Thursday, October 13, 2011

Rajaratnam Receives Eleven Year Sentence

Hedge fund billionaire Raj Rajaratnam was sentenced today to an 11-year prison sentence, reportedly the longest sentence ever for insider trading, by Southern District of New York Judge Richard J. Holwell. The sentence was below the approximately 19- to 24-year sentence requested by the government and above the approximately six to eight years requested by the defense.

The Southern District United States Attorney's Office has focused its guns on insider trading offenses, bringing 52 cases in the last two years, 49 of which have resulted in convictions. U.S. Attorney Preet Bharara, who has called insider trading on Wall Street "rampant," has claimed that harsh insider trading sentences are a deterrent because they "convince rational business people that the risk is not worth it." Indeed, since an individual's decision whether to cross the line to trade on confidential information is often based on the individual's benefit v. risk analysis, insider trading may well be one of the relatively few areas of criminality where harsh sentences do actually serve as a deterrent. The Rajaratnam case, which involved a pattern of seeking inside information from tipsters and trading on it for millions of dollars in profits, and cases like it, should be distinguished from those cases which involve a single instance of insider trading based on a casual tip where the decision to trade is not so deliberate and therefore not so deterrable.

The 11-year sentence given to Rajaratnam is the second double-digit insider trading sentence imposed in the Southern District in the past few weeks. A few weeks ago, Judge Richard Sullivan sentenced Zvi Goffer, a former trader at Rajaratnam's firm, Galleon Group, to a 10-year term. While Rajaratnam's criminal involvement was of far greater magnitude than Goffer's, Rajaratnam had serious medical problems and a considerable history of good works, which may well have led to a lesser sentence than he would have received otherwise. Of course, some judges sentence more severely, or more leniently, than others.


October 13, 2011 in Insider Trading, Sentencing | Permalink | Comments (0) | TrackBack (0)

Charges Dropped In Mortgage Fraud Case Following Hung Jury

Prosecutors have decided to drop the charges against an individual who had been arrested last year as part of "Operation Copout," a mortgage fraud investigation.  The individual had initially been charged with 34 criminal charges, including multiple counts of mail and wire fraud. The case had been tried in a five month jury trial that had ended in a hung jury.   

Attorney Michael Pasano, a white collar crime attorney at the law firm of Carlton Fields, who represented the client stated, "The strain on the client and his family was enormous and it is with great relief that we heard today that the Government agreed not to reprosecute and dismissed the case as to Mr. Stoll. It was a hard fought case, and I applaud the prosecutors for doing the right thing,”

It is difficult for prosecutors to be "ministers of justice" with the public outcry for retribution on mortgage fraud cases.  It's nice to see that there are prosecutors out there who can do the right thing when the situation warrants it. 


October 13, 2011 in Fraud, Prosecutors, Settlement | Permalink | Comments (1) | TrackBack (0)

Monday, October 10, 2011

DOJ Charges to Defendant for Discovery of Documents is Excessive

A few weeks ago an assistant U.S. attorney told David Finn, a Dallas criminal defense lawyer, that the government lacked funds to pay for copies of the documents it had requested as reciprocal discovery, even though the government had earlier charged Mr. Finn approximately $1,000 at 22 cents per page for copies of the discovery documents it had provided.

The cost of discovery has generally been borne by the party from whom the documents are requested. Occasionally, and much more frequently recently, as in Mr. Finn's case, the government has charged defendants or their lawyers for copies of documents provided in discovery.

Generally, these charges are of little significance to the defendant since either the documents are relatively few, the defendant has deep pockets and can easily afford to pay for them, or the defendant is legally indigent and the costs are borne by the government under the Criminal Justice Act. However, when the defendant is a middle-class person with private counsel and the documents are voluminous, as they often are in white collar cases, the cost to the defendant (or his attorney) can be substantial.

The Federal Rules of Criminal Procedure are silent on costs of providing discovery. In fact, the Rules (most likely drafted with the garden variety non-white collar criminal case in mind) actually provide not for the turning over of documents but for their disclosure and availability to the defendant "for inspection, copying or photocopying." Rule 16(E). One federal appellate court has held that in the absence of an explicit requirement in the Rules that the government bear the cost of providing documents, it is an abuse of discretion for a district court to require it do so. United States v. Freedman, 688 F.2d 1364 (11th Cir. 1982). Since the costs of litigation would almost always be greater than the cost of the documents, there understandably have been few reported cases in this area.

In my view, in a criminal case, the government should provide without cost those documents required to be disclosed under the discovery provision of the Federal Rules. One should not be required to pay the government for the privilege of being prosecuted. The cost of production, of course, can be considerably reduced by providing the documents in electronic form. Further, the expense -- in the event of a conviction -- could be recovered as a cost of prosecution (see 28 U.S.C. 1918(b)).

In any case, the cost of 22 cents per page, while perhaps not out of line with what some lawyers charge clients for copies, appears excessive, but perhaps not so excessive in view of some of the expenses paid by the Department of Justice. In a report of otherwise minimal import to the criminal justice community, the DOJ Inspector General two weeks ago noted that expenses at DOJ conferences "appear to be extravagant." The IG highlighted a $53 per person luncheon, a $5 Swedish meatball, an $8.32 cup of coffee and a $16 muffin. Perhaps if DOJ paid less for food, it would charge less for discovery and be able to pay for reciprocal discovery.  (To be fair, "extravagant" refreshment costs are often required by a hotel or conference center as part of the conference package; there is no such excuse for "extravagant" costs for producing discovery.)


October 10, 2011 in News, Prosecutions, Prosecutors | Permalink | Comments (1) | TrackBack (0)