Posts tagged “wiretaps”

Galleon Defendants Lose Dismissal Bid

January 6th, 2011

Five defendants in the Galleon Group insider-trading case, including two former Galleon traders, will have to face trial after a judge dismissed their bid to dismiss the cases against them.

The five, led by former Galleon trader and Incremental Capital founder Zvi Goffer, saw their bid rejected today by U.S. District Judge Richard Sullivan. The federal judge also handed down some potentially worse news: As in the trial of Galleon founder Raj Rajaratnam, tens of thousands of wiretaps at the heart of the government’s case will be admitted into the Goffer trial.

According to prosecutors, Goffer was the head of one of the two interlocking insider-trading rings in the case; Rajaratnam was part of the second. Goffer allegedly gave sources prepaid cellular phones to call in their tips, paying those sources for the confidential information. Goffer’s ring allegedly turned $20 million in illegal profits.

But Goffer and his co-defendants, his brother Emanuel and Michael Kimelman, both of Incremental, Craig Drimal, a former colleague of Goffer’s at Galleon, and Jason Goldfarb, a lawyer at the law firm which allegedly provided many of Goffer’s tips, said that the case against them was based on a “convoluted theory” of insider-trading. What’s more, what evidence prosecutors did offer failed to meet the standard for insider trading.

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SEC Wants Judge To Force Rajaratnam To Hand Over Wiretaps

December 22nd, 2010

Rajaratnam and Chiesi

Having lost his fight to keep thousands of wiretaps out of his criminal trial, Galleon Group founder Raj Rajaratnam will now have to renew his fight to keep them out of the hands of the Securities and Exchange Commission.

The SEC yesterday demanded that Rajaratnam and former co-defendant Danielle Chiesi, both accused of insider-trading, turn over some of the 18,150 wiretaps that they received from prosecutors in the crimin

al case. And it seems likely that the two will lose at least the first round: The judge presiding over the civil case, U.S. District Judge Jed Rakoff, had ordered them to turn over the taps even before U.S. District Judge Richard Holwell, who is overseeing the criminal case, ruled on their legality.

received an at least temporary reprieve when a federal appeals court ruled that Rakoff erred by granting the SEC’s request before Holwell ruled. But now that Holwell has ruled that the wiretaps were, in fact, legal, it is unclear that Rajaratnam and Chiesi will still have the appeals court’s ear.

“Given that the legality of the wiretaps has now been established, and given that the SEC is only seeking relevant intercepts, the SEC’s ‘significant’ right to obtain the relevant intercepts outweighs whatever arguable remaining privacy interests defendants and others may have,” the agency said in its filing.

“The SEC’s significant right of access to relevant, legally intercepted communications relating to the defendants’ insider trading scheme, and the substantial prejudice it will suffer if deprived of these intercepts, clearly outweighs any remaining, diminished privacy interests implicated in disclosing the relevant intercepts. Without the recordings, the SEC likely will be deprived of important admissions and in many instances the best, most direct evidence of wrongdoing.”

Rajaratnam and Chiesi may reprise their earlier arguments against giving the SEC the taps, noting that the agency lacks the authority to use wiretaps.

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Prosecutors Win Right to Use Rajaratnam Wiretaps

November 26th, 2010

Raj Rajaratnam

The winning streak of Galleon Group hedge fund founder Raj Rajaratnam came to an end on Wednesday when federal prosecutors won their bid to present secret recordings in the upcoming insider-trading criminal trial.

U.S. District Judge Richard Holwell supported the use of wiretaps by prosecutors to uncover a fraudulent insider trading racket, even though the order does not specifically authorize wiretaps to investigate insider trading alone.

He rejected defense arguments that the wiretaps were poisoned because FBI agent B.J. Kang had misled a different judge who authorized them in March 2008 about their need, and were unnecessary because the U.S. Securities and Exchange Commission was pursuing its own civil fraud case without them.

While finding it “troubling” that prosecutors withheld details of the SEC probe, Holwell allowed the wiretaps of more than 2,000 conversations. He said that because much of the alleged scheme was conducted by phone, investigators were unlikely to fully uncover it by conventional means.

“Disclosure of all the details of the SEC’s investigation that the government recklessly omitted would ultimately have shown that a wiretap was necessary and appropriate,” Holwell wrote in his 68-page opinion.

Danielle Chiesi, a co-defendant and former trader with New Castle Funds LLC, had also sought to suppress the wiretaps.

