Yesterday I wrote an article on the scope of Federal warrantless wiretaps. Once again the issue of wiretapping by the Feds has made headline news, this time in a case involving domestic rather than international wiretapping. Raj Rajaratnam, co-founder of Galleon Group, LLC has recently been the focus of an immense federal probe that used wiretapping to investigate securities fraud and insider trading.
Rajaratnam and his attorney have requested a U.S. District
Judge to exclude
evidence obtained from government wiretaps from over 2,400 conversations
with company clients. If successful,
exclusion of the evidence would thwart the bulk of prosecutors’ strongest
evidence against Rajaratnam.
Prosecutors have charged the Galleon executive with utilizing secret information from hedge fund insiders and other corporate officials from various companies such as IBM and Hilton Hotels. Rajaratnam reportedly collected over $20 million in illegal stock trades using the insider information. The case has been styled as the most extensive hedge-fund insider trading case to date.
Rajaratnam is among 21 other people who have been caught up
in related securities fraud charges, 11 of whom have already pleaded
guilty. 4 of them have agreed to testify
against Rajaratnam. These last four
people are crucial to the case, because even if the wiretap information is
excluded, prosecutors can still obtain witness testimony to bolster their case.
Warrantless wiretapping has been extensively used by the government in secret international terrorist intelligence affairs under President Bush’s National Security Agency (NSA) investigations. However, the Rajaratnam investigation is the first case to use secret government interceptions of phone calls to prosecute insider trading. On May 7, Rajaratnam’s lawyer John Dowd filed a motion stating that prosecutors had violated federal wiretapping laws by misleading a judge in securing the wiretapping warrant.
Attorney Dowd will be basing the request to exclude the evidence
upon a legal theory known as the "fruit
of the poisonous tree doctrine."
This doctrine requires that any evidence obtained by government
officials as the result of an unlawful search must be excluded in a court of
law. Further, if the unlawful search
leads to discovery of other evidence, these “fruits” must be excluded as
well. So, if the court finds that the
wiretaps were based on a faulty warrant, then the prosecutor’s case will be
I think that Rajaratnam will find it difficult to have the evidence barred because the “unlawfulness” of the search is being based upon a defective warrant. With regards to issuing warrants, judges are given very broad discretion. Judges only require prosecutors to provide ample evidence for them to make a “reasoned determination” to issue wiretap warrants.
Moreover, courts are not likely to overturn a government bid for a warrant unless it can be shown that the judge was “clearly erroneous” in issuing one. Finally, as mentioned, witness testimony is still available even if the wiretap evidence is excluded. The fruit of the poisonous tree doctrine only allows physical evidence to be barred, but testimonial evidence is still let in under some circumstances.
Aside from the evidence issues, Mr. Rajaratnam’s legal defense rests on the argument that he didn’t conduct the trades based on inside information. Instead, he argues that the information was simply part of larger information-gathering efforts, and that meetings with other executives are standard procedure in the securities industry.
We will have to wait and see whether Rajaratnam’s challenge to the wiretap information will succeed. It will be difficult to really tell because this case is laying down the first precedents for wiretaps in an inside-trading lawsuit. The case couldn’t have come at a more opportune time though, as a federal judge recently ruled at the end of last March that the warrantless wiretaps executed under the NSA were illegal.
So as it turns out, all the hype surrounding warrantless wiretaps might
actually work in Rajaratnam and Galleon’s favor. When telephone wiretapping and electronic
eavesdropping were first invented, court decisions were mainly concerned with
protecting the privacy rights of citizens.
Recent judicial trends are not so much focused on privacy issues as they
are with limiting the amount of power that the government may exercise when
engaging in wiretapping (the NSA had gone unchecked with their wiretaps apparently). If the Galleon case follows this trend, the recorded
conversations would have to go in one eavesdropping ear and out the other.
By: Jay Rivera