Rajaratnam Can’t Shake Inside-Trading Conviction

     (CN) – Federal prosecutors’ failure to disclose a Securities and Exchange Commission investigation against former Galleon hedge fund chief Raj Rajaratnam will not unsettle his convictions for a $63 million inside-trading scheme, the 2nd Circuit ruled.
     Rajaratnam has been serving an 11-year sentence after being convicted of more than a dozen counts of securities fraud in connection to illegal trades in Intel, Akamai, Blackstone, Goldman Sachs, PeopleSupport, Advanced Micro Devices and other companies.
     He also had to pay roughly $63.8 million in fines and forfeiture.
     Though three cooperating witnesses and reams of documents bolstered the government’s case, wiretapped phone calls provided the smoking gun evidence that swayed the jury, press reports of juror interviews have shown.
     Rajaratnam claimed that the wiretaps never should have been played in court because, in the words of U.S. District Judge Richard Holwell, the application to monitor the hedge fund honcho’s phone calls contained a “glaring omission.”
     It did not disclose “that the SEC had for several years been conducting an extensive investigation into the very same activity the wiretap was intended to expose[,] using many of the same techniques the affidavit casually affirmed had been or were unlikely to be successful,” Holwell added. (Brackets in original.)
     The judge found that the U.S. Attorney’s Office acted with a “reckless disregard for the truth,” but that this malfeasance was not enough to suppress the wiretaps.
     Rajaratnam challenged the latter decision in appealing his convictions to the 2nd Circuit.
     But a unanimous three-judge panel not only affirmed the decision to admit the wiretap, it also defended the prosecutors’ conduct as an unintended error.
     “Based on our review of the record, we conclude that the district court erred in applying the ‘reckless disregard’ standard because the court failed to consider the actual states of mind of the wiretap applicants,” Judge Jose Cabranes wrote for the panel.
     “A wiretap applicant does not necessarily act with ‘reckless disregard for the truth’ simply because he or she omits certain evidence that a reviewing court, in its judgment, considers to be ‘clearly critical.’ Rather, the reviewing court must be presented with credible and probative evidence that the omission of information in a wiretap application was ‘designed to mislead’ or was ‘made in reckless disregard of whether [it] would mislead.'” (Emphasis in original.)
     Even Holwell acknowledged that “no one acted with the deliberate intent to mislead,” the panel said.

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