By Chad Bray
For now, prosecutors get to keep their newest tool to fight insider trading: wiretaps.
A federal judge, in an opinion made public Tuesday, said that prosecutors can play at Rajat Gupta’s insider-trading trial secretly recorded phone calls captured from the cellular phone of Raj Rajaratnam, a hedge-fund manager he alleged tipped. The phone calls were previously allowed into Rajaratnam’s criminal trial last year by former U.S. District Judge Richard Holwell.
Gupta, a former director at Goldman Sachs Group and Procter & Gamble had argued in part that federal law doesn’t allow wiretaps to be used “in investigations of suspected insider trading” and the wiretaps never should have been allowed into Rajaratnam’s case because they were improperly obtained. Gupta has denied wrongdoing.
“So long as the government acts in good faith with respect to informing the court of the crimes it is investigating and learning of in connection with the wiretap, as Judge Holwell and this court conclude was done here, the government is free to use evidence obtained from an unauthorized wiretape in the prosecution of a crime not listed in” the wiretap statute, U.S. District Judge Jed Rakoff said in an opinion made public Tuesday.
A lawyer for Gupta declined comment Tuesday.
Federal prosecutors in Manhattan have alleged that Gupta provided inside information from Goldman and P&G to Rajaratnam while on their boards, including details of an investment in Goldman by Warren Buffett’s Berkshire Hathaway Inc. at the height of the financial crisis in October 2008.
Gupta, who has been charged with conspiracy and securities fraud, is expected to go to trial on May 21.
Rajaratnam, who was convicted of insider-trading charges last year and sentenced to more than 11 years in prison, is challenging the admissibility of the wiretaps on appeal.