On February 10, 2010, the Wall Street Journal published an article discussing Federal District Judge Jed Rakoff’s recent order requiring hedge-fund manager and founder of Galleon Group, Raj Rajaratnam, and others being sued by the SEC to provide wiretap recordings to the SEC by February 15, 2010 as part of pre-trial discovery in the matter of SEC v. Galleon Management, LP, Raj Rajaratnam, Rajiv Goel, Anil Kumar, Danielle Chiesi, Mark Kurland, Robert Moffat and New Castle LLC. In Galleon, criminal charges have been filed against 21 individuals, 9 of whom have pleaded guilty and 8 of whom are cooperating with the government against the remaining defendants.
The wiretap recordings sought by the SEC are in the possession of Mr. Rajaratnam and the other defendants because they received the recordings from the U.S. attorney’s office as part of pre-trial discovery in a separate criminal proceeding. Prosecutors in that case are asking that Mr. Rajartnam forfeit $45 million dollars in illegal profits or losses avoided by Galleon Group. In addition, Mr. Rajartnam faces a maximum of 185 years in prison if convicted.
Mr. Rajaratnam and the other defendants in Galleon initially argued that they could not turn over the wiretap records to the SEC because of privacy laws governing wiretaps. However, Judge Rakoff noted that the defendants were unable to “cite any statutory authority for this restriction.” Mr. Rajaratnam has appealed Judge Rakoff’s ruling and plans to argue that the evidence should be suppressed because it was illegally obtained.
Notably, on February 11, 2010, the U.S. Court of Appeals for the Second Circuit granted Mr. Rajaratnam an emergency stay to give the court time to consider Mr. Rajaratnam’s appeal of Judge Rakoff’s order. The emergency stay will temporarily stop the disclosure of the wiretap recordings to the SEC.
The trial in Galleon is currently set for August 2, 2010.