NEW YORK, N.Y. – The conviction of a onetime billionaire on insider trading charges was upheld Monday by a federal appeals court that concluded the government did not cheat to obtain permission to make its most extensive use of wiretaps ever in such a case.
Lawyers for 56-year-old Raj Rajaratnam had argued on appeal that the government improperly persuaded a judge in 2008 to permit a wiretap to be placed on Rajaratnam’s cellphone. The wiretap was used to record 2,200 private conversations by Rajaratnam, the founder of the Galleon group of 14 hedge funds. Several dozen of those conversations were played for the jury that convicted him in 2011 of multiple counts of securities fraud and conspiracy to commit securities fraud.
“Rajaratnam’s arguments are not persuasive,” the 2nd U.S. Circuit Court of Appeals wrote in a unanimous ruling by a three-judge panel in Manhattan.
The court said the wiretaps were properly obtained, despite a lower-court judge’s finding that information about a probe of Rajaratnam by the Securities and Exchange Commission was “clearly critical” and that the government acted with “reckless disregard for the truth” in omitting certain information about the investigation in its requests for wiretaps.
The appeals court said it could not conclude that the government acted recklessly in its wiretap requests when fully disclosing the details of the SEC investigation would only have strengthened its argument for wiretaps.
Chronologies of the SEC’s probe strongly suggested that Rajaratnam had been careful to exchange nearly all of his inside information by telephone, the appeals court noted. And it recounted statements by a government lawyer and an FBI agent who said they never thought about including information about the SEC probe in its wiretap application. The appeals panel said the lower-court judge had erred in failing to consider the states of mind of the wiretap applicants.
The Sri Lanka-born Rajaratnam, arrested in 2009, is serving an 11-year prison sentence at a Massachusetts prison after the government said he made $75 million illegally. He did not appeal the legality of his sentence, which was substantially less than the 19 1/2 to 24 1/2 years prison term sought by the government.
He is scheduled to be released in 2021. In his criminal case, he was fined $10 million and was ordered to forfeit $53.8 million. He also was ordered to pay a record $92.8 million civil penalty to the SEC.
Prosecutors obtained more than two dozen convictions in a case they once called the biggest insider trading prosecution in history.
His lawyers declined to comment Monday.