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Rajaratnam's health claims likely to face scrutiny

Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court in New York
Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court in New York

By Andrew Longstreth

NEW YORK (Reuters) - When lawyers for former hedge fund tycoon Raj Rajaratnam raised his failing health in advance of his sentencing on insider trading, they were following a familiar playbook in prominent white-collar cases.

But arguments for a lighter sentence based on medical problems are not accepted easily.

"(Judges) can and sometimes do take a defendant's health and medical needs into account in sentencing," said Stephanos Bibas, a professor at the University of Pennsylvania Law School. "But it's also true that defendants know about this leniency and attempt to qualify for it causing judges to view some claims with a skeptical eye."

In the biggest insider trading case in decades, Galleon Group hedge fund founder Rajaratnam was convicted in May on all 14 counts of conspiracy and securities fraud. U.S. District Judge Richard Holwell is scheduled to sentence him on Thursday.

Federal prosecutors, who have labeled him "arguably the most egregious violator" of insider trading to be caught, are seeking a sentence of up to 24-1/2 years.

Rajaratnam's lawyers, led by John Dowd of Akin Gump Strauss Hauer & Feld, have made his failing health a central theme in their plea for leniency.

Throughout his trial, the 54-year-old Rajaratnam did not show any visible signs of medical problems aside from a protective boot that he wore on his right foot due to a bacterial infection.

Still, Rajaratnam's lawyers have asked for a sentence "substantially below" what is called for under the federal guidelines, arguing that a long stretch in prison would amount to a "death sentence."

"The evidence before the Court can leave no doubt: Mr. Rajaratnam is not a healthy man, and his death will be hastened by a term of imprisonment," wrote lawyers for Rajaratnam in a sentencing memo in August.

Some of the most prominent white-collar defendants sentenced by judges in the same district as the Rajaratnam case have failed to persuade judges that their health issues merited a lighter sentence than they would have otherwise received.

Former WorldCom Chief Executive Officer Bernard Ebbers, who was convicted in 2005 for his role in an accounting fraud that sent the company into bankruptcy, raised his heart trouble in advance of his sentencing. U.S. District Judge Barbara Jones sentenced him to 25 years, not quite the life sentence that the government had sought. Jones said that Ebbers, 63 years old at the time, could receive treatment for his heart in prison, according to news reports.

After pleading guilty to orchestrating the largest Ponzi scheme in history, Bernard Madoff's lawyer raised his health in a plea for leniency. But in 2009, U.S. District Judge Denny Chin, now on the U.S. 2nd Circuit Court of Appeals, sentenced Madoff to 150 years in prison, one of the longest sentence handed down to a white-collar defendant. Since being behind bars, Madoff has spent a brief stint in a prison hospital for hypertension, according to report in the New York Daily News.

The health and age of John Rigas, one of the founders of Adelphia Communications Corp, was not disregarded when he was sentenced in 2005 for his role in an accounting fraud. Rigas suffered from heart problems and bladder cancer, according to news reports. But his condition only helped around the margins. Instead of the nearly 18 years prosecutors had sought, U.S. District Judge Leonard Sand sentenced then 80-year-old Rigas to 15 years.

SENTENCING GUIDELINES

In the 2005 decision, United States v Booker, the U.S. Supreme Court ruled that district judges are not bound by the federal guidelines, which provide formulas for calculating sentences.

Now the judges are only required to consider the guidelines along with other factors. Among those other factors they can consider is a person's physical condition.

But in order to justify a more lenient sentence than the guidelines suggest, the defendant's condition has to be so extraordinary that facilities offered by the Federal Bureau of Prisons cannot provide sufficient care for the individual, said Frank Bowman III, a professor at the University of Missouri School of Law. That makes the bar too high for many defendants.

"The fact that you're sick doesn't distinguish you from a lot of people who are in prison," said Bowman.

As the prison population has exploded so have health care costs for inmates. In the fiscal year 2009, the Bureau of Prisons committed about $865 million for inmate health care, more than double the amount in 2000.

Rajaratnam has not publicly revealed the details of his medical condition, arguing that it is a private matter. At pretrial hearing, lawyers for Rajaratnam said that he has diabetes, according to a report in The New York Times. A spokeswoman for Rajaratnam's legal team declined to comment. Prosecutors have argued that Rajaratnam's condition should be made public if he is going to rely on it for a reduced sentence.

In 2008, the U.S. 2nd Circuit Court of Appeals vacated a sentence that departed below the guidelines in part because of the defendant's heart condition. After a detailed review of the medical evidence, the appeals court found that sentencing judge had overstated the seriousness of the defendant's condition.

The court also found that there was no evidence that the Bureau of Prisons would not be able to provide adequate care for the defendant.

Rajaratnam's lawyers are hoping they can overcome that kind of scrutiny.

"The Bureau of Prisons will simply not be able to manage these issues and provide the care that Mr. Rajaratnam requires," they wrote in the brief filed in August. "Any significant term of incarceration would seriously threaten his well-being and be life-threatening."

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Andrew Longstreth; Editing by Tim Dobbyn)

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