NEW YORK – A Manhattan lawyer was sentenced to three years in prison Friday for helping to link up hedge fund traders with lawyers willing to provide inside information about mergers and acquisitions, a case prosecutors celebrated as the biggest such insider trading probe in history.
U.S. District Judge Richard Sullivan also ordered Jason Goldfarb to pay a $32,500 fine — the amount he was paid for his role in the scheme — and to forfeit more than $1 million, the amount traders made with illegal tips Goldfarb helped to arrange.
Sullivan announced the jail term after listening to a dozen friends and relatives urge leniency and a defense lawyer say a sentence that involved no jail time would be appropriate.
The judge said a jail sentence was necessary to deter others from contributing to a perception among some people that the securities markets are rigged and "sophisticated, powerful people are bribing and stealing information that assures them of profits."
Goldfarb, 33, was arrested in fall 2009 as part of an investigation that resulted in more than two dozen arrests and convictions, including that of Galleon Group founder Raj Rajaratnam, a onetime billionaire born in Sri Lanka who is awaiting sentencing. Prosecutors said more than $50 million in illegal profits were realized in a wide insider trading scheme that involved key executives at public companies, hedge fund managers and three lawyers, including Goldfarb.
Besides noting the size of the case was a first, U.S. Attorney Preet Bharara said at the time of the arrests that they resulted from an unprecedented use of wiretaps that in the past had been reserved for cases involving organized crime or drug dealers. He said white collar criminals were increasingly displaying the brazenness and sneakiness of common criminals and it was time to treat them as such.
At Goldfarb's sentencing, Sullivan took the unusual step of playing a February 2008 audiotape of a conversation in which Goldfarb and his co-conspirators could be heard discussing how future illegal trades would make them millions of dollars and leave them set for life.
The judge said he wanted friends and relatives who might not be familiar with the extent of the crime to understand why leniency was not possible.
He said attempts by the defense to portray Goldfarb's involvement as a one-time lapse in judgment were wrong, and he noted that Goldfarb had written in a letter to Sullivan that "for a second in a weakened state I made a horrible mistake."
Sullivan said: "It wasn't an impulsive decision. You went on doing this for months."
The judge said everyone in the scheme knew that "if you get caught, disaster follows. But it didn't deter a single player in this court."
The government said Goldfarb helped link the participants in a scheme in which hedge fund manager Zvi Goffer arranged to pay two attorneys nearly $100,000 in 2007 and 2008 for inside tips on mergers and acquisitions. The Securities and Exchange Commission had said Goffer — who worked for Rajaratnam for nine months before starting his own firm — was nicknamed "the Octopussy" because of his reputation for reaching for information from multiple sources. Goffer was convicted at trial and is awaiting sentencing.
Prior to sentencing, Goldfarb pledged to repair his life and offered to speak to law schools and colleges to "discuss the mistakes I made."
He added: "I stand before you a broken man. I take full responsibility for my conduct."