Attacking Insider Trading And Other White Collar Cases Built On Evidence From Government Wiretaps: The Nuts And Bolts

Abridge has been crossed: Federal prosecutors are using federal wiretaps to obtain evidence in white collar cases, specifically, in insider trading cases. Use of such an invasive law enforcement tool in a white collar case was virtually unheard of 10 years ago. But as times change, so do the methods of investigating white collar cases. Indeed, the U.S. Attorney for the Southern District of New York ventured out and has staked the reputation of the Department of Justice on the merits of such an approach. So far, this new approach to combating insider trading has yielded approximately 70 convictions since 2009,1 with more likely to follow around the country as the technique grabs hold in California and elsewhere. The most famous, to date, has been the prosecution and conviction of the former CEO of the Galleon hedge fund, Raj Rajaratnam. Wiretaps, and the evidence gained from them, helped convict Rajaratnam and led to numerous guilty pleas from money managers, traders, consultants, lawyers, and others associated with the insider trading charges in his case.

Listening to recorded conversations during a trial allows a jury to hear the actual words of the defendant, and such evidence can be quite damning and difficult to counter. Thus, when arrested or charged in a white collar case that rests on wiretap evidence, the defendant should give strong consideration to allocating significant defense resources to challenge the wiretaps before trial to obtain an order that suppresses the recorded evidence, as was tried in the Rajaratnam case. Indeed, the best, and sometimes only, chance a defendant may have to mitigate the situation is a well-founded attack on the wiretap evidence. Consequently, understanding the processes for obtaining wiretaps and, more important, attacking wiretaps are important tools for white collar attorneys to wield. This article focuses on the nuts and bolts of obtaining wiretaps and attacking wiretap evidence in white collar cases.

The Rajaratnam Appeal

Rajaratnam's conviction rested soundly on wiretap evidence. He is now appealing his conviction, arguing, in major part, that the wiretaps were obtained using false statements and omissions and that the resulting recorded conversations should have been suppressed.2 A three-judge panel of the U.S. Court of Appeals for the Second Circuit in New York heard arguments regarding the wiretaps and suppression on Oct. 25. No decision has been handed down, and the case is pending.

Rajaratnam was the head of the Galleon Group, which operated a family of hedge funds. He was charged with leading multiple conspiracies from 2003 through 2009 to trade securities of 19 public companies based on material, nonpublic information. Rajaratnam was accused of obtaining nonpublic information from senior executives at IBM, McKinsey & Co., Intel Capital, and others.

In late 2006, the Securities and Exchange Commission began investigating Rajaratnam and the Galleon Group for insider trading. As part of this investigation, the SEC obtained access to millions of pages of documents, conducted multiple interviews, subpoenaed records, and took sworn testimony from Rajaratnam and others. As was later revealed, in March 2007 the SEC believed it had found limited evidence of insider trading and briefed the U.S. Attorney's Office for the Southern District of New York and the FBI about what the SEC had uncovered.3

A year later, on March 7, 2008, to obtain additional evidence, the government sought a warrant to place a wiretap on Rajaratnam's cellphone. In the wiretap application, the government used information provided to it from the SEC investigation as well as a cooperating informant. The wiretap application also stated that ''normal investigative techniques'' had been tried and either failed or reasonably appeared unlikely to succeed. This was the key representation made to the district court. Absent such a representation, the wiretap cannot be ordered.

The district court approved the wiretap application, and the government began intercepting wire communications over Rajaratnam's telephone line. The government sought and received permission to intercept such wire communications a total of eight times.4 The government intercepted 2,200 calls.

After he was criminally charged, Rajaratnam moved to suppress the wiretaps using two arguments. First, he argued that the government made false statements and omissions in establishing probable cause for the warrants, specifically arguing that the government failed to state in its application that the cooperating informant had a prior felony conviction. Second, he argued that the government made false statements and omissions regarding the necessity for a wiretap, specifically arguing that the government omitted that the SEC had been conducting an investigation and that the government had access to the documents and information from that investigation.

The district court ordered a hearing on the issue and held that while the government recklessly made false statements and omissions when seeking approval of the wiretaps, they were not material and that necessity was shown after the fact during the hearing held before the district court. Therefore, the...