[by Larry Goldfarb]

Hedge fund tycoon Raj Rajaratnam’s has commenced an appeal to the 2nd U.S. Circuit Court of Appeals.  At issue is whether the Government’s wire tapping of the conversations that lead to the conviction were within the bonds of the law. A panel of judges explored the ramifications Thursday of a potential reversal of hedge fund tycoon Raj Rajaratnam's conviction as they heard arguments on whether FBI wiretap evidence should have been allowed at his insider-trading trial.

Rajaratnam's lawyer, Patricia Millett,  said that Title III requires the government to make "a full and complete statement" of the investigation's progress using conventional means before resorting to a phone tap. She said the March 2008 affidavit to Judge Lynch left out information about the U.S. Securities and Exchange Commission's parallel probe and a key cooperator, former trader Roomy Khan.  Therefore, They say the decision to allow the tapes to be played at Rajaratnam's trial was wrong. The Rajaratnam case marked the first wiretap for an insider trading investigation in the 75-year history of securities laws, Millett said. The appeals court's decision could have wide implications on future use of wiretaps in white-collar crime investigations.

The critical point is how much discretion investigators will have in using wiretaps.  This tool has been extremely effective in identifying illicit trading.  If Rajaratnam’s appeal is successful, it appears that the Government will have to conduct a rigorous investigation before it can avail itself of wiretaps.  Given the limited funds available for these investigations, the use of wiretaps may become very rare.

The panel of Circuit Judges is: Jose Cabranes, Robert Sack and Susan Carney.

For further details, go to:  [ Reuters, 10/25/12 ].