U.S. prosecutors argued on Tuesday that Galleon hedge fund founder Raj Rajaratnam, indicted on fraud charges in a sprawling insider trading probe, would have an unfair advantage if a civil trial by market regulators went ahead before a criminal trial.

They said in papers filed in Manhattan federal court that Rajaratnam, 52, and co-defendant Danielle Chiesi, 44, sought a delay in the criminal case because they want the parallel civil case to proceed to trial before this criminal case in order to gain an unfair strategic advantage.

The government said in court papers that allowing a criminal trial first can determine or reduce issues in the civil case. This approach is fairer to the parties because it ensures a full opportunity for both sides to litigate all the issues.

Prosecutors from the office of the Manhattan U.S. Attorney asked Judge Richard Holwell in December to schedule the criminal trial for June or July. Another judge, Jed Rakoff, scheduled the start of the trial in the parallel civil case brought by the U.S. Securities and Exchange Commission for August 2.

A spokesman for Rajaratnam's lawyer, John Dowd, could not immediately be reached for comment. In court papers filed earlier this month, he argued that the criminal trial should be delayed because they need more time to study evidence including thousands of wiretap recordings and documents.

Rajaratnam and Chiesi, formerly with New Castle Funds LLC in New York, are due to make their next court appearance before Holwell on Wednesday. Their lawyers want to suppress the recordings being presented as evidence in the trials.

Chiesi's lawyer, Alan Kaufman, said on Tuesday he would argue that it would be terribly unfair and prejudicial to the defendants to push ahead with the criminal trial before the civil trial.

Usually when there are parallel criminal and civil cases, the criminal case takes precedence. However, in the Galleon hedge fund insider trading probe that ensnared about 21 people last October and November, the judge in the civil case quickly set a trial date.

The case drew widespread attention because it included allegations against a well-known hedge fund figure in Sri Lankan-born Rajaratnam and employees of some of America's best-known companies, including International Business Machines Corp, McKinsey & Co management consultants and Intel Capital, investment arm of Intel Corp.

In a sweeping prosecution, stock traders, lawyers, fund manager and executives were accused of trading on tips about forthcoming mergers and acquisitions, mostly in tech stocks.

Nine people have pleaded guilty to charges of securities fraud and conspiracy. Eight of those are cooperating with investigators, including two long-time friends and business associates of Rajaratnam.

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; Editing by Phil Berlowitz)