Court Hears Arguments In Rajaratnam Appeal

Oct 29 2012 | 12:59pm ET

The federal appeals court panel considering Raj Rajaratnam's appeal appeared divided over the legality of the wiretaps central to his insider-trading conviction.

The three-judge panel of the U.S. Second Circuit Court of Appeals in Manhattan heard arguments Thursday on whether a lower-court judge should have allowed the wiretaps to be heard at Rajaratnam's trial. While one of the three judges, Jose Cabranes, appeared to clearly side with prosecutors, the other two seemed more skeptical about the propriety of prosecutors' applications for the wiretaps.

Still, much of the 30-minute session appeared to focus on what, exactly, a victory for Rajaratnam would mean. U.S. Circuit Judge Susan Carney asked Rajaratnam's lawyer, Patricia Ann Millett, what the "remedy" would be if the court found the wiretaps illegal. Another judge, Robert Sack, asked, "What happens if we agree with you? Does this mean a new trial?"

Millett said that it would.

The judges also seemed concerned about the broader impact of their ruling, asking prosecutor Andrew Fish what should be done if similar mistakes—the lower-court judge who OKed the use of the wiretaps at Rajaratnam's trial acknowledged that prosecutors had acted "recklessly" in applying for them, leaving out key information—were made in the future. Fish said that prosecutors are more careful now as a result of the Rajaratnam case.

During his 15 minutes, Fish argued that the carelessness that marked prosecutors' wiretap applications actually weakened those applications. He suggested that, had further details of the Securities and Exchange Commission investigation and its difficulties been included, the wiretap authorizations would have been even more likely, a position that Cabrales appeared to agree with.

Millett, of course, had a different take. "In paragraph after paragraph, there were statements that had no reality," she said. "You cannot ask for a wiretap without showing what you've done."

Rajaratnam did not appear in court for the hearing; he is serving an 11-year sentence at a federal prison in Massachusetts.

It could be months before the court issues its ruling. No matter which way it rules, it is unlikely to be the last heard of the wiretap issue. The losing side can request that the full court rehear the case, and could still appeal to the U.S. Supreme Court. In addition, former McKinsey & Co. chief Rajat Gupta, sentenced last week to two years in prison for passing tips to Rajaratnam, plans to appeal his own conviction on the grounds that the wiretaps were illegally obtained.

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