[Updated version]$92.8 million. That’s the size of the penalty handed down yesterday to convicted hedge fund manager Raj Rajaratnam. The NYT reports:
Combined with the fines and forfeitures ordered last month when he was sentenced to 11 years in prison for insider trading, Mr. Rajaratnam will be paying a total of $156.6 million…Mr. Rajaratnam’s lawyers argued that given the financial penalties imposed in the criminal case — a $10 million fine and $53.8 million in forfeited profits — additional civil penalties were unwarranted.Judge Jed S. Rakoff, the presiding judge in the S.E.C.’s case against Mr. Rajaratnam, rejected that notion.“This misapprehends both the nature of this parallel proceeding and the purposes of civil penalties,” Judge Rakoff said in his order. “S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”
So far, so good. High profile thieves should receive exemplary punishment. Raj not only stole money; he damaged the essential fabric of the complex financial system our common life as a people requires. This willful and knowing gross abuse of a vital public trust cries out for punishment and shame and while Via Meadia doesn’t generally think we need more criminal statutes, the widespread contempt that too many powerful people in finance have demonstrated for basic principles of honesty and fair play suggests that something more draconian should be tried.As the NYT story continues:
It is unclear how much money Mr. Rajaratnam has left. Judge Rakoff said that he reviewed the government’s presentence report, which is not public, and said that Mr. Rajaratnam’s net worth “considerably exceeds” the penalties imposed in the criminal case.
That is unfortunate, and will encourage others to think that even if caught, their risks are limited and that their families will remain wealthy even if they themselves take a financial haircut and go to prison. It would be better for the public if such people worried that their families could be living in trailer parks by the time the government and those they had wronged were finished clawing back the money, assessing penalties and fines, and providing restitution and compensation.It sounds harsh, but the restoration of trust in the American business community, and the reconstruction of the ethical norms that in the long run are necessary if high finance is to work at all, require that the system comes down like a ton of bricks on people who reach the highest stations in our corporate life and use that power and trust to steal and to cheat.Mr. Rajaratnam like any ax murderer deserves all the protections and safeguards of the law, and we don’t need witch hunts and lynch mobs in this country. Any new criminal statutes must be carefully drafted. Still, justice must be stern when the offenses are both grave in themselves, and so deeply damaging to the essential bonds that hold society together.