Galleon Group hedge fund founder Raj Rajaratnam was found guilty of 14 securities fraud and conspiracy charges on Wednesday, in a vindication for the government's use of aggressive tactics in prosecuting insider trading on Wall Street.
Rajaratnam, a one-time billionaire, will remain free on bail under house arrest with electronic surveillance until his sentencing on July 29, U.S. District Judge Richard Holwell ruled after the jury delivered its verdict.
The Sri Lankan-born Rajaratnam, the central figure in what the government has described as the biggest probe of insider trading at hedge funds on record, sat expressionless between his lawyers while a court official read the verdict.
His chief lawyer, John Dowd, said inside and outside of the courtroom on Wednesday that he would appeal the prosecution's use of secretly-recorded phone calls. After a four-day mini-trial called a Franks hearing last October, the judge denied defense efforts to suppress the phone tap evidence.
There is a Franks issue that remains a very serious issue that we will take up on appeal, Dowd told the judge.
The Manhattan federal jury announced its unanimous verdict on the 12th day of deliberations of a trial that began on March 8. Many legal experts said the prosecution had a strong case using FBI phone taps and testimony of three former friends and associates of Rajaratnam.
Defense lawyers had stuck consistently to their main theme that Rajaratnam's trades were guided by a trove of research and public information, not secrets leaked by highly-placed corporate insiders.
Litigation experts said the phone taps strengthened insider trading charges, which historically have been difficult to prove because they rely on circumstantial evidence.
Wiretaps are a game changer on Wall Street, said Chicago securities lawyer Andrew Stoltmann. That is the reason Raj Rajaratnam will spend a very long time in prison.
Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large. A second trial of three former securities traders is scheduled to start on Monday.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Reporting by Grant McCool, Basil Katz and Jonathan Stempel, editing by Dave Zimmerman)