Judges to weigh Rajaratnam appeal of insider case

Tue Oct 23, 2012 2:44pm EDT
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By Grant McCool

NEW YORK (Reuters) - A panel of judges on Thursday will hear arguments that U.S. prosecutors should not have been able to play dozens of FBI wiretaps at the criminal trial of hedge fund tycoon Raj Rajaratnam, a closely watched appeal in one of the biggest insider-trading cases in a generation.

The Galleon Group founder is serving an 11-year prison term, one of the longest ever for insider trading. If he wins a reversal of his conviction, it would be a huge blow to one of the centerpieces of the Justice Department's efforts to stamp out illicit trading on Wall Street.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York will hear arguments in the case. An immediate ruling is unlikely. Rajaratnam, 55, is imprisoned in Massachusetts and is not expected to attend.

The government's decision to covertly record Rajaratnam's phone conversations with traders and corporate insiders -- a technique traditionally reserved for investigations of drug-trafficking and organized crime -- sent a chill through the secretive hedge fund industry. Rajaratnam's lawyers argue that investigators left out key information in seeking court approval of their wiretap application in 2008.

The one-time billionaire has gotten some backing in his appeal, including a friend-of-the-court brief from a legal expert considered the architect of the U.S. wiretap statute, G. Robert Blakey, a professor at Notre Dame Law School in Indiana,

"Bluntly, they lied," Blakey, in a telephone interview with Reuters, said of investigators. He said he believes, however, that Rajaratnam's conviction was "righteous."

Blakey wrote in his brief that the trial judge, Richard Holwell of U.S. District Court in Manhattan, misinterpreted the statute and should have suppressed the evidence. Blakey is the author of the "Blakey Bill," which became the model for key language of Title III of the Omnibus Crime Control and Safe Streets Act of 1968, which governs the use of wiretaps.

Holwell decided to allow the wiretaps despite finding in November 2010 that the government left out information in its application to the U.S. District Judge Gerard Lynch. Rajaratnam also argues that Lynch, who now sits on the appeals court but cannot hear this case, was misled about a key government cooperator, former trader Roomy Khan.   Continued...

Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court in New York May 11, 2011. REUTERS/Lucas Jackson