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Federal appeals court upholds hedge fund manager's conviction

The US Court of Appeals for the Second Circuit [official website] on Monday affirmed the conviction [opinion, PDF] of Galleon Group founder Raj Rajaratnam [JURIST news archive], rejecting his argument that wiretap evidence was used improperly to convict him. Rajaratnam was convicted in 2011 on 14 counts related to insider trading and sentenced [JURIST reports] to 11 years in prison, as well as over $63 million dollars in associated fines and fees. Rajaratnam argued [brief, PDF] that certain statements made by federal officers in the affidavit used in support of the warrant to tap his personal cell phone were made with a blatant disregard for the truth, and as such should have been suppressed under the Franks v. Delaware [opinion] standard provided by the Supreme Court in 1978. Secondly, Rajaratnam argued that the jury instructions defining criminal use of material stock information in decisions to trade stock did not meet the "knowing possession" requirement for conviction. Writing for the court, Judge Jose Cabranes rejected both arguments on appeal.

Rajaratnam's case has been called the largest hedge fund insider trading case in US history, and his sentence is the longest term ever imposed for insider trading [DOJ press release]. The 11-year sentence was significantly lower than the 24 1/2-year sentence requested by prosecutors and less than the 19 1/2-year minimum indicated by the non-obligatory federal sentencing guidelines. Calling his crime an assault on free markets and a virus in business culture in need of eradication, Judge Richard Holwell cited Rajaratnam's charitable financial help for victims of the tsunami in Sri Lanka, the earthquakes in Pakistan and the 9/11 attacks, as well as his impeding kidney failure due to advanced Type II diabetes as reasons for the comparatively lenient sentence. Several other defendants from leading international companies have pleaded guilty in connection with the case [JURIST report]. His younger brother, Rengan Rajaratnam, was convicted in March [JURIST report] on related charges.

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