By Jonathan Stempel and Nate Raymond
June 24 A federal appeals court on Monday upheld
the insider trading conviction of Galleon Group hedge fund
founder Raj Rajaratnam, rejecting his argument that wiretap
evidence was used improperly to convict him.
The unanimous decision by a three-judge panel of the 2nd
U.S. Circuit Court of Appeals in New York was a victory for
federal prosecutors, who have used wiretaps to win convictions
or guilty pleas for 73 defendants in a wide-ranging probe into
insider trading that was unveiled in October 2009.
"It does give the government more discretion and makes it
easier to secure wiretap applications," said Kevin O'Brien, a
former federal prosecutor who is now a partner at Harris,
O'Brien, St. Laurent & Houghteling.
Patricia Millett, a lawyer for Rajaratnam, declined to
comment. A spokeswoman for U.S. Attorney Preet Bharara in
Manhattan declined to comment.
Rajaratnam, 56, is serving an 11-year prison term. A federal
jury convicted him in May 2011 of nine counts of securities
fraud and five counts of conspiracy.
The government said Rajaratnam, whose firm once managed $7
billion, made as much as $63.8 million in illicit profit from
2003 to March 2009 trading on stocks including eBay Inc
; Goldman Sachs Group Inc ; Google Inc ;
Intel Corp ; and ATI Technologies Inc, which was bought
by Advanced Micro Devices Inc.
Prosecutors said the Goldman trades included trades during
the 2008 financial crisis, just after Rajaratnam got a tip from
Goldman director Rajat Gupta of an infusion in the bank from
Warren Buffett's Berkshire Hathaway Inc.
It was the highest-profile conviction of a hedge fund
executive to date in the crackdown on insider trading. Gupta is
the highest-ranking corporate executive convicted, and is
appealing his June 2012 conviction and two-year prison sentence.
As part of the probe, investigators relied heavily on
wiretaps, a tool that until then was more often associated with
In March 2008, prosecutors sought to wiretap Rajaratnam's
cell phone in a bid to identify his network of inside sources
and gather evidence for criminal cases.
The wiretaps were also at the center the case against Gupta,
the former head of management consultancy McKinsey & Co who
prosecutors say gave Rajaratnam inside information about Goldman
Sachs Group Inc, where Gupta was a board member.
Rajaratnam's lawyers had argued the recordings should have
been suppressed because the initial wiretap application
contained misstatements or omissions.
The 2nd Circuit rejected those arguments. U.S. Circuit Judge
Jose Cabranes, writing for the court, said details Rajaratnam
said "all of the alleged misstatements and omissions were not
Cabranes also rejected Rajaratnam's argument that former
U.S. District Judge Richard Holwell's jury instructions on the
use of inside information were erroneous.
O'Brien, who is not involved in the case, said Monday's
decision "gives the government comfort when making applications
of this kind that they don't have to turn square corners as long
as any mistakes or omissions are not deemed material end day."
The case is U.S. v. Rajaratnam, 2nd U.S. Circuit Court of
Appeals, No. 11-4416.