Criminal Defense
White collar crime prosecutions have become what seems today a competitive fad for prosecutors, and the outcome for the convicted is almost always ruinous and career-ending. In addition, the resources unleashed by the government to try a white collar crime case can be overwhelming for a target of its investigations. For these reasons, it is critically important that the person or company being prosecuted for a white collar crime engage the most experienced and tenacious trial lawyers to manage those potentially ruinous circumstances.
In the Wall Street insider trading prosecution of Raj Rajaratnam — whose case arose from Mr. Rajaratnam’s insider trading activities as the founder of the Galleon Group — attorneys from the litigation department of a major firm were retained. When the jury convicted on all fourteen counts of securities fraud and conspiracy, a juror was reported to have described the defense attorney as “tired,” noting that the defense kept saying the same thing, and that the defense was not “meaty.” The media reported the defense fees and costs were approximately $40 Million. Following the verdict, the attorney was reported to have said that he was tired, that he’d decided to retire from trial work during the defendant’s trial, and that it was a “young man’s game.”
A successful defense requires the focused and concentrated efforts of attorneys, researchers, investigators, and financial consultants. It is certainly not a “game.” But, as with all trial lawyering, it requires one to push and challenge one’s own skills and talents. Not tired. Not repetitive. Thoroughly aggressive, substantive, creative, and alive — for all attorneys and all team members.
The need to assemble an effective and vigorous defense is important in any white collar prosecution. It has become even more so with the greater use of wire tap and other surveillance evidence by federal investigators and agencies. Mr. Rajaratnam was the founder of Galleon Management, a hedge fund that at one time managed more than $5 Billion in assets. When Rajaratnam was arrested, the U.S. Attorney for the Southern District of New York issued the following warning:”[P]rivileged Wall Street insiders who are considering breaking the law will [now] have to ask themselves one important question: Is law enforcement listening?” And it had been. The Securities and Exchange Commission maintains its surveillance of market activities, attempting to detect trading irregularities that may be an indication of illegal conduct. But during the Rajaratnam trial, the jury was presented with hours of taped, intercepted telephone calls as well as text messages and emails with Rajaratnam and his colleagues discussing inside stock tips and information obtained from corporate insiders.
The same investigative efforts have been directed at “expert networks” — where the indictments contend that individuals would gather information from companies in their capacities as hired experts and then the insider information would be passed on to third parties. Whether for an individual such as Rajaratnam or the expert networks or others in the financial sector, the evidence can be damning because the intercepted conversations can be so casual, unguarded, and raw.
Wiretaps and other forms of electronic surveillance are regulated by 18 U.S.C. §§ 2510 et seq. If the government is seeking to intercept a “wire, oral, or electronic communication,” prior approval must be obtained from a court. Several threshold burdens must be met: there must be probable cause to believe that an indicidual is committing, or about to commit, a crime; there must be probable cause to believe that particular communications concerning the offense will be obtained through the interception; and either that normal investigative procedures have been tried and failed, or that those normal procedures reasonably appear unlikely to succeed or to be too dangerous. If the order issues, it must describe with particularity the identity of the person whose communications are to be intercepted, the types of communications sought to be intercepted, and the particular offense that is supposedly involved. Wiretaps cannot be issued to investigate just any offense — only those that are listed in 18 U.S.C. § 2516; they include wire fraud, terrorism, bribery, witness intimidation, assassination, murder for hire, money laundering, and racketeering.
Wiretaps and electronic eavesdropping are intrusive and indiscriminate, sweeping in the most intimate, unguarded, and inappropriate conversations that may be occurring. It is an investigatory method that is clearly subject to the Fourth Amendment protections, guaranteeing “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.” To the extent the government fails to abide by the statutory requirements in obtaining or using a wiretap order, the evidence gathered is subject to suppression. Katz v. United States, 389 U.S. 347 (1967).
Rajaratnam was convicted of fourteen (14) counts of insider trading and conspiracy. Yet neither insider trading nor securities fraud was an enumerated crime under 18 U.S.C. § 2516. When the wiretap was sought, the government’s application stated that it was investigating wire fraud and money laundering — both of which are enumerated crimes — but it also discussed its interest in looking for evidence of insider trading.
The application did not disclose the government already had access to materials from the SEC’s investigation of Rajaratnam and Galleon that had been going on for years, including bank, trading, and phone records and more than 4 million emails and other documents.
The government made statements in the application that were affirmatively misleading. It stated that a key informant “had not yet been charged with any crimes” and had started cooperating with the government in 2007. In fact, the informant had been indicted, had pled guilty to a felony, and was on probation. Moreover, the cooperation dated back to 2002.
The defense raised these issues with the trial court. Under Franks v. Delaware, 438 U.S. 154 (1978), a defendant can request an evidentiary hearing to challenge the accuracy and completeness of the facts contained in the affidavit submitted in support of the wiretap. A defendant can also attack the failure to abide by the statutory requirements under 18 U.S.C. §§ 2510 et seq. The trial court considered the arguments—and ruled in favor of the government:
- The trial judge (District Court Judge Richard Howell) found that there was sufficient probable cause demonstrated in the affidavit without regard to the representations regarding the confidential informant. The Judge said the misstatements and omissions by the government were “disturbing.”
- The defense argued that the government breached its requirement to demonstrate necessity when it failed to divulge all of the investigation materials to which it had access from the SEC. The Judge stated that he was “at a loss to understand how the government could have ever believed that [the court] could determine whether a wiretap was necessary” to the investigation without being informed of the SEC investigation. Nevertheless, the Court reviewed the SEC materials and found that there were deficiencies in the quality of that evidence and, even had the government informed the Court of the SEC materials in the affidavit, the government could have shown that a continuation of those efforts would not have reasonably been successful.
- The manner in which the actual wiretapping was undertaken was criticized by the defense. The government is required to conduct the tapping so “as to minimize the interception of communications not otherwise subject to interception.” 18 U.S.C. §§ 2518(5). The purpose of this provision is to exclude “non-relevant” and “non-pertinent” communications that do not relate to the purpose for which the wiretap has been authorized. This protection can have particular importance to the interception of telephone calls with counsel. The trial court found that the defense had the burden of demonstrating that a substantial number of non-pertinent calls had been unreasonably intercepted. United States v. Rajaratnam, 2010 WL 4867402 at 27 (S.D.N.Y. November 24, 2010). The court did not find that standard had been abused. Other courts, however, have ordered the suppression of the entire tapping in instances where the government did not take proper steps to minimize intercepts of attorney-client communications. United States v. Renzi, 722 F.Supp.2d 1100 (D.Ariz. 2010); United States v. Simels, 2009 WL 1924746 at 5 (E.D.N.Y. 2009).
Judge Howell denied the motions and Raj Rajaratnam’s case was filled with the recordings from the wiretaps. On May 11, 2011, he was convicted. The Second Circuit Court of Appeals will have the opportunity to examine Judge Howell’s reasoning. But it is clear in the meantime that the government will continue to seek wiretaps in its other insider trading and securities fraud cases. On October 13, 2011, Rajaratnam was sentenced to eleven (11) years in prison.