Lawyers see green light in verdict for wiretaps

Wiretaps are likely to be used more widely in insider-trading probes following their critical role in the prosecution of Raj Rajaratnam, lawyers say.

Former prosecutors and defence lawyers say the criminal trial showed the power of wiretaps, court-approved covert listening devices which helped bolster the government's $63m insider trading case against the founder of Galleon Group. A

After the verdict on Wednesday, John Dowd, Mr Rajaratnam's lawyer, said he would appeal against the conviction based on the judge's decision to allow the wiretaps to be played during the trial.

Prosecutor Jonathan Streeter told the judge the difficulty in bringing insider-trading cases against hedge fund traders proved the "necessity of wiretaps". The government has already increased the use of such devices. In a related insider-trading case scheduled to start on Monday, prosecutors are relying on wiretaps and "body wires", recording devices worn by co-operating witnesses, to bolster their case.

Lawyers expect the trend to continue. The government's ability to use the defendant's own voice in a trial makes it harder for lawyers to construct a defence for their clients' trades, they say.

"You can't just say 'a conversation was taken out of context' when you have a recorded phone call," says Philip Hilder, a former federal prosecutor. "It is one of the most powerful tools a prosecutor has and to utilise them in a white-collar case like this one is devastating for the defence."

Mr Hilder says he expects "prosecutors will utilise their wiretap tool more often. The risk-reward for the government will be emboldened".

Wiretaps do have their problems. They are expensive because the government needs to monitor calls 24 hours a day. Investigators also have to follow rigorous procedures or risk having the evidence suppressed. The two judges who allowed the government's wiretaps to be used in the insider-trading trials both criticised the government for sloppiness.

Prosecutors played 45 secretly recorded phone conversations between Mr Rajaratnam and his alleged co-conspirators. On one call, Mr Rajaratnam was heard discussing the exact date when Advanced Micro Devices' sale of a chip unit would be announced. On another, he said he had 100 per cent certainty that a takeover of PeopleSupport would go through despite a cautionary press release because he had a source on the company's board.

Those admissions, while deflected by his lawyers, proved difficult to overcome. The tapes were bolstered by a series of witnesses - including two business school classmates of Mr Rajaratnam - who admitted to committing crimes.

Without wiretaps, the government often has to rely on circumstantial evidence such as trading and phone records. In some respects, the Galleon case was no different. The government presented a series of phone records that took place between Roomy Khan and Mr Rajaratnam and were followed by his trades in the shares of Hilton Hotels and Polycom. The government did not call Ms Khan, a stock trader who has plead guilty and is co-operating. The jury was asked to connect the dots and accept the government's allegation that inside information was relayed during the calls. Ms Khan was considered a high-risk witness given a history of insider-trading offences.

In his defence, Mr Rajaratnam's legal team showed the jury dozens of analyst reports and news articles suggesting there were other bases for his trades. The team hired a finance professor to testify that a lot of the supposedly secret information had already leaked into the market.

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