SEC, Rajaratnam Battle Over Wiretap Order

Mar 23 2010 | 6:19pm ET

Lawyers for the Securities and Exchange Commission and two Galleon Group insider-trading defendants battled today over the wiretaps at the center of the case.

The Second Circuit Court of Appeals in New York heard arguments from both sides over whether Galleon founder Raj Rajaratnam and former New Castle Partners executive Danielle Chiesi should be forced to turn over the taps—which they received from the prosecutors as part of the criminal case against the two—to the SEC. But the judges on the appeals panel seemed more interested in whether the taps would be admissible in either the criminal or civil case.

“I would think everybody’s energies should be devoted to getting a quick resolution on the legality of the wiretaps,” U.S. Circuit Judge Reena Raggi said during today’s hearing. Rajaratnam’s lawyer, Patricia Ann Millett, later explained that, while she believes “there are false, misleading omissions and misrepresentations” in the government documents seeking the wiretaps, the defense is still wading through the 18,000 tapes.

The SEC’s civil case against Rajaratnam and Chiesi is set to go to trial on Aug. 2. The criminal trial is scheduled to begin on Oct. 25. Rajaratnam faces up to 185 years in prison if convicted for his role in the largest insider-trading case in U.S. history. Chiesi faces up to 155 years.

Even if the wiretaps are eventually deemed admissible, the defendants say they should not have to hand them over to the SEC, as the judge overseeing the civil case, U.S. District Judge Jed Rakoff, ordered last month.

Rakoff’s order would force “two defendants in a pending criminal action to disclose in civil discovery almost 20,000 sealed, untested wiretaps of their own private telephone conversations,” lawyers for Rajaratnam and Chiesi wrote to the court. “That order contravenes the plain text of the wiretap statute.”

Thomas Karr, a lawyer for the SEC, said the fast-approaching civil trial makes access to the wiretaps “a matter of necessity.” But he conceded that, should the taps be suppressed, “it is obviously a different situation.”

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