Rajaratnam's Motion for Bail Pending Appeal

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------x

:

UNITED STATES OF AMERICA, ::

-v- :: S2 09 Cr. 1184 (RJH)

RAJ RAJARATNAM, ::

Defendant. ::

---------------------------------------------------------------x

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT RAJ RAJARATNAM’S

MOTION FOR BAIL PENDING APPEAL

John M. Dowd (admitted pro hac vice)Terence J. Lynam (admitted pro hac vice)James E. Sherry (admitted pro hac vice)

Akin Gump Strauss Hauer & Feld LLP1333 New Hampshire Ave., NW

Washington, D.C. 20036

(202) 887-4386

Samidh Guha (SG-5759)Akin Gump Strauss Hauer & Feld LLP One

Bryant Park New York, NY 10036

(212) 872-1000

Attorneys for Raj Rajaratnam

September 9, 2011

New York, New York

Case 1:09-cr-01184-RJH Document 311 Filed 09/09/11 Page 1 of 29



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TABLE OF CONTENTS

I. INTRODUCTION ...............................................................................................................1II. ARGUMENT .......................................................................................................................1

A. MR. RAJARATNAM POSES NO RISK OF FLIGHT OR DANGER TO

THE COMMUNITY ................................................................................................2B. MR. RAJARATNAM’S APPEAL RAISES SUBSTANTIAL ISSUES

LIKELY TO RESULT IN REVERSAL AND A NEW TRIAL ...............................41. The Denial of Mr. Rajaratnam’s Motion to Suppress the Wiretap

Evidence Presents a Substantial Question for Appeal .................................6a. The wiretaps should have been suppressed because the

initial application failed to demonstrate necessity. ..........................7 b. The wiretaps should have been suppressed because the

initial application failed to demonstrate probable cause. ...............14c. The wiretaps should have been suppressed because the

government was not authorized to use electronicsurveillance to investigate insider trading. .....................................16

2. Suppression of the Wiretap Evidence Will Require Reversal and a

New Trial. ..................................................................................................20III. CONCLUSION ..................................................................................................................22




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TABLE OF AUTHORITIES

Page(s)

CASES

Aguilar v. Texas,378 U.S. 108 (1964) .................................................................................................................11

Alabama v. White,496 U.S. 325 (1990) .................................................................................................................15

Chapman v. California,

386 U.S. 18 (1967) ...................................................................................................................21

Dalia v. United States,441 U.S. 238 (1979) .................................................................................................................18

Franks v. Delaware,438 U.S. 154 (1978) .................................................................................................................10

Spinelli v. United States,393 U.S. 410 (1969) .................................................................................................................11

Thompson v. Wagner ,631 F. Supp. 2d 664 (W.D. Pa. 2008) ......................................................................................13

United States v. Bianco,998 F.2d 1112 (2d Cir. 1993)...................................................................................................10

United States v. Canfield,212 F.3d 713 (2d Cir. 2000)....................................................................................................15

United States v. Concepcion,

579 F.3d 214 (2d Cir. 2009).........................................................................................10, 13, 14

United States v. Coplan,

1:07-CR-00453 (S.D.N.Y., order issued Jan. 21, 2010) ............................................................6

United States v. Ebbers,

1:02-CR-01144 (S.D.N.Y., order issued Sept. 8, 2005) ............................................................6

United States v. Feguson,758 F.2d 843 (2d Cir. 1985).....................................................................................................15

United States v. Fermin,

32 F.3d 674 (2d Cir. 1994).......................................................................................................15

United States v. Galanis,695 F. Supp. 1565 (S.D.N.Y. 1980).......................................................................................4, 5




iii

United States v. Giordano,

416 U.S. 505 (1974) ...................................................................................................................9

United States v. Hayes,553 F.2d 824 (2d Cir. 1977)....................................................................................................15

United Sates v. Harris,

464 F.3d 733 (7th

Cir. 2006) ....................................................................................................13

United States v. Lee,

549 F.3d 84 (2d Cir. 2008).................................................................................................21, 22

