This is an UPDATE of a "Street Sweeper" article originally published October 11, 2011.
What's worse? Giving Iran's Ahmadinejad Computers or Insider Trading Tips?
This is an UPDATE of a "Street Sweeper" article originally published October 11, 2011.
Sometimes, a writer publishes content in order to advance a particular viewpoint - to that extent, it's legitimate to complain about an author's bias.
Sometimes one writes to be provocative but without espousing a particular position or solution - perhaps in response to a need to turn the spotlight on a situation that lacks coherence. This column is such an effort.
Consider these two hypotheticals:
Hypothetical #1: Three lawyers fed two Wall Street traders nonpublic information that proved to be lucrative tips resulting in millions of dollars of trading profits. When confronted with the prosecution's illegal insider trading case, the three lawyers all agreed to plead guilty. The two non-lawyers chose to fight it out in a jury trial, where they were both found guilty. Separately, two computer programmers are charged with stealing trading code from their employer firms and bringing them to a new employer. Both programmers deny guilt, fight the charges, and were found guilty after a jury trial.
Question #1: You're called into the sentencing judge's chambers and asked to provide a range of fair and appropriate sentences for those who pled guilty and for those who were found guilty by the jury. What range of prison terms would you recommend to the judge?
Hypothetical #2: An American citizen is aware that the United States has a trade embargo against Iran and that among the specific items prohibited from being sold or transported directly or indirectly to that country are computers and computer parts. Notwithstanding, the citizen and his company illegally exported hundreds of proscribed computers to Iran through an intermediary country as part of a conspiracy to evade the embargo. When confronted by federal prosecutors, the citizen and his company plead guilty.
Question #2: You're called into the sentencing judge's chambers and asked to provide a range of fair and appropriate sentences for the defendant who violated the Iran trade embargo. What range of prison terms would you recommend to the judge?
Following the unsealing of a Criminal Complaint on November 5, 2009, seven Wall Street professionals and attorneys: Zvi Goffer, Arthur Cutillo, Jason Goldfarb,Craig Drimal, Emanuel Goffer, Michael Kimelman, and David Plate, were indicted on January 21, 2009, on ten counts including allegations of insider trading at hedge funds and stock trading firms, conspiracy to commit securities fraud, and securities fraud. Prosecutors contend that in 2007 and 2008, Emanuel Goffer improperly traded on merger/acquisition inside information obtained from his brother, Zvi Goffer. In part, that inside information was provided by attorneys Arthur Cutillo and Brien Sanarlas, who delivered their information to attorney Jason Goldfarb, who, in turn, delivered it to Zvi Goffer. Allegedly, Emmanuel Goffer alone made in excess of $750,000 on these trades. Read the Complaint for more details.
Consequently, the spread of sentences for all these Wall Street insider trading defendants was about 2 ½ to 10 years.
In 2009, Samarth Agrawal was a trader within Societe Generale's High Frequency Trading Group but when he decided to accept a higher-paying slot at Tower Capital Research LLC ("Tower"), a proprietary trading group and hedge fund, he claimed he had a complete understanding of SocGen's trading system and represented that he could assist in building a copy of the same trading system at Tower. It appears that Agrawal sort of oversold himself because he was criminally charged with helping himself to SocGen's sophisticated, high-speed trading code, which enabled the firm's trading programs to generate millions of dollars in profits.
After an eight-day trial before in the Southern District of New York before Judge Jed S. Rakoff, a federal jury found Agrawal guilty of theft of trade secrets and interstate transportation of stolen property for stealing the proprietary computer code used in SocGen's high-frequency trading system. Agrawal faced a maximum sentence of 10 years in prison on each of the counts. On February 28, 2011, Agrawal was sentenced to 36 months in prison followed by 2 years of supervised release.
SIDE BAR: For more details on Agrawal,read: Former SocGen Trader Socked in Criminal Code Case ("Street Sweeper" November 22, 2010).
