Insider Trading Cases End as DOJ Dud With Few Prison Sentences

(Bloomberg) — Sitting at home in the south of France, beyond the reach of US law enforcement for the better part of a decade, former Moelis and Co. banker Benjamin Taylor made what seemed like a brave choice. He returned to the US to face an insider trading charge that carried as much as five years behind bars.

Now working as a commodities trader, Taylor, 42, appeared in a Manhattan court to plead guilty to passing tips as part of a global insider trading ring that US prosecutors said included at least 10 other people. He and his then-girlfriend — who called each other “Pops” and “Popsy” in emails — had been charged with passing about 15 tips on companies from 2012 to early 2018.

Taylor faced the possibility of prison time under a plea deal with prosecutors. As it turned out, he needn’t have worried too much.

“Most of the major players have not been prosecuted or have not spent time in prison,” US District Judge Denise Cote said at his sentencing on June 11. Because of those other cases, she allowed Taylor to avoid jail despite saying that he had committed “extraordinarily serious criminal conduct.”

The plea effectively ended the federal prosecution of a global ring involving residents of the US, UK, France, Switzerland, Israel, Cyprus, Greece and Hong Kong. In 2019, US prosecutors announced charges against Taylor, his former girlfriend, Darina Windsor, and four others in what was then one of the biggest US insider trading probes in years.

Taylor’s sentence, which amounted to time already served in Monaco while fighting extradition to the US, highlights how most of those got off easy. Lawyers for Taylor didn’t respond to emails requesting comment for this story.

Most of the 11 alleged inside traders got no time behind bars in the US. Several, like Taylor, were beyond the reach of US authorities and wouldn’t be extradited by their home countries. The only member the ring who got substantial time was an Israeli-Lithuanian trader, Dov Malnik, who pleaded guilty to trading on inside tips and got a sentence of 30 months.

The reasons for the absence of harsh sentences is likely down to a range of factors, including Covid-19. One person who pleaded guilty, a former banker at Goldman Sachs Group Inc., was given home confinement during the pandemic after arguing his chronic asthma would make jail time too dangerous for him.

But a bigger was the ability of cooperating witnesses to win leniency by helping prosecutors unravel the case, said Jacob Frenkel, a partner with Dickinson Wright LLP in Washington. Still, the sentences for the defendants in the insider trading ring “have to be disappointing” to prosecutors.

“This cannot be a satisfactory outcome for the Justice Department,” said Frenkel, a former federal prosecutor and Securities and Exchange Commission enforcement attorney.

Rajaratnam, Martoma

Other unrelated insider trading cases in New York have led to long sentences, including Galleon Group’s Raj Rajaratnam, the mastermind of what prosecutors said was one of the largest hedge-fund insider-trading rings in US history, who was sentenced to 11 years. Former SAC Capital Advisors portfolio manager Mathew Martoma got nine years for using illegal tips to make $275 million.

Windsor, a former Centerview Partners LLC investment banker, pleaded not guilty in April in an unusual video hearing from her native Thailand, where she has been since leaving London. If she avoids trouble and pays a promised $100,000 to the US Securities and Exchange Commission, prosecutors have agreed to drop the charges against her early next year.

“Ms. Windsor is pleased to resolve this matter and to move forward with her life,” said her lawyer, Paul Schoeman. None of the banks were accused of wrongdoing.

Taylor told the judge that he passed the information to French brothers John and Kevin Dodelande in exchange for cash and gifts, that prosecutors claim were worth more than $1 million. The Dodelandes, prosecutors said, passed the tips to others, including the Swiss trader at the center of the ring, Marc Demane Debih, receiving millions of dollars in return.

Demane Debih has admitted that he made more than $70 million trading on illegal tips. The Dodelandes escaped prosecution by cooperating with investigators. Demane Debih got time served – the 15 months he had already spent in jails in Serbia and the US — for his cooperation.

The Dodelandes didn’t return messages seeking comment. A lawyer for Demane Debih also didn’t respond to a message.

No Shortcuts

In his own sentencing hearing in June, Taylor told the judge of his efforts to rebuild his life in the past eight years, starting a business trading liquefied natural gas and fertilizer.

“I had returned to my parents’ home. I started from zero,” he said. “It has taken me almost a decade to rebuild, transaction by transaction. relationship by relationship. No shortcuts.”

Taylor told the judge he hoped to be allowed to return to France to care for his ailing father and to attend a work-related conference where he was scheduled to meet with clients. The judge sentenced Taylor to time served, for the 57 days he spent in jail in Monaco in 2018 while fighting extradition to the US.

Cote said that a major factor in Taylor’s sentence was “what happened to all of the others.”

“His girlfriend is not going to go to prison. The Dodelandes are not going to go to prison,” Cote observed. “And so the issue is in part whether justice requires that the defendant spend more time in prison.”

The case is US v. Taylor, 18-cr-00184, US District Court, Southern District of New York (Manhattan).

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