Hedge Fund Titan’s Appeal: Is Snowden Right About Goverment Spying?

Hedge Fund Titan’s Raj Rajaratnam  Appeal: Is Snowden Right About Goverment Spying?

uncle-sam-wiretap-1Second Circuit Court of Appeals in Manhattan affirmed the 2011 insider trading conviction of Raj Rajaratnam, founder of the Galleon Group hedge funds. The case against Rajaratnam, who is serving a sentence of 132 months imprisonment, was constructed using, among other evidence, 45 secretly recorded phone calls from Rajaratnam’s cell phone during which he shared confidential information about publicly traded companies. The trial court found that the government had acted with “reckless disregard for the truth” in obtaining permission to wiretap Rajaratnam’s phone. A unanimous three-judge panel of the Court of Appeals disagreed. The decision is significant, especially because the investigation into Rajaratnam’s behavior, which also implicated the former director of Goldman Sachs Rajat K. Gupta, is the most prominent example of the use of wiretaps typically associated with organized crime and drugs cases in white collar prosecutions.

The Second Circuit’s opinion validates the government’s use of wiretaps in white collar cases and likely will help promote continued use of the technique. The decision may be seen as relieving federal prosecutors and agents from the obligation to reveal in a wiretap application the existence of parallel civil investigations and evidence obtained from such investigations in certain instances.  Coupled with the recent revelations of secret National Security Agency surveillance of Americans, disclosed by Edward Snowden, this use of the wiretap statute may give privacy proponents renewed reason to be concerned that Big Brother is listening.

Pursuant to federal wiretap law, the government’s wiretap applications must prove that no reasonable alternative investigative techniques – such as surveillance, the use of informants, review of phone records, and witness interviews, to name a few – will suffice.  This requirement, commonly referred to as the “necessity” prong, is intended to protect individual privacy interests by ensuring that the government does not resort to wiretapping when normal investigative techniques will do the trick.  Rajaratnam sought to have the wiretap evidence against him suppressed at trial, arguing that the government failed to satisfy the necessity requirement when it obtained permission to record his conversations.  Specifically, Rajaratnam argued that the government’s wiretap application improperly omitted the fact that he and his company had been the subject of an ongoing SEC investigation, that during the course of that investigation the SEC had obtained approximately four million documents and testimony from Rajaratnam through the use of traditional investigative techniques, and that the SEC had shared these materials with federal prosecutors.

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