Goldman Sachs computer programmer Sergey Aleynikov was responsible for developing computer programs supporting the firm's high-frequency trading on various commodities and equities markets. In April 2009, Aleynikov resigned from Goldman Sachs and accepted a job at Teza Technologies ("Teza"), which hired him to help develop that firm's own version of a computer platform that would allow Teza to engage in high-frequency trading.
Alas, poor Aleynikov allegedly engaged in the same short-cut to programming that Agrawal was charged with because on February 11, 2010, the United States Attorney for the Southern District of New York announced a three-count indictment of Aleynikov (the counts carried a 25-year maximum sentence): theft of trade secrets, transportation of stolen property in foreign commerce, and unauthorized computer access.
After a two-week trial before Judge Denise L. Cote, on December 10, 2010, Aleynikov was found guilty by a federal jury of one count of theft of trade secrets and one count of transportation of stolen property in interstate and foreign commerce. Aleynikov faced a maximum of 15 years in prison. On March 18, 2011, Aleynikov was sentenced to 97 months in prison, ordered to serve three-years of supervised release following his prison sentence, and ordered to pay a $12,500 fine. On February 16, 2012, the United States Court of Appeals for the Second Circuit ruled that Aleynikov's convictions was:
REVERSED on both counts and the matter is remanded to the district court for entry of a judgment of acquittal. An opinion shall follow in due course.
SIDE BAR: For more details on Aleynikov, read: UPDATE: Federal Appeals Court Reverses Conviction of Goldman Sachs Programmer Aleynikov.
On April 6, 2011, Jeng "Jay" Shih, 54, a U.S. citizen, was arrested by federal authorities; thereafter, on April 21, 2011, Shih and his company, Sunrise Technologies and Trading Corporation were indicted on allegations that since about 2007, Shih had conspired with a company operating in Dubai, United Arab Emirates ("UAE"), and Tehran, Iran, to procure U.S.-origin computers through Sunrise and export those computers from the United States to Iran, through Dubai, without first obtaining a license or authorization from the Department of the Treasury and in violation of theInternational Emergency Economic Powers Act ("IEEPA").
In April 2010, the defendants allegedly caused the illegal export of 368 units and another 158 units of computer-related goods to Iran through Dubai. A further 185 units were subsequently illegally exported through the same channels.
SIDE BAR: The United States Department of State warns U. S. citizens about travel to Iran, in part, with this admonition :
Some elements in Iran remain hostile to the United States. As a result, U.S. citizens may be subject to harassment or arrest while traveling or residing in Iran. Since 2009, Iranian authorities have prevented the departure of a number of Iranian-American citizens, including journalists and academics, who traveled to Iran for personal or professional reasons, in some cases for several months. Iranian authorities also have unjustly detained or imprisoned U.S. citizens on various charges, including espionage and posing a threat to national security. U.S. citizens of Iranian origin should consider the risk of being targeted by authorities before planning travel to Iran. Iranian authorities deny the U.S. Interests Section in Tehran access to imprisoned dual nationals because Iranian authorities consider them to be solely Iranian citizens; access to U.S. citizens is often denied as well.
The Iranian government continues to repress some minority religious and ethnic groups, including Baha'i, Arabs, Kurds, Azeris, and others. Consequently, some areas within the country where these minorities reside, including the Baluchistan border area near Pakistan and Afghanistan, the Kurdish northwest of the country, and areas near the Iraqi border, remain unsafe. U.S. citizens who travel to Iran should exercise caution.
On October 11, 2011, federal prosecutors announced that a criminal complaint had been filed in the in the Southern District of New York charging:
NOTE: Charges and allegations contained in a criminal Complaint or Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
The two defendants were charged with conspiracy to murder a foreign official; conspiracy to engage in foreign travel and use of interstate and foreign commerce facilities in the commission of murder-for-hire; conspiracy to use a weapon of mass destruction (explosives); and conspiracy to commit an act of international terrorism transcending national boundaries. Arbabsiar is further charged with an additional count of foreign travel and use of interstate and foreign commerce facilities in the commission of murder-for-hire.
