Convictions For Insider Trading May Soon Have Harsher Penalties

Insider trading convictions are drawing greater scrutiny from the U.S. Justice Department and the U.S. Sentencing Commission. Both groups are encouraging federal judges to sentence convicted white collar criminals to longer prison terms.

New sentencing recommendations are focused on professionals who commit insider trading rather than investors operating on one trading tip. Professionals have, according to the Justice Department, more opportunities to commit insider-trading offenses and so need additional incentives in the form of harsher criminal penalties to stay on the right side of the law.

The federal sentencing guidelines provide judges with a time range for an appropriate sentence once a person is convicted of committing a federal crime. Under the current guidelines, financial professionals who commit insider trading but don’t profit from their bad acts may avoid punishment. The recommended changes aim to close that loophole.

Many criminal defense lawyers are concerned that tougher sentences will unnecessarily sweep in those on the fringes of insider trading violations and argue that the changes are unnecessary. An analysis by the Wall Street Journal revealed that those convicted of insider trading — like Raj Rajaratnam of the Galleon Group and Zvi Goffer, a Galleon Group trader — are already receiving harsher penalties than those who committed similar offenses in prior years.

Rajaratnam is serving 11 years while Goffer has been sentenced to 10.

Sentencing recommendations for securities fraud, financial fraud and mortgage fraud were reviewed by the Sentencing Commission at the request of Congress. The proposed changes will become effective in November unless Congress votes to change or disallow them.

Source: The Wall Street Journal, “Longer Sentences Sought for Insider Trading,” Brent Kendall, April 15, 2012