Fordham Law

Rajaratnam Bid to Exclude Wiretaps Aims to Sink Galleon Case

James A. Cohen in Bloomberg Business Week, May 11, 2010

Media Source

By David Glovin

May 11 (Bloomberg) -- Galleon Group LLC co-founder Raj Rajaratnam’s bid to suppress wiretap evidence at his insider- trading trial has an even broader aim: to topple the bulk of the government’s case against him.

Rajaratnam’s attorney John Dowd last week asked U.S. District Judge Richard Holwell in Manhattan to throw out wiretaps of 2,400 of his client’s conversations and the evidence that prosecutors “derived” after hearing them. The defense may claim such follow-on evidence, known as the “fruit of the poisonous tree,” includes testimony from witnesses who were identified on the taps swapping stock tips with Rajaratnam.

Prosecutors said Rajaratnam used secret information from hedge-fund executives, corporate officials and other insiders to earn millions of dollars in illegal stock trades. A ruling for the defense may block prosecutors from presenting their strongest evidence in the largest hedge-fund insider-trading case ever.

“If they knock out the wiretaps, it would support the suppression of a wide range of evidence derived from the wiretaps,” Daniel Richman, formerly a federal prosecutor in Manhattan, said in an interview.

Richman, who teaches at Columbia Law School, said it will be a “real stretch” for Dowd to prevail. He said he doubts the defense has strong enough arguments to exclude the wiretapped conversations or block government witnesses from testifying.

Central Figure

Rajaratnam, 52, is the central figure in an insider-trading probe that has led to charges against 21 people, including 11 who have pleaded guilty and 4 of whom have agreed to testify against the Galleon co-founder. The securities fraud counts against Rajaratnam each carry a maximum sentence of 20 years in prison. He denies the charges against him.

The case is the first in which the government has used secret intercepts of telephone calls to investigate and prosecute insider trading. The wiretaps, which were approved by a different judge than the one handling the trial, are central to the government’s case. A prosecutor said after Rajaratnam’s arrest that the conversations show him engaged “in a veritable smorgasbord of insider trading.”

Roberto Finzi, a former federal prosecutor in Manhattan, called Rajaratnam’s bid to suppress the taps an “uphill fight.” Still, prosecutors may have “some explaining to do” if the allegations Dowd advanced in his brief turn out to be true, said Finzi, a lawyer at Paul Weiss Rifkind Wharton & Garrison LLP.

Roomy Khan

In a May 7 motion, Dowd said prosecutors violated federal law by misleading the judge who authorized the taps about the background of government witness Roomy Khan, the former Intel Corp. executive whose disclosures led prosecutors to investigate Rajaratnam.

Dowd said prosecutors and an agent with the Federal Bureau of Investigation concealed Khan’s criminal record, her seven- year history of cooperating with the government, her “flip- flopping” during interviews and her efforts to escape punishment.

The judge “was entitled to a full and complete statement of the circumstances bearing on the credibility” of the government’s “star witness,” Dowd wrote.

Yusill Scribner, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment.

“I can see a court having an issue” with the taps if Dowd’s allegations prove true, Finzi said. Prosecutors have until May 28 to file a response. The trial is scheduled for October.

Even if the defense is able to exclude the wiretap evidence and testimony from some witnesses, prosecutors will still be able to present testimony from Khan, who first met with the government years before Rajaratnam was charged.

Standard Arguments

Richman said arguments like Dowd’s are standard for defense attorneys seeking to suppress wiretaps and that courts don’t require extensive detail about witnesses who provide the legal grounds for a government wiretap. Prosecutors must provide the judge with enough evidence to weigh the witness’s credibility and be forthcoming about material matters, he said.

“The issuance of a wiretap order is largely left to the discretion of the judge,” said Anthony Sabino, a law professor at St. John’s University School of Law in New York. “It will not be overturned unless there is a showing that the judge’s ruling was ‘clearly erroneous.’”

William Burck, a lawyer at Weil, Gotshal & Manges LLP, said judges expect prosecutors to provide enough evidence for them to make a “reasoned determination” when presented with a government bid for a wiretap, especially because the target of the wiretap isn’t afforded a chance to challenge the request. If a court determines the government failed to be forthcoming, that may be a basis for suppressing the wiretap, Burck said.

If Dowd can get the wiretaps suppressed, he’ll probably turn his sights to witnesses the government discovered from listening in, Sabino said. He said he expects Dowd to advance the “poisonous fruit” doctrine.

‘Anything Found’

“If the original search is unlawful, anything found during the course of the search -- including leads to other evidence -- will be considered unlawful,” said James Cohen, a professor at Fordham Law School in New York. Cohen said he doesn’t expect Dowd to win this argument.

While physical evidence such as drugs may be suppressed because prosecutors violated the law, courts won’t block human witnesses from testifying under the “poisonous fruit” doctrine, Cohen said. Without wiretaps, government witnesses may still take the stand to implicate Rajaratnam because “people are independent actors” who decide for themselves whether to cooperate, he said.

Rajaratnam’s Defense

Dowd’s motion also offered glimpses of some of the facts Rajaratnam will advance in his defense. Among them are excerpts of his conversations with Khan about Intel and Xilinx Inc. in which he repeats what he learned from Galleon analysts. The filing cites information, which prosecutors said was confidential, that was already public.

“Speaking to company representatives in order to gather publicly available information about the company, its supply chain and its competitors was a routine part of the factual research that went into formulating Galleon’s investing strategies, including earnings previews,” Dowd said.

The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Andrew Dunn, John Pickering.