SEC wants Rajaratnam to turn over US wiretaps

Written by Bloomberg | Updated: Jan 27 2010, 04:11am hrs
The US Securities and Exchange Commission asked a judge to order Galleon Group LLC founder Raj Rajaratnam to share wiretap recordings that his lawyers got from federal prosecutors. The agency is scheduled to begin a trial in a civil lawsuit against Rajaratnam on Aug 2 over allegations of insider trading. Prosecutors have indicted Rajaratnam on criminal charges as well.

As part of the criminal case, prosecutors provided the defencse with 14,000 wiretap intercepts of Rajaratnam and others. Because the SEC faces legal hurdles in obtaining the information from prosecutors, the agency is seeking it from Rajaratnam and his co-defendant, Danielle Chiesi, a New Castle Funds LLC executive.

Defendants have the wiretap information; the commission does not, SEC lawyer Valerie Szczepanik said in a Jan 20, 2010, letter filed in court yesterday. It would be highly inequitable and inconsistent with the federal rules to permit this case to be tried while defendants possess such an informational advantage.

At a hearing on Monday in New York, US district judge Jed Rakoff, who is presiding over the SECs civil case, said he would rule next week on the agencys request. Separately, the judge said the SEC may file a new complaint with recently disclosed allegations about Rajaratnam. Lawyers for Rajaratnam and Chiesi oppose the SECs wiretap request.

Most of those private conversations have nothing to do with this case, and they involve scores of individuals, many of whom are not parties to this case, Terence Lynam, a lawyer for Rajaratnam, wrote in a Jan. 22 letter. Forcing Rajaratnam to disclose the materials would compound the violation of his privacy rights that the unlawfully obtained wiretaps have already inflicted.

Lyman said in court yesterday that Rajaratnam didnt intend to offer the tapes as evidence at the SEC trial. Rajaratnam is scheduled to be deposed in the civil lawsuit in March. Rajaratnam is accused in the civil and criminal cases of using secret tips from hedge fund executives including Chiesi, corporate officials and other insiders to earn millions of dollars in illegal stock trades. In addition to traders who have agreed to cooperate with prosecutors in return for leniency, prosecutors plan to offer evidence of wiretap recordings made of Rajaratnams phone calls. Mondays filing reveals that the SEC hasnt yet heard them. The defense will be able to use the wiretap materials in fashioning their defense without the SEC having the benefit of the same information, Szczepanik wrote.