Rajaratnam\'s Lawyers Argue to Overturn Conviction

A lawyer for the former hedge fund manager Raj Rajaratnam asked a panel of federal appeals court judges on Thursday to set aside his conviction, arguing that the government used deceptive methods to obtain permission to wiretap his cellphone.

Patricia Ann Millett, a lawyer for Mr. Rajaratnam, told the judges that the government's application to a federal judge seeking authorization to secretly record Mr. Rajaratnam's conversations was riddled with problems.

“You had cascading errors, paragraph after paragraph after paragraph,” said Ms. Millett, arguing before the United States Court of Appeals for the Second Circuit in Manhattan.

As a result of those errors, Ms. Millett argued, the appeals court should suppress the wiretap evidence used by federal prosecutors at Mr. Rajaratnam's trial. Such a ruling would force the government to retry Mr. Rajaratnam without the use of dozens of incriminating phone calls during which he brazenly swapped confidential i nformation about publicly traded companies with numerous informants. The arguments echoed those in briefs filed by Mr. Rajaratnam's lawyers.

A jury found Mr. Rajaratnam, who ran the now-defunct Galleon Group hedge fund, guilty in May 2011 after a two-month trial. He is serving an 11-year sentence at a federal prison in Massachusetts.

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Mr. Rajaratnam's appeal came a day after one of his informants, the former Goldman Sachs director Rajat K. Gupta, was sentenced to two years in prison for leaking boardroom secrets about the bank to Mr. Rajaratnam.

During Thursday's hearing, the three appellate judges weighing Mr. Rajaratnam's appeal - José A. Cabranes, Robert D. Sack and Susan L. Carney - revealed little about their position on the case. They did not ask Andrew L. Fish, the federal prosecutor arguing on the government's behalf, any questions that appeared skeptical of the government's wiretap a pplication. But they let Ms. Millett argue for roughly double her allotted 15 minutes, suggestion they might have been receptive to her argument.

Mr. Rajaratnam's appeal centers on the propriety of the government's application to wiretap his cellphone. Given the privacy concerns raised by wiretap usage, the law requires that federal authorities obtain a judge's approval before employing electronic surveillance techniques during an investigation. There are narrowly prescribed conditions under a which a judge can approve a wiretap applications, including the requirement that the government demonstrate that other more conventional investigative procedures, like interviewing witnesses and reviewing documents, have tried and failed.

Ms. Millett said that the government misled the authorizing judge, Judge Gerard Lynch, by failing to disclose in its application that the Securities and Exchange Commission had been conducting a parallel civil investigation of Mr. Rajaratn am for a year and a half. The lack of disclosure, she said, showed a “reckless disregard for the truth” and made it impossible for Judge Lynch to do his job. She noted several other problems with the wiretap application, including the government's omitting that it has already subpoenaed individuals to appear before a grand jury and making false statements about the criminal history of a key witness in the case.

“You can't have this much wrong with an affidavit,” said Ms. Millett, a partner at Akin, Gump, Strauss, Hauer & Feld. “Full stop - that mandates suppression.”

Yet Judge Sack appeared to disagree with Ms. Millett and sympathize with the trial-court judge in the Rajaratnam case who allowed the wiretap evidence despite finding defects in the government's application. Judge Sack suggested that had Judge Lynch had known about the extent and length of the S.E.C. investigation, which had yet to yield substantial evidence of criminal conduct, there mig ht actually have been a better case for him to grant the wiretap application. A ruling on the appeal is expected in the coming months.

The government's use of wiretaps in the Rajaratnam investigation was historic, heralding a new chapter in criminal enforcement on Wall Street. Never before had court-authorized wiretaps been used to target significant insider trading. Ms. Millett reminded the judges of this on Thursday, noting that “for 75 years of the federal securities laws the government has used conventional means to investigate insider trading.”