By Chad M. Kohler, Esq.
White collar criminals who plead guilty to, or are convicted of, financial crimes are traditionally given probation or light sentences, with only brief terms in prison. But there are notable exceptions. In 2011, hedge fund manager Raj Rajaratnam was given an 11-year term in prison for insider trading. A year later, Matthew Kluger got 12 years, the longest sentence ever for insider trading.
Kluger was an attorney working on mergers and acquisitions for large law firms. For 17 years, he was meeting up with a friend, Kenneth T. Robinson, who then passed confidential information on forthcoming mergers to a friend of his, a trader named Garrett Bauer. There was never any direct communication between Kluger and Bauer. But when Robinson eventually conducted a trade in his own name, rather than through Bauer, the SEC caught on. Bauer pled guilty to conspiracy to commit securities fraud and other crimes. He is serving a nine-year sentence. Robinson pleaded guilty securities fraud and conspiracy in April 2011 and, after cooperating with authorities in the investigation, was sentenced to 27 months.
A recent article published in Fortune magazine covers an in-depth interview with Kluger from his federal correctional institution in Morgantown, WV. On the length of his sentence, Kluger said that he "got a New Jersey judge who wanted to send a flashing red message of caution." The total profits from the information Kluger provided to the conspiracy approached $37 million with Bauer receiving the majority of the money. Kluger was sentenced according to the Federal Sentencing Guideline based on the amount of the total gain, not the amount he personally realized from the trades (which was around $600,000). His sentence was affirmed on appeal.