“Necessity†is a simple word that means “an imperative requirement or need for something.†In Raj Rajaratnam's appeal of his convictions for conspiracy and insider trading that will be heard on Thursday by the United States Court of Appeals for the Second Circuit, the critical issue will be whether the government established that it needed to use wiretaps because other avenues of investigation were not fruitful.
Under the federal Wiretap Act, the government must demonstrate that the necessity of using a wiretap by providing a federal district judge with “a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous.â€
Congress put this requirement into the law to ensure that wiretaps were not a first choice for investigating a case because they involve such a significant invasion of privacy.
If a wiretap was not properly authorized, the statute prohibits using the evidence at a trial. For Mr. Rajaratnam, that would lead to reversal of his convictions because the wiretaps were crucial to proving the case.
In addition to Mr. Rajaratnam's filings, a group of eight former federal judges submitted a brief arguing that the wiretap evidence should be suppressed because the government's inadequate disclosure in the application resulted in a significant invasion of privacy. Known as an “amicus curiae,†or “friend of the court†brief, it may carry some weight with the appeals court because these are former colleagues on the federal bench â€" which certainly gives Mr. Rajaratnam's argument some support. The judges are taking the position that the government should be held to a strict standard when it seeks the authority to overhear private telephone calls.
Multimedia: Insider Trading
The question of necessity for the wiretaps has been hotly contested since the start of the prosecution of Mr. Rajaratnam. The wiretaps were authorized while the Securities and Exchange Commission had a continuing insider trading investigation of his hedge fund, Galleon Group. The inquiry included taking his deposition and gathering about four million pages of documents. Yet, the wiretap application made only a few passing references to the S.E.C. and stated that other investigative techniques had been unsuccessful.
Richard J. Holwell, the federal judge who has since stepped down from the bench, found that an affidavit submitted to support the wiretap application “made a glaring omission†by not disclosing the S.E.C. investigation. He even determined that “this broad omission also rendered several specific statements in the affidavit misleading.â€
Nevertheless, Judge Holwell refused to suppress the evidence because even if the omitted information about the S.E.C. investigation had been provided, the court would have authorized the wiretaps. For basketball fans, this was essentially a “no harm, no foul†conclusion.
Nearly 90 percent of Mr. Rajaratnam's briefs filed in the appeals court discuss this issue. He also makes a small argument about a potential flaw in the jury instruction about the materiality of the information that is tacked on at the end, but this point is unlikely to merit much discussion at the oral argument.
The stakes in this appeal are high for both sides. A finding that the wiretap application was inadequate and requires suppression would affect not only Mr. Rajaratnam's case but also other defendants who went to trial, most prominently Rajat K. Gupta, who was convicted of tipping Mr. Rajaratnam and sentenced Wednesday to two years in prison. A Federal District Court judge, Jed S. Rakoff, rejected Mr. Gupta's motion to block the wiretap evidence in a decision that largely tracked Judge Holwell's analysis, so an appeals court decision suppressing the wiretaps would have a significant impact.
The three appellate judges hearing the case are José A. Cabranes, Robert D. Sack and Susan L. Carney. All were appointed by Democrats (Judges Cabranes and Sack by President Clinton, and Judge Carney by President Obama), and none have a prosecutorial background.
Judge Sack is an expert on First Amendment freedom of the press and defamation law, having written two books on those topics. He may be particularly attuned to arguments regarding the privacy concerns animating the necessity requirement for a wiretap. Judges Cabranes and Carney both worked at Yale in its general counsel's office before joining the federal bench.
If the panel focuses on the inadequacies in the government's application and the need to protect privacy, it would be a boon to Mr. Rajaratnam's position. If the court finds that a continuing civil investigation undermines the claimed necessity for authorizing a wiretap, that wou ld raise questions about how often the Justice Department can seek this investigative tool in white-collar cases.
Wiretaps are used most often in organized crime and drug cases because there are few viable alternatives for uncovering violations, so demonstrating necessity is not difficult. In white-collar investigations, however, there is frequently a parallel civil investigation by a regulatory agency like the S.E.C. that may be able to gather evidence of wrongdoing. If necessity requires first exhausting those avenues for obtaining information, then the use of wiretaps could be curtailed substantially.
In the end, the most persuasive point against Mr. Rajaratnam's appeal may well be the success of the wiretaps, which produced a trove of evidence of widespread insider trading that was unlikely to be uncovered by civil subpoenas and depositions. The assertion in the application that other investigative techniques had failed or were “unlikely to succeed†turned out to be correct. Although the end does not justify the means, success may well dissuade the appellate judges from suppressing such powerful evidence on the grounds that the government should have done a better job of describing why it needed the wiretaps.
Federal prosecutors have amassed an impressive record of convictions in insider trading trials over the last three years. Persuading the appeals court to uphold Mr. Rajaratnam's convictions is crucial to keeping that winning streak alive.
