Rajaratnam, Chiesi face October 25 criminal trial

Raj Rajaratnam, the principal in the $21 million Galleon Group hedge-fund insider trading case leaves the U.S. Court after his arraignment on conspiracy and securities fraud charges in New York, December 21, 2009.

NEW YORK (Reuters) - Galleon hedge fund founder Raj Rajaratnam can expect to go on trial on criminal charges of insider trading on October 25, a U.S. judge said on Wednesday, a ruling that complicates a civil trial on similar charges.

Manhattan federal court Judge Richard Holwell said that all parties to the case including the court saw "legitimate reasons" to try the criminal trial first for Rajaratnam, 52, and co-defendant Danielle Chiesi, 44, but another judge had set August 2 to try civil charges brought by market regulators.

Usually when there are parallel criminal and civil cases, the criminal case takes precedence.

However, in the Galleon hedge fund insider trading probe that ensnared 21 people last October and November, Judge Jed Rakoff, overseeing the civil case, quickly set the August trial date and denied requests to wait for resolution of the criminal matter.

Prosecutors had proposed a June or July date for the start of the criminal trial, also preferring it to be held before any civil trial.

"The parties to this case and the court are of the view that there are legitimate reasons to try the criminal case first," Holwell said during a court hearing for Rajaratnam and Chiesi, who were both present.

"Let's see what in their independent opinion the SEC (Securities and Exchange Commission) and Judge Rakoff believe should happen in the SEC action," Holwell said.

Rajaratnam and Chiesi, formerly with New Castle Funds LLC in New York, have both pleaded not guilty to the criminal and civil charges.

The arrests and charges drew widespread attention because they included allegations against a well-known hedge fund figure in Sri Lankan-born Rajaratnam and employees of some of America's best-known companies, including International Business Machines Corp, McKinsey & Co management consultants and Intel Capital, investment arm of Intel Corp.

Rajaratnam's lawyer, John Dowd, told Holwell on Wednesday that the SEC case "is getting in the way" and that he and Chiesi's lawyer, Alan Kaufman, were prepared to join in a stay of the action or a dismissal.

"The other case is, frankly, a nuisance," Dowd said.

In a sweeping prosecution described by authorities as the biggest hedge fund insider trading case ever in the United States, a score of stock traders, lawyers, fund managers and executives were accused of trading on tips about forthcoming mergers and acquisitions, mostly in tech stocks.

Much of the evidence in the case that involved companies from Wall Street to Silicon Valley was gathered through wiretaps, prosecutors said, a rare tactic in white collar crime investigations.

Lawyers for Rajaratnam and Chiesi want to suppress the recordings from trial on grounds they violate their clients' constitutional rights to privacy.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Grant McCool; Editing by Gary Hill, Bernard Orr)