A U.S. appeals court has upheld the conviction of Raj Rajaratnam, the former hedge fund manager who was charged with orchestrating a vast insider trading conspiracy.
“Rajaratnam’s arguments are not persuasive,” said the 2nd U.S. Circuit Court of Appeals in Manhattan in a decision published on Monday.
The ruling validates the aggressive tactics deployed by federal prosecutors in the government’s sweeping investigation into insider trading on Wall Street, which has resulted in more than 70 convictions or guilty pleas since 2009.
For the first time in an insider trading inquiry, and most prominently in the Rajaratnam case, the authorities used wiretaps — a method typically reserved for drug trafficking and organised crime cases — to record the telephone conversations of traders.
Rajaratnam’s lawyers had argued that federal prosecutors had used deceptive methods to obtain permission from a judge to wiretap his cellphone. They accused the government of leaving out crucial information from its wiretap application, including that the Securities and Exchange Commission was already conducting its own investigation.
The contents of those wiretapped conversations, on which Rajaratnam and his accomplices freely swapped confidential information about publicly traded companies, led a jury to find Rajaratnam guilty after a two-month trial in 2011. He is serving an 11-year sentence at a federal prison in Ayer, Massachusetts.
Judge Jose A. Cabranes, writing for a unanimous three-judge panel, ruled that the trial-court judge, Richard J. Holwell, properly analysed the ostensible mistakes in the government’s application to wiretap Rajaratnam’s phone.
“We cannot conclude that the government omitted certain information about the SEC investigation with ‘reckless disregard for the truth’,” wrote Mr. Cabranes, who also rejected an argument by Rajaratnam’s lawyers that Mr. Holwell gave the jury erroneous instructions.
Had the appeals court ruled in Rajaratnam’s favour, the government would have been forced to retry Rajaratnam without the 45 secretly recorded telephone calls that prosecutors played for the jury during the trial.
The decision does not substantially impact the appeal of Rajat K. Gupta, the former Goldman director convicted of leaking the bank’s boardroom secrets to Rajaratnam. While Gupta’s appeal, which was argued last month, also relates to the admissibility of Rajaratnam’s wiretapped conversations, it centres on different legal issues connected to evidentiary rulings by Judge Jed S. Rakoff, the trial court judge in that case.
Most of the legal players in the Rajaratnam trial have moved on. Mr. Holwell left the bench and is now in private practice. The prosecutors who tried him are now criminal defence lawyers.
And Patricia A. Millett, the lawyer who argued Rajaratnam’s appeal, was nominated earlier this month by President Barack Obama to the U.S. Court of Appeals in the District of Columbia.
Ellen Davis, a spokeswoman for the U.S. attorney’s office in Manhattan, also declined to comment.