Court Says Rajaratnam Does Not Have To Turn Over Wiretaps

Mar 24 2010 | 2:34pm ET

Accused insider-traders Raj Rajaratnam and Danielle Chiesi will not have to turn over the wiretaps at the heart of the criminal case against them to the Securities and Exchange Commission, at least for now.

A three-judge panel of the U.S. Second Circuit Court of Appeals in New York granted a stay of U.S. District Judge Jed Rakoff’s order that the two must turn over the tapes. Rakoff is presiding over the civil trial of Galleon Group founder Rajaratnam and former New Castle Partners executive Danielle Chiesi; the defendants received the wiretaps from federal prosecutors as part of the criminal case. The stay allows Rajaratnam and Chiesi to pursue a full appeal of Rakoff’s order.

“We are pleased that the court has issued a stay in this case of first impression,” John Dowd, Rajaratnam’s lawyer, said. “We continue to believe that we are likely to prevail on the merits and that Judge Rakoff’s order would cause irreparable injury to the defendants.”

Rakoff has set Aug. 2 as the start date for the civil trial. The SEC argued that the defendants would have an unfair advantage at that trial is Rajaratnam and Chiesi have the tapes and it does not. But Rajaratnam’s lawyers argued that the SEC had no authority to obtain the wiretaps under the law.

It is unclear if the appeals court decision will impact Rakoff’s desire to begin the trial in August. He has said he would take under advisement the pleas of all sides that the SEC case be delayed under after the criminal trial, which will not begin until October.

Meanwhile, Rajaratnam and Chiesi are continuing to challenge the legality of the wiretaps altogether. U.S. District Judge Richard Holwell, who is overseeing the criminal trial, will hold a hearing on whether the wiretaps were illegal on June 9.

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