, urging the commission to revise its guidelines to provide for higher penalties for insider traders who use particularly complex or sophisticated means to execute their schemes.
"Based on our experience, the nature and scope of insider trading activity has evolved substantially, but the guidelines have not completely kept up," he testified in 2011 before the commission.
The commission adopted changes that went into effect in November 2012 that among other things increased sentences for schemes in which defendants make calculated or repeated efforts to trade on inside information.
It is not clear if Bharara's push for tougher sentences or the revised guidelines have had an impact on the length of sentences.
It had already been rising because of the scale of the profits reaped through insider trading, defence lawyers say.