A federal appeals court upheld Galleon Group founder Raj Rajaratnam's conviction on insider-trading charges, leaving the former billionaire to serve out his 11-year sentence.
The U.S. Second Circuit Court of Appeals today affirmed the 2011 trial verdict, which found that Rajaratnam was at the head of the largest insider-trading scheme in U.S. history. The three-judge panel's ruling was unanimous.
Rajaratnam's lawyers had asked the court to throw out the conviction, arguing that the Federal Bureau of Investigation had misled the judge who approved wiretaps against Rajaratnam, and that the trial-court judge erred in admitting them. Those tapes were at the center of the case against Rajaratnam
But the judges dismissed the claim, arguing that if the allegedly omitted information had been included in the wiretap application, it would actually have been stronger.
"We cannot conclude that the government omitted certain information about the SEC investigation with 'reckless disregard for the truth,'" U.S. Circuit Judge Jose Cabranes wrote. The court also rejected another avenue pushed by Rajaratnam's lawyers, that the trial-court judge's jury instructions were incorrect.
Rajaratnam was convicted of conspiracy and fraud in 2011; the jury found that he had earned as much as $63.8 million in illicit profits trading on insider tips about a large number of companies, including Goldman Sachs and Google Inc. His Goldman tipster, former McKinsey & Co. chief Rajat Gupta, who was a member of Goldman's board, was later convicted of insider-trading himself.
The Second Circuit's ruling is likely bad news for a number of other convicted insider-traders who have appealed their guilty verdicts on similar grounds, challenging the admissibility of wiretaps and the correctness of jury instructions. All of them are seeking relief from the same appeals court that just refused to grant it to Rajaratnam.
Rajaratnam's appeals have not been exhausted; he can ask the entire Second Circuit to rehear his case and, failing that, can then take it up with the U.S. Supreme Court.