BREAKINGVIEWS - Rajaratnam sentence shows value of court process

Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court after his sentencing in New York October 13, 2011.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Reynolds Holding

NEW YORK (Reuters Breakingviews) - Raj Rajaratnam is going to jail for 11 years. But his lawyers' tough defense helped the judge get it about right. The Galleon Group founder's prison term may still seem excessive to those who think insider-trading penalties are overdone. But there was no shortcut deal, and the court process was thorough. That gives Rajaratnam's sentence unusual credibility.

On Wednesday, Congress held sentencing-related hearings headlined "Uncertain Justice." That sums up a system that gave American International Group (AIG.N) fraudsters from one to four years in jail for causing more than $500 million in losses while sticking a $40 million Ponzi-scheming schmo behind bars for 25 years. The law can make white-collar sentences unpredictable when it doesn't tell judges how to distinguish between big-time bad guys and relatively minor miscreants.

Rubbery rules allow judges' idiosyncrasies to come into play, often producing sentences that vary widely. That could have happened in two recent insider-trading cases. In one, the judge, known for toughness, said a defendant should pay dearly for not admitting guilt early on. In the other, a famously independent judge scoffed at that notion.

But in both cases, the involvement of top lawyers in public trials helped avoid sentences that were out of whack. Rajaratnam's case was the highest-profile of all the recent insider-trading proceedings, with intense wrangling over sentencing factors like his health, his charitable activities, his fraud's size and whether insider trading should bring more jail time than murder. The judge cited Rajaratnam's diabetes and charitable works to reduce his prison term.

That kind of debate doesn't occur often, even in white-collar cases. There's a premium on speed and cost that leads to plea bargains and corner-cutting. What's relevant to a sentence rarely gets aired, and defendants can feel cheated.

Legal experts still don't know much about how best to deter crime. But there's powerful evidence that people are more likely to follow the law when they believe it will give them a fair hearing. That happened in Rajaratnam's case. It was costly for him, as well as for the government, to see the process through to the end -- and he still lost. Prosecutors, though, wanted to send him down for far longer. The outcome looks fair -- thanks to both sides' full engagement in the legal fight.

CONTEXT NEWS

-- Raj Rajaratnam, the founder of the Galleon Group hedge fund, was sentenced on Oct. 13 to 11 years in prison. Prosecutors had sought a minimum term of 19-1/2 years. Rajaratnam was convicted on May 11 of nine counts of securities fraud and five of conspiracy.

-- During a trial that lasted more than two months, Rajaratnam, 54, was accused of reaping as much as $63.8 million of illegal profits by trading from 2003 to March 2009 on tips from corporate insiders and hedge fund traders about various companies, including Google, Goldman Sachs and eBay. He had pleaded not guilty, arguing that his trades were based on research.

(Editing by Richard Beales and Martin Langfield)