Rajaratnam Case Sets New Precedent for White Collar Crime in Minnesota

The conviction of Galleon Group founder, Raj Rajaratnam, on insider trading charges heralds the beginning of a new era in white collar prosecutions. The one time darling of Wall Street was convicted in May by a New York jury of fraud and conspiracy.

The aftershocks of the Rajaratnam case are likely to ripple across the country to white collar defendants in Minnesota. The case against Raj Rajaratnam marked an aggressive new tack for prosecutors, who spent the better part of the past 30 years struggling with legal theories and fumbling to find adequate evidence to build cases against white collar criminals in the past.

A Rising Star

Rajaratnam's career in Wall Street took off after graduating from the University of Pennsylvania's Wharton School. He quickly built a reputation at Needham & Company as a bright, aggressive, and talented investor. Rajaratnam's ability to ferret out the most promising technology companies distinguished him among his peers.

By the time he was 39 he was ready to go out on his own. In 1997 he founded The Galleon Group with three colleagues from Needham. With an emphasis on research, the new hedge fund took off. The fund grew and at its peak, The Galleon Group managed over $7 billion in assets.

Ironically, it was the success of the hedge fund giant that drew attention of investigators. While Rajaratnam argued his success was attributed to meticulous research, which was confirmed by the government, prosecutors also accused Rajaratnam of using tips from contacts within prominent firms such as Goldman Sachs and New Castle Funds. The government said Rajaratnam essentially created indentured servants out of his contacts, paying them with large sums for consulting work, then demanding more detailed information.

Wiretapping - The Fatal Snare

Raj Rajaratnam's conviction was ultimately sealed by over 40 wiretapped recordings of the hedge fund mogul receiving privileged information from his sources. The prosecution had originally sought to introduce 173.

The case marked a bold new tactic for prosecutors, gathering evidence against the hedge fund mogul using tactics previously reserved for drug dealers and Mafiosi. Given the government's success with convicting Rajaratnam, it is reasonable to expect wiretaps to be used extensively in future investigations. Defense attorneys will need to work especially hard to defend their clients against criminal charges in this new era of white collar prosecution.

There are a few protections built into the wiretapping law. Before a wiretap can be authorized, a judge must be certain the following requirements have been established:

  • There must be probable cause that indicates a suspect is breaking the law
  • There must be sufficient probable cause to reasonably believe that a wiretap would be effective in capturing communications about the crime
  • Either the methods investigators have used have not been fruitful, are unlikely to succeed or would simply be too dangerous.
  • There is adequate probable cause to reasonably believe that the location where the wiretap will be placed either are currently being used or will be used to commit the crime

Because the use of a wiretap is inherently invasive, the judge's orders must be narrowly tailored specifying the person who will be recorded, the location that will be recorded, the material that may be captured by the wiretap, the person or persons authorized to administer the wiretap, and the duration of the wiretap.

Although the sentencing guidelines for Rajaratnam's offenses recommend 15 to 20 years in federal prison, it is widely believed that prosecutors will request for an upward departure from those suggestions, asking the judge to order Rajaratnam to serve 25 years.

Are Wiretaps Too Invasive?

Raj Rajaratnam is not likely to go down without a fight. It is expected his attorney will file an appeal before his September 27 th sentencing date. The focus of the appeal will be the wiretap evidence. Rajaratnam's defense lost an argument in October to suppress the evidence. His attorneys are anticipated to ask a higher court to revisit that issue.

The use of wiretaps raises serious constitutional concerns over a suspect's 4 th Amendment right to be protected against unreasonable searches and seizures. Although the law was designed to guard that interest, there is question, particularly in this case, as to whether the prosecution has gone too far.

Why is this invasion such a big deal? Imagine having a police officer coming into your home and rifling through your possessions because your neighbor, with whom you've had disagreements in the past over visitors to your home, told police that you were dealing drugs and ought to be arrested. You probably wouldn't be too keen on the invasion, not to mention the embarrassment of having authorities storming your home as if you were a drug kingpin.

The roots of our protections and the concept of our house as our 'castle' dates back to 17th century England, which provided protection for people from such invasions, even if they were at the behest of the king. Ironically, the British abused this law in the American Colonies when they began issuing 'writs of assistance' in the 18 th century, enabling permitting customs agents to search any home for goods that might be taxed. This led to the incorporation of the 4 th Amendment into our Bill of Rights.

An Attorney Will Advocate for Your Rights

The courts take the 4 th Amendment protections very seriously. Still, it is important to have an attorney on your side who can fight to ensure these laws are not allowed to be violated. Any constitutional objection to prosecution must be introduced at the trial level or it could be lost. If you are facing criminal charges, it is imperative you hire an experienced lawyer as soon as possible to ensure you are not giving up any of your rights.