A pair of articles appeared this week that traced trends in particular areas of securities enforcement. The Wall Street Journal presented data showing an increase in the length of sentences in insider trading cases over the last eighteen years. A second article which appeared in Corporate Counsel suggested that the SEC's settlement of a case involving back-dated options "may have symbolized the end of an era."
The piece from the Wall Street Journal listed the data regarding sentences in 108 insider trading cases from the Eastern District and Southern District of New York since 1993. It is interesting to note that during the first seven years, no defendant received a sentence of longer than two years in prison, a trend which ended in 2000 when Vincent Napolitano was sentenced to six years. The sentences remained brief (less than three and one-half years) for six more years, with one exception (Sam Waskal, who was sentenced to 87 months – a little over seven years – in 2003). But from 2006 to the present, the Journal identified nine defendants who were sentenced five years or more in prison. Moreover, in 2011 alone, 14 defendants were sentenced to jail terms in the Eastern and Southern Districts.
The Journal's article appeared before yesterday's sentencing of Raj Rajaratnam, who was sentenced to eleven years in prison (as discussed here), longer than any other defendant on chart. Given that Mr. Rajaratnam was the central defendant in the largest insider trading scheme in some years, he may hold the distinction of the longest sentence until the next insider trading scandal. Whether Mr. Rajaratnam's sentence continues to be the longest or not, the article clearly reflects the trend for individuals who take risks like him.
Meanwhile, Shannon Green's article in Corporate Counsel suggests the recent settlement between the SEC and Lisa Berry (former General Counsel for Juniper Networks) may have brought an end to the era of back-dated options cases. The article also discussed that "the vigor with which the agency pursued a number of corporate executives on fraud claims has left a lasting impression on lawyers."
While there were an enormous number of companies that may have engaged in option backdating and may have gone unpunished (as previously discussed here), the SEC pursued a number of companies and executives aggressively. Ms. Green's article points out that the SEC and federal prosecutors will closely look at compensation issues such as this and examine the advice lawyers give their clients on those issues.