Galleon Group hedge fund founder Raj Rajaratnam, accused in one of the biggest insider trading cases ever, on Tuesday gave a detailed denial of the charges and said government wiretaps violated his constitutional rights.
Twenty people, including the Sri Lankan-born billionaire, face criminal charges, civil charges or both in an investigation in which court-approved wiretaps were used in a Wall Street insider trading probe for the first time.
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 said in a Manhattan federal court filing, answering civil charges brought by the U.S. Securities and Exchange Commission.
Rajaratnam denied SEC allegations that he 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.
He denied having knowledge sufficient to form a belief about alleged insider trading in other stocks, including International Business Machines Corp and Sun Microsystems Inc.
We look forward to presenting our case in court, SEC spokesman John Heine said.
U.S. District Court Judge Jed Rakoff has scheduled August 2 next year for the start of the civil trial over the SEC's charges.
Rajaratnam's lawyers said that when the government sought court approval to use wiretaps, it violated the law by failing to reveal that it had interviewed the defendant under oath and taken tens of thousands of pages of Galleon documents.
A spokeswoman for the federal prosecutors in New York who won court approval for the wiretaps, declined to comment.
Rajaratnam, 52, also faces criminal charges, and is free on $100 million bond. Galleon managed $3.7 billion when he was arrested but is now winding down.
INFORMANT'S STATUS AT ISSUE
Rajaratnam maintained that he did not offer benefits in exchange for insider information, and that research by Galleon analysts was more detailed and precise than any inside information he was alleged to obtain illegally.
He also accused the government of having misrepresented that cooperating witness Roomy Khan, a former trader who worked for Intel more than a decade ago, had not yet been charged with any crimes when she had been convicted of wire fraud in 2001.
Khan is one of at least five people to plead guilty in the insider trading case. She also admitted destroying evidence related to an SEC probe in early 2008, which Rajaratnam's lawyers said predated most of the wiretap applications.
A lawyer for Khan did not immediately return a call seeking comment.
Daniel Capra, a professor at Fordham University School of Law in New York, said Rajaratnam appeared to be arguing that 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.
In their allegations, prosecutors have said they identified $40 million of illegal profits. The SEC said it has found $53 million in purported illegal profits in its civil probe.
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 and John Wallace)