Andrew Gombert/European Pressphoto AgencyRaj Rajaratnam, the former head of the Galleon Group.Adam Smith, a former portfolio manager at the Galleon Group hedge fund who provided the government with crucial assistance in prosecuting his onetime boss, Raj Rajaratnam, avoided prison on Tuesday when a judge sentenced him to two years’ probation.
Judge Jed S. Rakoff, who sentenced Mr. Smith in Federal District Court in Manhattan, said he spared Mr. Smith because of his “very substantial” aid to prosecutors. He added that cooperation in insider trading cases should be rewarded because the crime, in many instances, can be so difficult to detect.
“He has done everything one could reasonably ask to make amends,” Judge Rakoff said.
Mr. Smith’s sentence is among the lightest received by any Wall Street trader caught up in the insider trading scandals that have shaken the hedge fund industry, and it underscores the benefits of pleading guilty and cooperating. He is the sixth cooperator in the recent wave of insider trading cases to receive a noncustodial sentence. In January, a federal judge sentenced David R. Slaine, a former trader at the hedge fund Chelsey Capital who admitted to crimes and then provided key assistance to the government, to three years’ probation.
Since 2009, the United States attorney’s office in Manhattan has charged 70 people with insider trading crimes. Of those, 64 either pleaded guilty or have been convicted at trial. On Tuesday, federal prosecutors continued their sweeping campaign, as Tai Nguyen, an executive at the stock research firm Insight Research, pleaded guilty to providing hedge fund clients with confidential information about Abaxis, a publicly traded technology company.
Mr. Smith, 39, was the highest-ranking Galleon employee to plead guilty to insider trading crimes. He was an important witness during the trial of Galleon’s founder, Mr. Rajaratnam, which resulted in a conviction.
The two other main government witnesses who pleaded guilty and testified for the government — Anil Kumar, a former executive at the consulting firm McKinsey & Company, and Rajiv Goel, a former executive at the chip maker Intel — have yet to be sentenced.
A graduate of Harvard College and Harvard Business School, Mr. Smith joined Galleon in 2002 after three years as an investment banker at Morgan Stanley. During Mr. Rajaratnam’s trial, Mr. Smith testified that he routinely swapped secret information with corporate insiders. He did so, he told the jury, “to get an edge on a company.”
“My motivation was to improve the profitability of my firm and to help Raj,” he said.
Known as one of the hardest workers at Galleon, Mr. Smith frequently took long business trips to California and to Asia to visit with technology industry bankers and executives. Several of those sources gave him confidential information, he later acknowledged.
He testified that the morning after Mr. Rajaratnam’s arrest in October 2009, he left his Gramercy Park apartment, drove to his country house in upstate New York and dumped his laptop computer in the garbage.
Mr. Smith began cooperating with the government in late 2010 after prosecutors presented him with evidence they had built against him. He met with federal authorities for more than 150 hours to help them build their case against Mr. Rajaratnam. He secretly recorded telephone conversations with his friends and colleagues. He also provided prosecutors with incriminating evidence against Rajat Gupta, the former Goldman Sachs director who was convicted earlier this month of leaking confidential information about the bank to Mr. Rajaratnam.
The cooperation of Mr. Smith, said Preet Bharara, the United States attorney in Manhattan, was “nothing short of extensive, substantial and significant.” Mr. Bharara said that Mr. Smith had provided continuing assistance with several insider trading investigations.
Standing before the court, with family and friends filling three rows of the spectators’ gallery, Mr. Smith gave a brief apology for his actions.
“I am deeply sorry for the mistakes I made, and I am incredibly humbled and ashamed,” he said, choking back tears as he expressed his love for his wife and children.
Judge Rakoff responded to the short speech with a question that he said he hoped would not come off as too cynical.
“Why is it that defendants remember how much they love their family after they committed a crime that puts that whole relationship in jeopardy?” the judge asked.
In the late 1980s, Judge Rakoff was a criminal defense lawyer representing Martin A. Siegel, an investment banker at the center of that era’s insider trading scandal. According to “Den of Thieves,” a book chronicling those cases, Judge Rakoff orchestrated a cooperation deal that Mr. Siegel cut with the government, resulting in a light two-month prison sentence.
On Tuesday, Judge Rakoff noted that the American legal system was sometimes criticized abroad for its reliance on cooperators. But he said that prosecutors here had been able to pursue far more sophisticated crimes and powerful defendants than in foreign jurisdictions.
“It is an evil perhaps,” he said of the government’s dependence on cooperators, “but a necessary evil nonetheless.”