Rajaratnam and the "No One Has Gone to Prison" Myth


If there's one thing I know from listening to the Occupiers, the Oscar®-winning documentarians, the rageaholic Rolling Stone writers and other expert economists, it's that no Wall Street criminals ever go to jail.

Except when they do. 

Yesterday's sentencing of Galleon Group hedge fund manager Raj Rajaratnam set a punishment record – 11 years – for the dubiously defined crime of "insider trading." The investigation of Rajaratnam also set historical landmarks in terms of the length and expense of the investigation and the first-ever use of wiretap evidence in an insider trading case. Prosecutors were seeking an even bigger takedown of 19 to 24 years, but Rajaratnam's health concerns and history of charitable giving supposedly worked in his favor. 

Rajaratnam was a generous giver to Democratic and liberal causes, and media critics have pointed to this to imply that the case has been given less or different attention than it would have been had the defendant been a Republican. I think the mainstream media coverage has been pretty straightforward, and neither the investigation (which began under the Bush Justice Department) nor the prosecution (which began and concluded under the Obama Justice Department) show any signs of politicization. 

I worry more about the broad and nebulous state prerogatives created by the novel category of insider trading – a crime that was already prosecutable as fraud before Rudy Giuliani's career-making campaign against it in the 1980s – than I worry about losing money to a better-informed investor.  But at least Rajaratnam was actually convicted for the actual crime, unlike Martha Stewart, who fell into the perjury trap during a prosecutorial fishing trip. Billionaire currency trader George Soros has been unsuccessful in getting his ten-year-old insider trading conviction expunged. 

The idea that Wall Street criminals are getting away with a criminal conspiracy against the American people is a popular one. Nobody ever asks how the seemingly victimized American people managed to make so much of Wall Street's money disappear through their own deadbeat behavior. But the claim that nobody gets convicted of financial crimes is a lie.