NEW YORK – A hedge fund trader who blamed her boss for coercing her into insider trading during a 20-year affair was sentenced Wednesday to 2½ years in prison, less than prosecutors had hoped for in a case they promoted as their biggest hedge fund insider trading case ever.
Danielle Chiesi, 45, shook hands with smiling government attorneys and hugged family and friends after the sentence was announced by U.S. District Judge Richard Holwell.
Chiesi had once faced up to 155 years in prison for her role in an insider trading case that has resulted in more than two dozen convictions, including guilty pleas by executives of public companies and numerous hedge fund managers who were caught on wiretaps discussing illegal secrets during casual chats.
She said almost nothing in court when she was given the chance to address Holwell and tightly clenched a tissue in hands clasped behind her pink dress as she stood in matching stiletto heels and a pearl necklace to hear her sentence. "I know there's a punishment for breaking the law," she told Holwell. "It won't happen again."
She opened up in the hallway outside the courtroom, finding humor when a court officer tried to intimidate reporters not to speak to her by ordering that no interviews could be done in the public building. "You know the rules!" he shouted.
"I should have learned the rules before I got wiretapped," Chiesi said cheerfully and loudly to those around her.
Chiesi pleaded guilty in January to three charges of conspiracy to commit securities fraud, admitting that she fed insider information to Raj Rajaratnam, a one-time billionaire who founded the Galleon Group of hedge funds, which once had up to $7 billion in assets under management. The Sri Lanka-born Rajaratnam was convicted in May and awaits sentencing.
Standing in front of microphones outside court after her sentencing, Chiesi was reminded that a lot of people know her voice only from numerous audio tapes played at Rajaratnam's trial.
"Isn't that terrible?" she said.
Asked by one reporter what she anticipates in prison, she said: "I anticipate to survive."
She also said she had a little advice for an FBI agent she spoke with.
"I told the FBI if they're ever going to knock on my door again, do it in the afternoon," Chiesi said.
Chiesi was arrested one early morning in October 2009 and charged as part of a case that the government said earned participants more than $50 million in profits. Her lawyers said she did not benefit financially and Holwell noted as much when he said it was unlikely that "simple greed was the defendant's primary motivation."
In court papers, her lawyers argued that she deserved leniency from the three to four years in prison that prosecutors were seeking. The lawyers said Chiesi had been a victim of her boss, Mark Kurland, at New Castle, which was the equity hedge fund group of Bear Stearns Asset Management Inc.
They accused him of bullying her into getting illegal secrets from others while they carried on a 20-year affair that started when Chiesi was 22 years old and he was 40. Kurland was sentenced to two years and three months in prison after he pleaded guilty to insider trading charges.
The lawyers also said Chiesi had experienced "toxic relationships" with men, including her abusive ex-husband and Kurland, who they said made her into his "virtual servant," even getting her to relocate to San Francisco after his wife learned of their affair.
Before sentencing, Assistant U.S. Attorney Andrew Michaelson said Chiesi deserved a punishment within federal sentencing guidelines because she was a central figure in the conspiracy and manipulated her relationships with "captains of industry and hedge fund managers who controlled billions of dollars."
He said she had corrupted the securities markets and noted that her tips regarding computer chip maker Advanced Micro Devices Inc. in August 2008 caused AMD stock to rise 4 percent on a day when the rest of the market on which it trades was down 2 percent.
He said hedge fund managers she spoke with bought more than 7 million shares of AMD on a single day, making up 20 percent of AMD's trading volume that day.
Michaelson also cited an affair she had with former IBM executive Robert Moffat, who pleaded guilty in the case and was sentenced to six months in prison. Moffat said before his sentence was imposed that his romantic feelings for Chiesi had clouded his judgment.
"Kurland did not instruct her to go out and have an affair with Moffat," Michaelson said. "Ms. Chiesi played a central and starring role in her crimes."
Chiesi's voice on audio tapes were a prominent feature at Rajaratnam's trial. In one taped conversation, she could be heard boasting that she got an important inside tip from "my guy. I played him like a fine-tuned piano."
Besides prison, Holwell also ordered Chiesi to perform 250 hours of community service and to pay a $25,000 fine.
He said he hoped the sentence sent a message to Wall Street that anyone who engages in insider trading will be prosecuted, convicted and sentenced.
Chiesi also has agreed to pay $540,000 to settle civil charges brought by the Securities and Exchange Commission.
U.S. Attorney Preet Bharara said in a statement after the sentence: "She was the vital artery through which inside information flowed between captains of industry and billionaire hedge fund managers, and she reveled in the conquest."
In seeking leniency for his client, defense attorney Alan Kaufman cited a psychiatrist's report and letters from family, friends and other hedge fund industry workers. He drew a chuckle from Chiesi when he read a snippet from the letter of a fellow stock trader who scoffed at her stocks tips, writing: "Everytime she told us something, we lost a lot of money on it."
Outside court, Chiesi said she would not dwell on her fate after she was asked to react to how she has been portrayed.
"I don't read the papers anymore," she said.
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