Attorney General Holder described the plot as one "directed by factions of the Iranian government to assassinate a foreign Ambassador on U.S. soil with explosives." The prime target of the Iranian government appears to have been the Saudi Ambassadeor to the United States.
On October 7, 2011, Shih and his Queens, NY company, Sunrise Technologies and Trading Corporation, pleaded guilty in federal court in the District of Columbia to conspiracy to the IEEPA and to defraud the United States. Pointedly, Shih and his company conspired conspiracy to illegally export U.S.-origin computers from the United States to Iran through the UAE.
Under the terms of the plea and related civil settlements, Shih and his company agreed to forfeit $1.25 million. Moreover, Shih and his company are denied export privileges for 10 years - but that bar will be suspended provided that neither Shih nor Sunrise commits any export violations.
On February 18, 2012, Shih was sentenced in the District of Columbia to 18 months in prison; and while his Queens, N.Y.; and Sunrise Technologies and Trading Corporation was sentenced to 24 months corporate probation for conspiracy to illegally export U.S.-origin computers from the United States to Iran through the UAE. Both Shih and his company were also sentenced to forfeiture in the amount of $1.25 million, for which they are jointly liable.
Lemme see if I got this:
Whatever you do, don't put words in my mouth and don't set me up as espousing any position on the issues that I've raised here. Go back and re-read this article and you will see that I have not voiced any support for insider trading or the theft of computer source code - nor have I urged enhanced or reduced prison terms for the insider trading or code defendants. The crimes and sentences are what they are.
Similarly, don't pretend that I have urged more jail time for those who aid Iran or any terrorist state by violating the present US and international trade embargo. Parse through my words as you might, you will not find that sentiment.
I'm not saying whether we need to raise the floor or lower the ceiling of penal sanctions for insider trading or for violations of the Iran trade embargo. And I will emphatically disagree with anyone who infers that I have excused the damage that insider trading causes to Wall Street and the investing public - to the contrary, I acknowledge that the practice is detrimental and I do not express any sympathy for the defendants in the Goffer cases or the code cases.
Still - it does strike me as absurd that a defendant can knowingly sell computers to Iran and obtain a prison term that is of shorter or relatively similar duration to those terms imposed upon insider trading defendants.
Assuming that you believe that insider trading should result in somewhere between 2 1/2 to 10 years in prison (perhaps giving a so-called "settlement premium" to those defendants who save the People the cost of a full-fledged trial), how does one rationalize a mere 18 month sentence for the sale of hundreds of computers to Iran in contravention of federal and international law?
If you really want to stir things up, keep in mind that Bernie Madoff was sentenced to 150 years.
I'm sorry but this is absurd. Aleynikov - recently acquitted by the 2nd Circuit - was originally sentenced to 97 months in prison for allegedly stealing a computer source code from Goldman Sachs. Similarly, Agrawal was sentenced to 36 months in prison for stealing source code from SocGen. And for illegally exporting computers to Iran, Shih only gets an 18 month stretch?
All of which means that if I steal high-frequency trading computer code from a brokerage firm, I should expect to serve anywhere from double to quintuple the prison time that I would get if I opted to sell computers to Iran, a sponsor of global terrorism and a nation hostile to the United States?
I mean, sure, I understand that from the perspective of Occupy Wall Streetthat some parts of our society is, in a sense, at war with the likes of Bank of America, Citigroup, Wells Fargo, JP Morgan, and Morgan Stanley; on the other hand, even if you buy into that class warfare scenario, shouldn't the prison sentences at least be the same for aiding and abetting Wall Street as for doing the same for Iran?
Someone, anyone - ya wanna explain this all to me?