UPDATE 2-Galleon founder wins stay of wiretaps in civil case

Wed Mar 24, 2010 5:11pm EDT

Related Topics

* Lawyers for Galleon founder want to suppress recordings

* Civil trial postponed to February 2011 from August

* Rajaratnam and Chiesi have asked for separate trials (Adds civil fraud trial postponed to Feb. 14 next year)

By Grant McCool

NEW YORK, March 24 (Reuters) - Galleon hedge fund founder Raj Rajaratnam, accused of insider trading along with several associates, won a suspension of a court order to hand over wiretap evidence to U.S. market regulators, pending appeal.

The U.S. Court of Appeals for the 2nd Circuit in New York ordered a stay in favor of Rajaratnam and co-defendant Danielle Chiesi on Wednesday after a lower court order in February compelled them to disclose wiretap evidence gathered in the criminal case.

A trial on civil fraud charges brought by the U.S. Securities and Exchange Commission was set to start Aug. 2 before U.S. District Judge Jed Rakoff, but in an order Wednesday, he postponed it until Feb. 14, 2011.

Lawyers for Sri Lanka-born U.S. citizen Rajaratnam and former New Castle Funds LLC trader Chiesi are seeking to suppress 18,000 recordings in what U.S. prosecutors describe as the biggest hedge fund insider trading case in the United States.

Rajaratnam's lawyers argued before a three-judge appeals court panel on Tuesday that the use of the recordings in the SEC case ignored "the plain text" of the wiretap statute and privacy concerns.

Investigators said Rajaratnam, 52, and Chiesi, 44, made as much as $49 million of illicit gains after using tips from insiders to trade.

The criminal trial is scheduled to begin on Oct. 25, but both Rajaratnam and Chiesi are seeking separate trials. When there are parallel civil and criminal charges, typically the criminal trial takes precedence.

At least 21 executives, traders and lawyers have been hit with criminal or civil charges, or both. Ten have pleaded guilty, and eight, including some former Rajaratnam associates and Galleon employees, are cooperating with the government.

The appeals court set a June 8 deadline for all briefs before oral arguments are scheduled.

In postponing the SEC trial of Rajaratnam and other defendants including former executives, traders, lawyers and trading firms, Rakoff noted in a written order that since the "resolution of the wiretap issue cannot realistically be expected before July 2010, an August 2 trial is no longer practical."

A spokesman for the SEC declined to comment on the appeals court order.

Rajaratnam's lawyer, John Dowd, said in a statement he was pleased with the panel's ruling.

One of Chiesi's lawyers, Don Buchwald, said, "It is important that all parties be given the chance to litigate before any of these interceptions are used or misused."

The appellate case is: SEC v. Galleon Management et al, U.S. Court of Appeals for the Second Circuit, No. 10-0462. The lower court case is: SEC v Galleon Management et al, U.S. District Court, Southern District of New York, No. 09-08811.

(Reporting by Grant McCool; Editing by Leslie Gevirtz and Richard Chang)

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