Court: SEC Must Wait On Galleon Wiretap Legality Ruling

Sep 30 2010 | 1:48pm ET

An appeals court has barred the Securities and Exchange Commission from getting its hands on the wiretaps at the center of the Galleon Group insider-trading case until the legality of those wiretaps is determined.

The Second Circuit Court of Appeals in New York overruled U.S. District Judge Jed Rakoff, who ruled in February that Galleon founder Raj Rajaratnam and co-defendant Danielle Chiesi must turn over the wiretaps to the SEC. Rajaratnam and Chiesi received 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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