Rajaratnam Must Surrender by Dec. 5, Appeals Court Says [December 02 2011]

Raj Rajaratnam, the former Galleon Group LLC hedge fund manager convicted of directing the biggest insider-trading ring in a generation, can’t remain free on bail while he challenges the government’s use of wiretaps in his trial, an appeals court ruled.

Today’s ruling clears the way for Rajaratnam, 54, to report to federal prison in Massachusetts to begin serving an 11-year sentence. He has been ordered to surrender Dec. 5.

“The defendant shall surrender at such time and place as shall be instructed by the district court,” said a panel of U.S. appeals court judges in New York.

In a 20-minute hearing yesterday before the appeals court in Manhattan, a defense lawyer said improper wiretapping of Rajaratnam’s phone conversations will lead to reversal of his May conviction and that he should remain free in the meantime.

Patricia Millett, a lawyer for Rajaratnam, said the appeal presents a “substantial question of law” and that Rajaratnam is unlikely to flee to his native Sri Lanka before the appeal is decided.

“His passport was surrendered ages ago. All his family are here,” Millett told the three-judge appeals panel. “He has nothing to go to in Sri Lanka.”

Request for Bail

U.S. District Judge Richard Holwell, who presided over the case and sentenced Rajaratnam in October, had rejected a request for bail pending the appeal. Rajaratnam claims a March 7, 2008, wiretap application by the Federal Bureau of Investigation contained “glaring omissions” that would probably lead the appeals court to reverse his conviction, justifying his release on bail.

“There is no substantial question of law likely to result in a new trial,” Assistant U.S. Attorney Jonathan Streeter told the court.

Streeter told the panel that no defendants have ever been returned to the U.S. under its 22-year-old extradition treaty with Sri Lanka. The home detention and electronic monitoring ordered by Holwell is no guarantee that Rajaratnam won’t run, the prosecutor said.

‘Successfully Flee’

“People successfully flee all the time,” he said.

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.

In November 2010, Holwell ruled 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 extensive use of wiretaps to prove its case.

Prosecutors, who introduced 45 wiretap recordings into evidence during the trial, opposed Rajaratnam’s request for release while his appeal is in progress.

Prosecutors said the fund manager still has “significant net worth” even after U.S. District Judge Jed Rakoff, who is presiding over a lawsuit against Rajaratnam by the U.S. Securities and Exchange Commission, directed him to pay a record $92.8 million penalty. Holwell ordered him to pay a $10 million fine and forfeit $53.8 million.

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).

-Bloomberg