Jim McCarthy, a spokesman for Rajaratnam, declined to comment. Alan Kaufman, a lawyer for Chiesi, declined immediate comment. A spokeswoman for U.S. Attorney Preet Bharara in Manhattan said that office does not discuss ongoing cases.

Rajaratnam and Chiesi face up to 20 years in prison if convicted on charges including securities fraud and conspiracy. A trial is scheduled for January 17.

“The ruling significantly increases the pressure on the defendants to consider whether to plead guilty,” said David Siegal, a partner at Haynes and Boone LLP in New York and a former federal prosecutor.

“Recordings of the precise words spoken by a tipper and tippee in an insider trading case can be powerful evidence to demonstrate criminal intent,” Siegal continued. “Nevertheless, a sentence arising from a guilty plea may be so severe that a defendant may choose to go to trial anyway.”

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The Prosecutors Strike Back in Galleon Case

October 29th, 2010

Raj Rajaratnam

For months now, Galleon Group founder Raj Rajaratnam has been fighting the government’s attempts to admit wiretaps into evidence in its never-ending insider-trading case. Now, Federal prosecutors have struck back, justifying the tapes in a strongly-worded brief to the court.

In early October, John Dowd, a lawyer for Rajaratnam, wrote to U.S. District Judge Richard Holwell, who is overseeing the trial, that “falsehoods and critical omissions pervade this affidavit.” Dowd also maintained that if prosecutors or the Federal Bureau of Investigation had given a more complete description of the Securities and Exchange Commission investigation that preceded the criminal probe, it “would have resulted in the denial of the wiretap application.”

The court filing from Assistant U.S. Attorneys Jonathan Streeter and Avi Weitzman alleged that Rajaratnam’s lawyers had shown no reason to exclude the 2,400+ taped conversations from the criminal trial. “Rajaratnam failed to prove that any Government representative deliberately decided” the federal judge who approved the wiretaps in March 2008, Gerald Lynch, “or had reckless disregard for whether they were deceiving the judge.”

According to Streeter and Weitzman, “Rajaratnam has not and cannot make this showing,” they wrote, noting that Lauren Goldberg, a former prosecutor who worked on the wiretap affidavit testified at a hearing earlier this month that the SEC probe had “hit a bit of a wall” and that the regulator had “developed largely ‘weak or nonexistent’ circumstantial cases involving stocks it was investigating.”

The prosecutors said they used the SEC’s best evidence to win the cooperation of former Galleon employee Roomy Khan, an alleged member of the insider-trading circle that has -ensnared 21 people, including Rajaratnam. Khan appears on many of the wiretaps. Streeter and Weitzman said their case would include testimony from some of the participants in the taped conversations in addition to the taps themselves.

It is unclear when Holwell will rule on the legality of the wiretaps. Rajaratnam’s trial is set to begin in January; he faces decades in prison if convicted.

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Galleon’s Raj Rajaratnam Wins Another Round

October 1st, 2010

Raj Rajaratnam

The Securities and Exchange Commission will not gain access to wiretaps that are at the vortex of the insider-trading case against Galleon Group without first proving that the wiretaps were legally obtained, according to a ruling by an appeals court on Thursday.

The Second Circuit Court of Appeals in New York reversed the February ruling of U.S. District Judge Jed Rakoff that Galleon founder Raj Rajaratnam and co-defendant Danielle Chiesi must submit the wiretaps to the SEC. Rajaratnam and Chiesi garnered the wiretaps from prosecutors in the criminal case.

“While the district court was correct that the SEC had a legitimate right of access to the wiretap materials, it could not properly balance that interest against the privacy interests at stake while the legality of the wiretaps was still unresolved,” the three-judge appeals panel ruled.

A ruling on the legality of the wiretaps is expected following an Oct. 4 hearing before U.S. District Judge Richard Holwell, who is presiding over the criminal case against Rajaratnam and Chiesi. Last month, Holwell said that Rajaratnam “has made a substantial preliminary showing that the government recklessly or knowingly misleading omitted several key facts” from its wiretap applications.

“We are gratified that the Second Circuit appreciated the gravity of the privacy issues at stake, and therefore reversed the disclosure order,” Chiesi’s lawyer, Alan Kaufman, said.

There are more than 18,000 intercepted conversations at the heart of the government’s case against the 21 Galleon defendants, a dozen of whom have pleaded guilty. Rajaratnam and Chiesi have pleaded not guilty and have denied any wrongdoing.

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