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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you inside an analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. It was one

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Speaker 1: of the largest insider trading rings in US history, and

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Speaker 1: its poster boy, the man whose perp walk made the headlines,

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Speaker 1: was Raj Rajaratnam, the billionaire founder of the Galleon Hedge

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Speaker 1: Fund in Rottenham, was found guilty of fourteen counts stemming

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Speaker 1: from an insider trading scheme and sentenced to eleven years

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Speaker 1: in prison. He is out of prison almost two years

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Speaker 1: early thanks to the eighteen First Step Act, joining me

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Speaker 1: as Peter Handing, a professor at Wayne State University Law School.

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Speaker 1: Peter Rajerrottam's case was the highest profile in insider trading

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Speaker 1: in decades. I can almost see the video replaying of

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Speaker 1: him going in and out of the court surrounded by cameras.

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Speaker 1: How sag evigant was his conviction. His case was the

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Speaker 1: key case because it was first and remember he had

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Speaker 1: a very aggressive lawyer, John Dowd, who later represented President Trump,

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Speaker 1: and so it was a very hard fought case, and

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Speaker 1: in fact, the jury was out. One juror got sick,

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Speaker 1: so they had to bring in an alternate. The jury

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Speaker 1: was out for almost fourteen days, and so there was

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Speaker 1: a lot of tension in that period. But it was

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Speaker 1: the key conviction because it was the first one. Also,

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Speaker 1: it was the first insider trading case that was built

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Speaker 1: on wire tapped telephone conversations, and that was something that

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Speaker 1: was usually reserved for the mafia prosecutions before this. Certainly

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Speaker 1: that was the case mafia or the drug organizations. But

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Speaker 1: under the Wire Tap Act, one of the laws that

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Speaker 1: can be the basis for getting a wire tap is

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Speaker 1: wire fraud, and most insider trading cass will include a

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Speaker 1: charge of wire fraud. And that's what let the government

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Speaker 1: start listening into first conversations among some other insider traders,

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Speaker 1: and then eventually they got to Raj Raj Rottenham and

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Speaker 1: ended up with some recordings that were, if you will,

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Speaker 1: just pure gold, where information is just being exchanged back

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Speaker 1: and forth, and those turned out to be really what

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Speaker 1: convinced the jury that this was insider trading, not just

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Speaker 1: Roger Rottenham had offered what was called the mosaic theory

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Speaker 1: that maybe I got little tidbits of information, but it

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Speaker 1: was fairly easy to convince the jury that this really

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Speaker 1: was just trading of inside information among his circle. How

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Speaker 1: did his eleven years sentence compared to white collar sentences

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Speaker 1: before and since then, Well, certainly in the insider trading area,

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Speaker 1: his was one of the longest. Another defendant, Matthew Klueger,

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Speaker 1: got a twelve year sentence, and someone else kind of

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Speaker 1: on the fringe of this case, veek Offer, got a

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Speaker 1: ten year sentence. But certainly this was a very substantial sentence.

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Speaker 1: But when you look at the dollar figures underlying at

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Speaker 1: the government alleged that Rajaratnam made over sixty million dollars

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Speaker 1: based on inside information. So under the federal sentencing guidelines,

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Speaker 1: that was going to result in a substantial sentence. Not

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Speaker 1: as much as the U. S. Attorney's Office asked for,

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Speaker 1: But eleven years really sent a message out that insider

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Speaker 1: trading is a real crime. He's at on home confinement.

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Speaker 1: There was no publicity surrounding his release. In fact, Bloomberg

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Speaker 1: News legal reporter Bob Van Voris was the first to

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Speaker 1: discover it in the media because he noticed that Rajeratnam's

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Speaker 1: location on the Bureau of Prisons public website had changed.

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Speaker 1: Why was he released early? Well, under the First Step Act,

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Speaker 1: which President Trump signed in one of the provisions of

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Speaker 1: that act allows for older defendants, people who are over

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Speaker 1: sixty years of age and who have potentially serious illnesses.

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Speaker 1: Roger Rottenham is a diabetic and so what the law

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Speaker 1: allows is that they can be switched to home confinement.

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Speaker 1: And so he is currently living at home, and he

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Speaker 1: is also is able to work outside. This is a way,

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Speaker 1: in a sense in which you can get more elderly prisoners,

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Speaker 1: non violent prisoners, out of the federal prison system and

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Speaker 1: out on their own. We've talked before about former U

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Speaker 1: s Attorney in Manhattan, Freed Barrara's crackdown on insider trading.

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Speaker 1: How successful was it when you look back now, Well,

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Speaker 1: except for a couple cases. The Newman case was one

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Speaker 1: in which you had convictions overturned. But for the most

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Speaker 1: part it was a very successful crackdown. You had upwards

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Speaker 1: of over eighty different defendants convicted of crimes or who

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Speaker 1: pleaded guilty, So at least in that regard, it did

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Speaker 1: send a message although the big one who got away

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Speaker 1: was Stephen Cohen. There was never a case brought against Cohen.

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Speaker 1: There was against his firm, but it was you know,

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Speaker 1: for a financial crackdown on Wall Street, I think you

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Speaker 1: would have to rate it as a success. So there

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Speaker 1: are still lots of insider trading cases, though none seemed

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Speaker 1: to get the headlines that this did have. Traders learned

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Speaker 1: their lesson in any respect, are they making the same mistakes.

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Speaker 1: I don't think that anybody learned their lesson. I mean,

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Speaker 1: we still see insider trading cases going on all the time.

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Speaker 1: Among the more high profile cases recently was Billy Walters,

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Speaker 1: who got information about Dean Foods. And so what we

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Speaker 1: have seen is that I think inside information is so

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Speaker 1: tempting because it can be so lucrative. You can make

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Speaker 1: a lot of money from it, and so I think

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Speaker 1: people just figure, well, I'll just do it this one

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Speaker 1: or two times and maybe I'll get away with it.

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Speaker 1: And some of them may be getting away with it,

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Speaker 1: but ultimately I think the Justice Department and the SEC

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Speaker 1: are able to track them down. And so I'm not

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Speaker 1: sure if the message was heard. Particularly going on right now,

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Speaker 1: you have an unusual case involving a father and son

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Speaker 1: and insider trading. Yes, that's the Sean Stewart case which

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Speaker 1: is before Judge Rakoff in the Southern District of New York.

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Speaker 1: And as I understand, Judge Rakoff has not allowed the

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Speaker 1: pro secuters to use a recording in which the father

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Speaker 1: said that the son told him, I gave you this

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Speaker 1: information on a silver platter. So it will be interesting

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Speaker 1: to see if prosecutors are able to convict Sean Steward

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Speaker 1: for essentially telling his father about upcoming deals. And so

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Speaker 1: this will be an interesting case to see. Do the

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Speaker 1: prosecutors have enough evidence to get a conviction of Stewart

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Speaker 1: or is this one of those cases where they just

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Speaker 1: don't have enough And Stewart was convicted before and then

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Speaker 1: got out after an appeal and the prosecutors went after

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Speaker 1: him again. We're going to see what happens there. Thanks

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Speaker 1: so much, Peter. That's Peter Henning. He is professor at

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Speaker 1: Wayne State University Law School. Thanks for listening to the

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Speaker 1: Bloomberg Law Podcast. You can subscribe and listen to the

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Speaker 1: show on Apple podcast, SoundCloud, and on Bloomberg dot com

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Speaker 1: slash podcast. I'm June Brosso. This is Bloomberg,