It is always assumed that sentences in the US for any crime are significantly higher than they are in the UK, but nowhere is this more starkly exemplified than in white collar crime.  The recent sentence of 9 years in prison for Mathew Martoma for insider trading is the latest proof of the truth of this assumption.  Previous long sentences for this offence included 12 years in 2011 for Matthew Kluger, and 11 years in 2012 for Raj Rajaratnam in the notorious Galleon case.  Both Kluger, a corporate lawyer, and Rajaratnam, a hedge fund owner, were senior professionals who, like Martoma, were deemed to have been insiders in possession of explosive unpublished information, which they deliberately used to their own advantage.

The UK record over the last few years in insider dealing cases has been good, but the longest sentence any individual has received is the 4 years handed out to James Sanders of Blue Index in 2012.  It should be pointed out that the maximum sentence under section 52 Criminal Justice Act 1993 is 7 years, and also that the sums involved in the cases brought by the Financial Services Authority have been small by comparison with the US blockbusters, rarely exceeding £1m, and in most cases much less.  In Operation Tabernula, the FSA’s (now FCA) largest insider dealing investigation, the profits made by the two defendants who have so far pleaded guilty were £245,000 and £500,000.  Martoma’s actions in arranging for hedge fund SAC Capital, where he worked as a portfolio manager, to sell its entire position in drugs company Wyeth and Elan just ahead of bad news about a new counter-Alzheimer’s product, are said to have made a profit of $275m for SAC, and a bonus for him of $9.3m. His sentence included the disgorgement of his bonus and the loss of a house in Florida.  In addition, he will never work again in the financial services sector – or in any other professional capacity – in his lifetime. Preet Bharara, the US attorney responsible for the SAC convictions, and for about 80 other successful insider dealing convictions, had demanded that the sentence should be 15-20 years, but the judge rejected this claim as excessive.

As for SAC, it settled its differences with the SEC last November, paying a fine of $1.2bn.  Eight SAC employees were charged during an investigation that lasted several years.  Six pleaded guilty.  Martoma’s case, involving events in 2008, marks an end to the proceedings.  But one person who was not indicted was SAC’s owner, Steven A Cohen, in spite of the assertion by Bharara that “insider trading at SAC was substantial, pervasive and on a scale without precedent in the history of hedge funds”.  Cohen strongly denies this claim, and Bharara, in spite of pressurising Martoma to give evidence against his former boss, failed to get evidence to indict him.  SAC Capital continues to do business, albeit with some restrictions. Cohen is still at its helm.

The focus by the FSA since 2007 on insider dealing, and the successful prosecutions brought against more than 20 individuals, as well as civil market abuse cases, appear to have had an impact on market conduct.  Two civil market abuse cases in particular, against US hedge fund owner David Einhorn, who was fined £7.2m in 2012 in connection with trading in Punch Taverns stock ahead of a funding announcement, and Ian Hannam, a senior investment banker at J P Morgan Cazenove, who the Upper Tribunal found guilty of two counts of market abuse in 2014, have spooked the market. A Market Cleanliness report published by the FCA in 2013 stated that after remaining stable for the four years to 2009, the level of abnormal pre-announcement price movements declined to 21.2% in 2010, 19.8% in 2011 and to 14.9% in 2012. This is the lowest level since 2003. The fall took place in a year of weak takeover activity and against a backdrop of the Regulator’s ‘continuing focus on market abuse and enforcement activity in this area’.  Whether the US experience is the same is not known, but one might expect that the tough sentencing of senior market professionals will have had an impact.