Appeals court upholds Rajaratnam insider-trading conviction

A federal appeals court in New York City A federal appeals court in New York City is upholding the conviction of a onetime billionaire Raj Rajaratnam on insider trading charges. (May 10, 2011) Photo Credit: AP

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Galleon Group LLC co-founder Raj Rajaratnam's conviction for directing the most extensive insider-trading scheme in U.S. history was upheld by an appeals court, which ruled the government's use of wiretaps was proper.

The U.S. Court of Appeals in Manhattan, in a decision issued Monday, affirmed Rajaratnam's 2011 conviction for conspiracy and securities fraud and rejected his challenge to the use of wiretaps in a securities-fraud case.

The hedge-fund manager argued his conviction should be vacated because prosecutors misled the lower court judge who authorized the wiretaps in 2008. Rajaratnam, 56, claimed prosecutors and Federal Bureau of Investigation agents omitted key facts from their request for the secret recordings, called Title III wiretaps, including the existence of an insider-trading investigation by the U.S. Securities and Exchange Commission.

"Rajaratnam's arguments are not persuasive," U.S. Circuit judges Jose Cabranes, Robert Sack and Susan Carney said in a 29-page ruling. "The record does not support the finding that the omission of the SEC investigation in the Title III wiretap application was made with 'reckless disregard for the truth.' "

The case was the first to focus exclusively on insider trading in which U.S. investigators wiretapped their targets' telephone conversations, a tactic used in organized-crime probes. Jurors listened to more than 45 wiretap recordings, on some of which Rajaratnam can be heard gathering nonpublic information from his sources.

"Rajaratnam had been careful to exchange nearly all of his inside information by telephone," the panel said, quoting U.S. District Judge Richard Holwell's earlier ruling that allowed the wiretaps to be used during Rajaratnam's trial.

"Wiretapping is particularly appropriate when the telephone is routinely relied on to conduct the criminal enterprise under investigation," the panel said.

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