Raj seeks to remain free while appealing wiretap use

Nov 29 (Bloomberg) Raj Rajaratnam, the Galleon Group LLC hedge fund co-founder convicted of directing the biggest insider trading scheme in a generation, said the use of wiretapped calls by the U.S. raises substantial issues of law that should allow him to remain free during his appeal.

Rajaratnam, 54, who is scheduled to report to prison on Dec. 5, is seeking to remain free pending the outcome of his appeal, according a letter his lawyers sent today to Catherine O Hagan Wolfe, clerk of the U.S. Court of Appeals in Manhattan.

“Raj Rajaratnam respectfully moves this court to stay his surrender date and to grant release pending appeal of his criminal conviction and sentence,” his lawyers said in court papers. They said the evidence they submitted “establishes the substantiality of Mr. Rajaratnam’s appeal.”

Patricia Millett, a lawyer for Rajaratnam, today filed a copy of the March 7, 2008, wiretap application request by FBI special agent B.J. Kang to intercept phones used by Rajaratnam as part of the insider-trading investigation. Millett said in the filing that the court may like to see the document “in anticipation” of a hearing set for Nov. 30.

“This document is of relevance to the upcoming oral argument and may be referenced by counsel during the argument,” Millett said in the letter to the court clerk.

Lawyers for the fund manager argue there were “glaring omissions” in Kang’s wiretap affidavit used to monitor Rajaratnam’s calls which are likely to be grounds for reversing his conviction.

“These substantial issues support release pending appeal because suppression would require reversal of the conviction and a new trial on every count given that the wiretaps were integral to the merits of Mr. Rajaratnam’s conviction,” defense lawyers said. Before trial, Rajaratnam’s lawyers unsuccessfully argued against the use of the telephone intercept evidence. He was convicted by a jury in May and sentenced to 11 years in prison.

Prosecutors said Rajaratnam made more than $72 million by using illegal tips to trade in stocks of companies including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.

Last November, U.S. District Judge Richard Holwell, who presided over Rajaratnam’s criminal trial, ruled that the government had complied with federal wiretapping laws in its investigation. Prosecutors said it was the first insider-trading case in which the government made significant use of wiretaps. Prosecutors, who introduced 45 wiretap recordings into evidence during the trial, opposed Rajaratnam’s request for release while his appeal is in progress. They disputed his claim that the case raises substantial issues that are likely to result in a new trial.

“Rajaratnam is wrong that Judge Holwell’s decision that wiretaps are authorized for insider trading investigations raises a substantial issue on appeal,” Assistant U.S. Attorney Jonathan Streeter said in court papers.

“Congress did not, as Rajaratnam argues, restrict the use of wiretapping to exclude insider trading” he said.

Streeter also noted that Holwell rejected Rajaratnam’s bid at his sentencing to remain free during his appeal. Prosecutors said Rajaratnam still poses a risk of flight and has strong overseas ties, including property, assets and family in Sri Lanka.

Prosecutors said the fund manager still has “significant net worth” even after U.S. District Judge Jed Rakoff, who is presiding over Rajaratnam’s SEC case, directed Rajaratnam to pay a record $92.8 million penalty and Holwell ordered Rajaratnam to pay a $10 million fine and forfeit $53.8 million.

Terence Lynam, a lawyer for Rajaratnam, didn’t immediately return a voice-mail message left at his office seeking comment on the letter.

Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office prosecuted the case, declined to comment on today’s filings.

The case is U.S. v. Rajaratnam, 11-4416, U.S. Court of Appeals for the Second Circuit (Manhattan). The lower-court case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).