NEW YORK, Jan 23 (Reuters Breakingviews) - A financial
snitch has gotten off too lightly. David Slaine, a former
Galleon Group employee, pleaded guilty to insider trading and
conspiracy but became an informant to help nab others, including
the hedge fund and trading scandal kingpin, Raj Rajaratnam. At
the urging of prosecutors, a federal judge has rewarded Slaine
with probation and community service instead of up to 25 years
in prison. Such leniency risks overreliance on criminals.
Stool pigeons have long captured the public imagination,
thanks in large part to Hollywood. In a recent example, the 2009
film "The Informant" made audiences howl as the protagonist
bumbled through a scheme to blow the whistle on his price-fixing
employer, Archer Daniels Midland, while at the same time he
committed his own fraud. The role squared with the stereotypical
snitch: a duplicitous crook just as likely to lie as to give up
the goods.
The on-screen stereotype all too often rings true. Snitches
are famously unreliable, lured into fabricating information that
may reduce their sentence or spring them from jail. False
informant testimony has accounted for almost half the wrongful
convictions in death-penalty cases, according to Northwestern
University Law School research.
Drug tattlers have long enjoyed extra incentives to turn in
fellow dealers. More recently, federal sentencing guidelines
gave all sorts of street criminals the kind of whistle-blowing
encouragement that mobsters have always gotten in exchange for
ratting out their bosses. But only in the past 20 years or so
have snitches played a major role in white-collar cases like the
Enron fraud.
Though wiretaps have gotten more attention, informants have
been crucial in bringing down insider traders. And none has been
more important than Slaine, according to federal prosecutors. He
is credited with leading investigators to about a dozen other
fraudsters, including Rajaratnam. For that, Slaine's own
transgressions were given a big pass.
But his deal is exactly the kind that can lead to problems.
The justice system probably can't crack big cases without the
cooperation of unsavory characters, and giving Slaine favorable
treatment is justified up to a point. But even for the best
information, letting confessed felons like him essentially off
the hook is too high a price to pay.
CONTEXT NEWS
-- A federal judge sentenced former Galleon Group trader
David Slaine on Jan. 20 to three years probation for securities
fraud, citing his "extraordinary" cooperation in leading
prosecutors to the hedge fund's chief, Raj Rajaratnam, and
others convicted of insider trading.
-- Slaine pleaded guilty in 2009 to trading on inside
information seven years before, when he was the head trader at
Chelsey Capital. Regulators claim he executed illegal trades for
the hedge fund and his own account, reaping profits of more than
$500,000 for himself and as much as $7 million in total.
-- Rather than face a sentence of up to 25 years in prison,
Slaine agreed to cooperate with federal agents. He secretly
recorded dozens of conversations with friends and colleagues,
including ex-Galleon trader Zvi Goffer, and testified at the
trials of Goffer, his brother Emanuel Goffer, and Michael
Kimelman. All were convicted last year of insider trading.
Federal prosecutors say his cooperation led to guilty pleas from
nine others and helped produce evidence against Rajaratnam, who
is serving a sentence of 11 years in prison.
-- In addition to probation, U.S. District Judge Richard
Sullivan sentenced Slaine to 300 hours of community service and
a $500,000 fine.
(Reporting by Reynolds Holding, a Reuters Breakingviews
columnist. The opinions expressed are his own.)
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