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Volume XIV, Number 207
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Raj Rajaratnam Appeals $92 Million Civil Fine to Second Circuit Court of Appeals
Sunday, November 9, 2014

Convicted investment fund founder Raj Rajaratnam filed an appeal of his Securities and Exchange Commission case in the United States Court of Appeals for the Second Circuit, arguing that the district court improperly sought to impoverish him by imposing a $92.8 million civil fine. 

Rajaratnam, who founded Galleon Group, had faced both criminal and civil charges for insider trading. After an eight-week jury trial, he was convicted in his criminal case of nine counts of securities fraud and related conspiracy counts, and was subsequently sentenced to 11 years of incarceration and was ordered to forfeit more than $50 million dollars. Following his criminal conviction, the SEC moved for summary judgment in their civil case where the arguments centered around the amount of a civil penalty. Rajaratnam argued to Judge Rakoff that no civil penalty was warranted due to the punishment already doled out in the criminal case or, alternatively, that the punishment should be calculated from the amount Rajaratnam stood to gain personally, a sum approximating $4.7 million. The district court ultimately determined that it was inappropriate to separate out what Rajaratnam gained personally from what third parties may have gained from his conduct. Instead, it found that the total profit from the scheme was $30.9 million, and trebled this number using a statutory calculation to arrive at civil fine of $92.8 million. According to the brief submitted by Rajaratnam, Judge Rakoff had alluded at oral argument as to the aspiration of leaving insider traders “worthless, homeless, and maybe clothesless”—“the point being, [to] take everything they have.” 

Rajartnam filed an appeal of the civil judgment arguing that the district court erred by improperly calculating the civil fine by applying the gains by third parties rather than by the defendant himself. He argued that this resulted in an inflated penalty by more than $65 million. Rajaratnam also argued that the district court abused its discretion in imposing the fine, both by concluding that criminal penalties and civil penalties serve different purposes and by basing the fine on “an irrelevant and improper factor—the bare desire to deprive a defendant of wealth acquired independently of any wrongdoing.” The appeal is currently pending.  

SEC v. Galleon Mgmt LP et al., No. 11-5124 (2d Cir. Oct. 31, 2014).

 

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