Posted by Edmond Geary | Posted in Insider trading, Securities Fraud, White collar crime | Posted on 31-05-2010
Raj Rajaratnam is charged in U.S. District Court for the Eastern District of New York with insider trading on the stock market. A billionaire hedge fund manager, he is facing evidence of 2,400 telephone recordings of his own voice. The government placed a tap on his telephone in 2008.
Not surprisingly, Rajaratnam’s lawyers are attacking this evidence. A federal statute, United States Code, Title 18, Section 2516 identifies a list of crimes for which the government is authorized to record telephone conversations. Securities fraud is not listed, but money laundering and mail fraud are listed, and these crimes are commonly charged along with securities fraud.
The government had to file an application for a judge to issue an order allowing the wire tap. In that application, the government recited it needed the wire tap order because it was investigating violations of wire fraud and money laundering. But the charges filed did not include those charges, so Rajaratnam’s attorneys are attacking the application as disengenuous, as intended to find only evidence of securities fraud, which is not a valid basis for a wiretap order. But the U.S. Attorney did specifically give notice it was seeking the wiretap for insider trading as the principal crime it was investigating. If the defendant’s lawyers can prove the wiretap order would not have been granted if the whole truth were not told, the order could be invalidated and the recorded conversations suppressed.
It is true that the Wiretap Act does not mention securities fraud, but it is not certain that Congress intended to exclude wiretaps from the investigation of securities fraud. Inferring the omission of something in a legislative enactment to be an affirmative declaration calls for an interpretation. It is a rule of statutory construction in latin and therefore incontestible: “Expressio unius est exclusio alterius,” which in English can be translated, “The expression of one thing implies the exclusion of what is not expressed.”
Ck spelling of latin phrase
Another avenue of attack on the application is focusing on the cooperating witness quoted in the application. The F.B.I. agent’s affidavit quotes a woman named Roomy Khan extensively. Rajaratnam’s lawyers claim the affidavit does not give a clear picture of her criminal past, the character of her conversations with the defendant, or the changing versions of her recitals.
The application described Ms. Khan as not having been charged with any other crime and had been cooperating with the government since 2007. But the defendant’s lawyers claim she was charged with wire fraud in 2001 and agreed to cooperate with the government at that time. Of course, the government will reply they were referring only to the present investigation.
The defendant also attacks what the wiretap application’s affidavit describes as Rajaratnam’s statements to Ms. Khan as conveying insider information, when if fact the information was based on publicly available information.
The final avenue of attack on the government’s affidavit is the constancy of Ms. Khan’s statements. These are presented in the government’s affidavit as being straightforward. But the defendant’s lawyers received, as they routinely do in discovery, copies of the F.B.I. interviews, known as 302’s. These interviews viewed over time show changing stories from Mr. Khan, and government investigators were aware of this when they presented the affidavit for the wiretap to the judge. But the affidavit softens the changing versions. It omits any reference to her obstruction of the investigation although, by her initial concealing of facts, this is arguably what she did. Instead, the affidavit describes her as having been proven to be reliable.
Wiretaps are granted only after other investigative methods have been tried unsuccessfully or would be unsuccessful if tried. The affidavit does not detail other investigative methods but states that other investigative attempts have failed. In fact, Rajaratnam and his hedge fund, Galleon Group, were responding to a series of discovery demands, subpoenas and inquiries, and Rajaratnam’s lawyers claim they were cooperating with the government. Obviously, the government did not agree, else the government would not have sought the wiretap. The government was on the trail of unusual transactions, and it wasn’t getting the explanations with the methods they had tried.