Galleon Group hedge fund founder Raj Rajaratnam attacked a U.S. regulator's lawsuit on Tuesday, denying insider trading charges and saying government wiretaps violated his constitutional rights.
The Sri Lankan-born billionaire is the most prominent of 20 people who face criminal or civil charges in the largest U.S. hedge fund insider trading case on record and Wall Street's first insider trading probe involving court-approved wiretaps.
Electronic surveillance is permitted only when necessary for the investigation of specified crimes and only when alternative investigative procedures have been tried or appear unlikely to succeed, Rajaratnam's lawyers, including prominent Washington attorney John Dowd, said in a filing with Manhattan federal court.
The filing came in response to a civil lawsuit originally brought by the U.S. Securities and Exchange Commission on October 16, the day Rajaratnam was arrested and accused by prosecutors of generating millions of dollars of illegal profits.
Rajaratnam, 52 and a U.S. citizen, is free on $100 million bond. Galleon managed $3.7 billion when he was arrested, but is now winding down.
Lawyers for Rajaratnam denied SEC allegations their client conducted insider trading in Advanced Micro Devices Inc, Akamai Technologies Inc, Clearwire Corp, Google Inc, Hilton Hotels Corp, Intel Corp, PeopleSupport Inc and Polycom Inc.
They also said Rajaratnam did not know enough about alleged insider trading in other stocks, such as International Business Machines Corp and Sun Microsystems Inc.
The lawyers also said that, when seeking permission to intercept telephone calls, investigators ignored a 1968 federal law in failing to tell the court that the SEC, under the guise of an investigation of another unrelated hedge fund, had interviewed Rajaratnam and others, and that Galleon had given the agency tens of thousands of pages of documents.
We look forward to presenting our case in court, SEC spokesman John Heine said.
DEVIL IN DETAILS
Legal experts said the government could try to justify wiretaps by saying it was looking for secret conversations, not what the accused would say publicly about their businesses.
The devil is in the details, said Gerald Lefcourt, a former president of the National Association of Criminal Defense Lawyers. What was disclosed in the wiretap applications and would it have been important for the judge to know what was not disclosed?
A spokeswoman for federal prosecutors in New York who won court approval for the wiretaps declined to comment.
U.S. District Court Judge Jed Rakoff has set an August 2 trial date for the SEC lawsuit, while the government's criminal case against Rajaratnam remains in its early stages. It is unusual for the civil case to be moving ahead of the parallel criminal case, where rules of evidence are different.
Prosecutors have said they identified $40 million of illegal profits in their probe. The SEC said it has found $53 million in purported illegal profits in its civil probe.
NO PAYMENTS FOR TIPS, DEFENSE SAYS
Lawyers for Rajaratnam said on Tuesday the hedge fund manager did not offer benefits in exchange for insider tips.
They also said research by Galleon analysts was more detailed and precise than any inside information he was alleged to have obtained illegally and that information allegedly given Rajaratnam was already public.
Rajaratnam's lawyers also accused the government, in seeking wiretap authority, of misrepresenting that cooperating witness Roomy Khan had not yet been charged with any crimes.
Khan, a former trader who once worked for Intel and later worked at Galleon, was convicted of wire fraud in 2001 and subjected to home confinement.
She is one of at least five people to plead guilty in the current insider trading case. Khan has admitted to destroying evidence related to an SEC probe in early 2008, which lawyers for Rajaratnam said predated most of the wiretap applications.
A lawyer for Khan did not return a call for comment.
Daniel Capra, a professor at Fordham University School of Law in New York, said Rajaratnam appeared to be arguing the government cannot present a stilted case to a judge when seeking permission to conduct wiretapping.
In some cases, warrants have been struck down when the government failed to produce evidence on the defendant's side that would cut substantially against a finding of probable cause, Capra said. Not indicating the track record of an informant might be exculpatory too.
The case is SEC v. Galleon Management LP et al, U.S. District Court, Southern District of New York, No. 09-8811.
(Reporting by Jonathan Stempel and Grant McCool; editing by Dave Zimmerman, John Wallace and Andre Grenon)