Insider trading wiretaps under scrutiny in Rajaratnam appeal

Thu Oct 25, 2012 3:24pm EDT
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By Grant McCool

NEW YORK (Reuters) - A panel of judges explored the ramifications Thursday of a potential reversal of hedge fund tycoon Raj Rajaratnam's conviction as they heard arguments on whether FBI wiretap evidence should have been allowed at his insider-trading trial.

The 2nd U.S. Circuit Court of Appeals did not indicate how it might rule on the Galleon Group founder's case. If Rajaratnam were to win reversal of his 2011 criminal conviction and sentence, it would be a huge blow to one of the Justice Department's biggest white-collar crime cases.

Rajaratnam's lawyers argue that investigators intentionally left out information about their probe from a March 2008 application to a judge to tap the one-time billionaire's cell phone. They say the decision by a different judge to allow the tapes to be played at Rajaratnam's trial was wrong.

"What happens if we agree with you, would there be a new trial?" U.S. Circuit Judge Robert Sack asked Rajaratnam's lawyer, Patricia Millett, at the start of Thursday's 50-minute hearing.

Millett responded that the government would have the opportunity to try Rajaratnam a second time, presenting evidence other than the phone calls secretly recorded by the FBI over nine months in 2008.

Rajaratnam, 55, did not attend the hearing. He is serving an 11-year prison term in Massachusetts, one of the longest sentences imposed for insider trading.

U.S. prosecutor Andrew Fish told the three-judge panel that the government "wasn't trying to hide" the information from then U.S. District Judge Gerard Lynch, who approved the wiretap application.

"All (the information) did was confirm that Judge Lynch would grant the wiretap," Fish said.   Continued...

Galleon hedge fund founder Raj Rajaratnam (C) departs Manhattan Federal Court after his sentencing in New York October 13, 2011. REUTERS/Lucas Jackson