Career Guide to Insider Trading, Chapter 16: Plea Agreements

by Derek Loosvelt | January 21, 2011

In the highly-publicized insider trading case involving hedge fund investor and Galleon co-founder Raj Rajaratnam, a co-defendant named Danielle Chiesli recently pleaded guilty to the charge of handing over confidential information to Raj Raj and others. Chiesli's sentencing has been set for the second week of May; she's expected to serve between three and four years behind bars.

But for every Chiesli, historical statistics show, there's another insider trader who will never serve time.

"Almost half of the 43 defendants who were sentenced in Mahattan federal court in the past eight years for insider trading avoided a prison term." And "19 who were sentenced since 2003, or 44 percent, weren't incarcerated ... Of the remainder, the average defendant got a prison term of 18.4 months."

As you might suspect, the more money made in the trade, the longer the sentence (Chiesli's firm reportedly pocketed between $1 million and $2.5 million; Raj Raj's Galleon has been estimated to have banked $45 million).

If you've been accused of insider trading, the way to avoid jail time is rather easy: cooperate with the courts. If you do, chances are you'll be among the lucky half who won't have to worry about going down for the Dove.

"Defendants who cooperate with prosecutors often win leniency, as do those who are ill or must care for ailing relatives." "If you cooperate, that's going to be your biggest driver," according to Kirby Behre, a partner at Paul, Hastings, Janofsky & Walker LLP and co-author of Federal Sentencing for Business Crimes (a word of warning: don't try to buy this two-volume book at home; it costs more than $1,300).

Take the 2007 case against Mitchel Guttenberg, an institutional client manager at UBS Securities LLC. "None of the men who cooperated with prosecutors was sentenced to prison [but] a Bear Stearns trader who didn't cooperate with prosecutors got a 63-month term."

To be sure, copping a plea doesn't mean you're automatically presented with a Get Ouf Jail Free card. In his case, Guttenberg was sentenced to serve more than six years. And, of course, there's Chiesli's projected three to four.

So, to summarize: if the heavy hand of the law catches you with your pants down, and the idea of a handful of years behind bars is not your idea of graduate school, it's best to confess.

(Bloomberg)

Filed Under: Finance


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