Second Circuit Rules on Suppression of Wiretap Evidence and Application of the “Knowing Possession” Element of Insider Trading in Upholding Raj Rajaratnam’s Conviction for Insider Trading

In 2011, Raj Rajaratnam, the founder of the Galleon hedge fund group, was convicted on fourteen counts of securities fraud and conspiracy to commit securities fraud arising out of insider trading in the securities of numerous companies.  He was sentenced to 11 years in prison.  See “Former Rajaratnam Prosecutor Reed Brodsky Discusses the Application of Insider Trading Doctrine to Hedge Fund Research and Trading Practices,” Hedge Fund Law Report, Vol. 6, No. 13 (Mar. 28, 2013).  The case was unusual, not only because of the stiff sentence, but also because it turned largely on evidence derived from wiretaps of Rajaratnam’s telephone conversations.  For more on the use of wiretaps, see “Rajaratnam Prosecutor and Dechert Partner Jonathan Streeter Discusses How the Government Builds and Prosecutes an Insider Trading Case against a Hedge Fund Manager,” Hedge Fund Law Report, Vol. 5, No. 45 (Nov. 29, 2012).  The trial judge denied Rajaratnam’s motion to suppress that evidence.  On June 24 of this year, the U.S. Court of Appeals for the Second Circuit (Court) upheld Rajaratnam’s conviction and ruled that the U.S. District Court for the Southern District of New York (District Court) correctly refused to suppress the wiretap evidence against Rajaratnam.  The Court also ruled that the District Court properly instructed the jury that it could convict Rajaratnam if it concluded that “material non-public information given to the defendant was a factor, however small, in the defendant’s decision to purchase or sell stock.”  See “Is the ‘Mosaic Theory’ a Viable Defense to Insider Trading Charges Against Hedge Fund Managers Post-Galleon?,” Hedge Fund Law Report, Vol. 4, No. 45 (Dec. 15, 2011).  This article summarizes the Court’s decision and, more importantly, its analysis in ruling on the appeal.

To read the full article

Continue reading your article with a HFLR subscription.