Judge orders Rajaratnam to pay penalty of $93 million
NEW YORK -- Less than four weeks after getting the longest prison sentence ever for insider trading, disgraced hedge fund titan Raj Rajaratnam set another dubious record late Tuesday when he received a civil penalty of nearly $93 million.
The fine was the largest the Securities and Exchange Commission has ever assessed against an individual. "It is no surprise that the most significant criminal conviction in the history of insider trading generates the largest civil penalty in the related SEC case," says Jacob Frenkel, an attorney at Shulman Rogers who specializes in securities fraud and white-collar crime.
U.S. District Court Judge Jed Rakoff stressed that he meted out the maximum financial penalty of $92.8 million, three times the $30.93 million the defense claimed Rajaratnam had made in illegal profits and avoided losses, to send a clear message that anyone caught engaging in unlawful insider trading will "pay severely in monetary terms."
For the past two years, Rajaratnam, the former head of the Galleon hedge fund group, has been at the center of the biggest insider-trading scandal in a generation. He was found guilty in his criminal jury trial on May 11 of using illegal tips from corporate insiders to reap profits in a handful of stocks, including Intel, Clearwire and Akamai Technologies. He was sentenced in October to 11 years in prison, ordered to forfeit $53.8 million in illegal gains and fined $10 million.
The fines and monetary sanctions imposed on him in the criminal and civil cases total almost $157 million, the SEC says. "The penalty imposed (Tuesday) reflects the historic proportions of Raj Rajaratnam's illegal conduct and its impact on the integrity of our markets," Robert Khuzami, SEC's enforcement director, said in a statement.
"You steal big, you lose big," says Anthony Sabino, law professor at St. John's University. "Just making restitution for every illegal dollar isn't enough. … Judge Rakoff knew he had to send a message, and a big, serious one."
Legal experts say the record civil penalty did exactly that. "It's a very significant action," says Andrew Stoltmann, a Chicago-based securities lawyer. "The SEC is hoping these sorts of penalties will deter others from engaging in the same conduct."
The judge ordered Rajaratnam to pay within 14 days via certified check, bank cashier's check or U.S. postal money order made payable to the SEC.
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