NEW YORK — Former hedge-fund titan Raj Rajaratnam was convicted in an insider-trading case Wednesday thanks largely to weapons that prosecutors have used against mobsters and drug lords for years: wiretaps. What that means for Rajaratnam’s former peers depends on whether it’s true, as his lead attorney asserts, that what he did “happens every day on Wall Street.”
Federal prosecutors used nearly three dozen recordings at trial to back up their claim that Rajaratnam made a fortune by coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades in technology and other stocks. In a clear signal of the tapes’ importance, the U.S. District Court jurors asked several times to rehear some of the recordings before convicting Rajaratnam of all 14 counts: five of conspiracy and nine of securities fraud.
Rajaratnam could be heard wheeling and dealing with corrupt executives and consultants — in one case demanding “radio silence” on information that could affect a stock price.
The tapes spelled the demise of a defendant who “was among the best and the brightest, one of the most educated, successful and privileged professionals in the country,” U.S. Attorney Preet Bharara said in a statement. “Yet, like so many others, he let greed and corruption cause his undoing.”
Authorities have said the recordings represent the most extensive use to date of wiretaps in a white- collar case. The defense had fought hard in pretrial hearings to keep the evidence out of the trial by arguing that the FBI obtained it with a faulty warrant.
Once a judge allowed the recordings in, prosecutors put them to maximum use by repeatedly playing them for jurors, who convicted Rajaratnam on their 12th day of deliberations.
Bharara’s office “took wiretaps for a test drive, and I’d say it was a resounding success,” said Stephen Miller, a former federal prosecutor in private practice in Philadelphia.
The tapes were “a gold mine,” said Steven Scholes, an attorney in private practice in Chicago who formerly worked in the Securities and Exchange Commission Division of Enforcement. “There’s an old saying that you can’t cross-examine a tape.”
Kenneth Herzinger, another former attorney in the SEC enforcement division, now in private practice in San Francisco, predicted prosecutors will expand the use of wiretaps to other white-collar prosecutions.
Outside court, with Rajaratnam at his side, defense attorney John Dowd said there will be an appeal filed with the 2nd U.S. Circuit Court of Appeals. Of the 37 trades that the government sought to prosecute, he added, only 14 made it to trial.
“The score is 23-14 in favor of the defense,” he said. “We’ll see you in the 2nd Circuit.”
Insider-trading targets
Donald Longueuil: Former hedge-fund portfolio manager at SAC Capital Advisors, the 35-year-old is convicted April 28 during a federal crackdown. He forfeits $1.2 million and receives a prison sentence of 46 to 57 months.
Edgar Bronfman Jr.: Scion of a prominent business family in Canada receives a 15-month suspended sentence and a $6.7 million fine in a Paris court Jan. 11. Tried with six others in connection with the activities of French conglomerate Vivendi SA while he was vice chairman.
Joseph Contorinis: Former portfolio manager at Jefferies Asset Management is convicted of securities fraud in a $7 million scheme. He is sentenced to six years in prison in October.
Joe Nacchio: Former Qwest chief executive, charged with 42 counts of illegal insider trading in 2005, is convicted in April 2007 on 19 counts after a 21-day trial.
Jeffrey Skilling: Former Enron chief executive is convicted by a federal jury in Houston of 19 counts of fraud, conspiracy, insider trading and lying to auditors in 2006. He is sentenced to 24 years at the Englewood Federal Correctional Institution in Littleton.
Samuel Waksal: Founder of biotech firm ImClone pleads guilty to illegal insider trading, obstruction of justice, perjury and bank fraud, and is fined $4.3 million in 2003, a case that also sweeps up TV star Martha Stewart. He spends five years in prison.
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