* U.S. prosecutors expect more charges in the case
* Investigators say they have more cooperating witnesses
* U.S. asks judge to deny Rajaratnam bail requests
* Trial of civil case set for next August (Adds detail from Galleon investor letter in last paragraphs)
By Grant McCool
NEW YORK, Nov 4 (Reuters) - Investigators expect more people to be charged in the Galleon hedge fund insider trading case, and they said they have cooperating witnesses to strengthen their case against the fund's billionaire founder, Raj Rajaratnam.
In statements at a court hearing and in briefs on Wednesday in parallel federal civil and criminal cases, the government signaled publicly for the first time since Rajaratnam and five others were arrested on Oct. 16 that its net was widening.
"There is a real possibility that we will be adding additional parties," U.S. Securities and Exchange Commission lawyer Valerie Ann Szczepanik said in a Manhattan court hearing in the civil case. "We can't comment on the timing."
Federal prosecutors have described the case as the biggest-ever hedge fund insider-trading scandal, involving executives of some well-known U.S. companies, including Intel Corp's (INTC.O) venture capital arm, International Business Machines (IBM.N) and McKinsey & Co management consultants.
The Sri Lankan-born Rajaratnam, 52, and the five other defendants are free on bail. [ID:nN29365117]
In court papers asking a judge to jail Rajaratnam because he may be a flight risk, prosecutors mentioned Roomy Khan, a convicted felon and former Intel employee cited as a cooperating witness in media reports as well as in an Oct. 29 letter to the court by Rajaratnam's lawyers. [ID:nN0437779]
"This attempt to undermine the government's evidence falls flat," the prosecutor's brief in Manhattan federal court said.
"As the complaint itself makes clear, the defendant's assertion that the government's case hinges on a single witness is false," it said. "This case involves wiretap evidence of the defendant making incriminating statements that would be strong even absent the testimony of any cooperating witness. In addition, there is more than one cooperating witness."
The document does not identify the cooperating witnesses, and mentions Khan only in response to last week's letter from Rajaratnam's lawyers, seeking to reduce his bail to $25 million from $100 million and to ease his travel restrictions.
A hearing on bail issues is set for Thursday. Rajaratnam's lawyer John Dowd declined to comment on Wednesday.
Prosecutors have said the case is the first time court-approved telephone wiretaps were used in a Wall Street insider-trading investigation.
The SEC complaint said the unlawful trading involved inside information concerning 10 different companies, including Google Inc (GOOG.O), Hilton Hotels Corp HLNQ.PK and Intel.
Rajaratnam's lawyers on Wednesday asked a judge to order the government to provide the court orders and applications authorizing intercepted conversations on which its allegations are based.
"The government was required to produce this material by statute but impermissibly failed to do so prior to utilizing the evidence to its advantage," the letter to U.S. Magistrate Judge Theodore Katz said.
In the civil case, which usually is superseded by the criminal case, U.S. District Judge Jed Rakoff on Wednesday set Aug. 2, 2010, for the start of a jury trial.
He rejected a joint proposal by the SEC and some of the defense lawyers to put the civil case on hold for 90 days to obtain and review electronic surveillance material obtained in the criminal case.
The cases are USA v Raj Rajaratnam et al, U.S. District Court, Southern District of New York, No.09-mj-2306; and SEC v Galleon Management et al in the same court, No. 09-08811.
In the meantime, Galleon continued to steam ahead with plans to liquidate all of its assets and, it hoped, find new jobs for its traders and analysts.
Galleon in an investor letter Wednesday said it has been contacted by several investment firms inquiring about potentially hiring its employees and that it planned to return capital in the coming months.
Most capital will be returned shortly after Nov. 30 fund values are calculated, with the remainder distributed once year-end results are audited.
The New York-based firm said it continues to weigh strategic alternatives for its funds and its employees.
Galleon stressed that its funds "performed well in October, despite having to wind down our portfolios." (Additional reporting by Joe Giannone; Editing by Gerald E. McCormick, John Wallace and Steve Orlofsky)