New York: Federal prosecutors are continuing “covert investigations” of two people in the Galleon hedge fund insider trade case, according to a court document made public on Wednesday.
The disclosure raises the prospect of additional arrests in a case described by prosecutors as the biggest probe of illegal insider trading involving hedge funds in the United States. Twenty-one traders, lawyers and executives including Galleon hedge fund founder Raj Rajaratnam, were arrested and charged last October and November with conspiracy.
Separately on Wednesday, Rajaratnam’s lawyers indicated in a court document that they are preparing a broad attack on the government’s wiretap evidence, which they want to suppress from the trial scheduled for October.
Information on the investigation came to light in a decision by US district judge Richard Holwell who is presiding over the criminal case of Rajaratnam and principal co-defendant Danielle Chiesi, a former trader at New Castle Funds LLC.
Holwell denied a motion by Rajaratnam to obtain access to unredacted interviews that federal agents conducted with a cooperating witness, Roomy Khan, a former trader and associate of the hedge fund founder.
Some of the information redacted by federal prosecutors “related to ongoing covert investigations involving two individuals occasionally mentioned in the Khan documents,” according to the decision.
The identity of the two people was not published. It is not clear if those are the only covert investigations still underway in the Galleon investigation.
A spokeswoman for Manhattan US attorney Preet Bharara declined to comment.
Nine of the 21 charged have been indicted, 11 have pleaded guilty and one is at large. Eight people, some of them Rajaratnam’s former friends and business associates or onetime Galleon employees, have signed cooperation agreements with prosecutors and may be called upon to testify at trial.
One of the names redacted from court documents as a source for one of the charges in the Rajaratnam indictment relates to trading in Akamai Technologies Inc. Akamai Chief Executive Officer Paul Sagan told Reuters on Wednesday that an employee linked to the case was no longer working for Akamai.
“The employee in question was not an executive,” Sagan said in an interview following the company’s earnings announcement. He declined to give further details, other than to say the company had finished its own investigation and would continue to cooperate with authorities.
Rajaratnam’s defence team, which faces a 7 May deadline to submit legal arguments to ask Holwell to suppress thousands of recordings from trial, said it “intends to present several distinct arguments” in its brief.
“These arguments raise legal issues requiring comprehensive analysis arising out of the unprecedented nature of this case, which will require Your Honor to rule on the legality of the government’s first-ever use of wiretaps in connection with an insider trading investigation -- an offense for which Congress has not authorized the use of wire surveillance,” said a letter to the judge by lawyer John Dowd.
Typically, wiretaps are used in investigations of organized crime figures, not white-collar criminal probes.
Rajaratnam and Chiesi are scheduled to go on trial before Holwell on 25 October. Both have pleaded not guilty to charges of conspiracy and securities fraud in stock trades that allegedly made them a total of $49 million in illicit profits.
In the broad case, prosecutors alleged that defendants traded based on confidential information in shares of mostly technology companies including Google Inc, Sun MicroSystems Inc, Advanced Micro Devices Inc, International Business Machines Corp, Intel Corp and Akamai.
The case is USA v Raj Rajaratnam and Danielle Chiesi, US district court for the southern district of New York, No. 09-01184.