Rajaratnam wins ruling, wiretap turnover on hold

The temporary stay granted late on Thursday by U.S. Court of Appeals for the Second Circuit came two days after U.S. District Court Judge Jed Rakoff ordered Rajaratnam and co-defendant Danielle Chiesi to surrender the recordings to the U.S. Securities and Exchange Commission by February 15.

The SEC sued Galleon and a score of individuals and funds for civil fraud, on the heels of a criminal prosecution announced by the Justice Department last October.

We are very pleased that this serious issue will get the court's full consideration, said John Dowd, a partner at Akin Gump Strauss Hauer & Feld LLP representing Rajaratnam, in a statement.

A three-judge appeals court panel is likely to consider whether the defendants must turn over the evidence. A hearing date has not been set. Rakoff has set an August 2 trial date for the SEC civil case.

Rajaratnam, 52, and Chiesi, 44, a former employee of New Castle Funds LLC, were arrested in October and indicted in December on charges of securities fraud and conspiracy in what prosecutors have described as the biggest hedge fund insider-trading case in the United States.

The case later grew, and ultimately more than 20 traders, lawyers and executives were criminally or civilly charged.

Some were employees of well-known U.S. companies such as International Business Machines Corp , McKinsey & Co management consultants and Intel Capital, an investment arm of Intel Corp

Thousands of wiretaps were made in the criminal probe between 2003 and 2009 involving Wall Street and Silicon Valley firms, but defense lawyers and the SEC have been tussling over their use in the parallel civil fraud case.

Rajaratnam's lawyers said in a brief to the appeals court that Rakoff's order contravenes the plain text of the wiretap statute and disregards strict limitations and privacy protections that the law provides.

A superseding indictment on Tuesday consolidated charges against Rajaratnam and Chiesi, after a series of guilty pleas by some of their friends and associates.

In all, nine of the accused have pleaded guilty and eight of those are cooperating with investigators.

Rajaratnam and Chiesi are accused of making up to $49 million in illegal profits after using tips from insiders to trade on mostly tech stocks.

The stocks included: IBM, Intel, Akamai Technologies Inc , Polycom Inc , Hilton Hotels Corp , Google Inc , Sun Microsystems Inc , Clearwire Corp , Advanced Micro Devices , ATI Technologies Inc and eBay Inc Inc.

The case is SEC v Galleon Management et al, U.S. District Court for the Southern District of New York, No. 09-08811.

(Reporting by Grant McCool; editing by Leslie Gevirtz and Andre Grenon)