United States v. Levine,

690 F. Supp. 1165 (E.D.N.Y. 1988) ........................................................................................19

United States v. Lilla,699 F.2d 99 (2d Cir. 1983)...............................................................................................8, 9, 10

United States v. Lombardozzi,491 F.3d 61 (2d Cir. 2007)......................................................................................................22

United States v. Marion,535 F.2d 697 (2d Cir. 1976)...............................................................................................17, 19

United States v. Masciarelli,558 F.2d 1064 (2d Cir. 1976)..................................................................................................19

United States v. Miller ,116 F.3d 641 (2d Cir. 1997).................................................................................................7, 10

United States v. Perez ,

247 F. Supp. 2d 459 (S.D.N.Y. 2003) ......................................................................................13

United States v. Quiroz ,

13 F.3d 505 (2d Cir 1993)............................................................................................20, 21, 22

United States v. Randell ,

761 F.2d 122 (2d Cir. 1985).....................................................................................5, 12, 17, 20

United States v. Rigas,1:02-CR-1236 (S.D.N.Y., order issued July 13, 2005) ..............................................................6

United States v. Rittweger , No. 02-CR-122, 2005 WL 3200901 (S.D.N.Y. 2005) ...............................................................5

United States v. Santiago,695 F. Supp. 1490 (S.D.N.Y. 1988).......................................................................................4, 5




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United States v. Stewart ,

1:03-CR-717 (S.D.N.Y., order issued July 13, 2004) ................................................................6

United States v. Tortorello,

480 F.2d 764 (S.D.N.Y. 1973) .................................................................................................19

United States v. Tubol ,

191 F.3d 88 (2d Cir. 1999).......................................................................................................21

United States v. Tunick ,

No. S3-98-CR-1238, 2001 WL 282698 (S.D.N.Y. March 22, 2001) ........................................5

Whiteley v. Warden, Wyo. , State Penitentiary,

401 U.S. 560 (1971) .................................................................................................................11

STATUTES

15 U.S.C.§ 80b-3(e) .................................................................................................................................18

18 U.S.C.

§ 1028A ....................................................................................................................................18§ 1514A ....................................................................................................................................18

§ 2515.........................................................................................................................................8§ 2516.......................................................................................................................................17§ 2517...........................................................................................................................17, 18, 19

§ 2518............................................................................................................................... passim§ 3143.....................................................................................................................................1, 4

OTHER AUTHORITIES

S. Rep. 90-1097 (1968) ..............................................................................................................7, 17




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I. INTRODUCTION

Defendant Raj Rajaratnam respectfully requests that this Court permit him to remain

released pending appeal subject to his present bail conditions, which include a $100 million

secured bond, electronic monitoring, and home confinement.

Four times, this Court has found that Mr. Rajaratnam poses no risk of flight or danger to

the community, and the last time it did so by clear and convincing evidence. Mr. Rajaratnam’s

model compliance with bail conditions for the last 23 months has consistently corroborated this

Court’s judgment. Mr. Rajaratnam now intends to mount an appeal of his conviction that will

raise substantial questions of law and fact with respect, inter alia, to the government’s use of

wiretap evidence in this case. These factors alone are sufficient to warrant release under 18

U.S.C. § 3143(b). As this Court is also aware, Mr. Rajaratnam suffers from chronic, life-

threatening, and degenerative diseases. These conditions not only make it impossible for Mr.

Rajaratnam to flee without placing his own life in immediate jeopardy, they require intensive

medical treatment not available within the Bureau of Prisons and would be irreversibly

exacerbated if he were to be detained pending appeal. For all of these reasons, release pending

appeal is singularly appropriate in this case.

II. ARGUMENT

18 U.S.C. § 3143(b) governs bail pending appeal, and states that the court “shall” order

the defendant released if: (1) the defendant demonstrates by clear and convincing evidence that

he poses no risk of flight and no danger to the community; and (2) the appeal is not for the

purpose of delay and raises a substantial question of law or fact likely to result in reversal or a

new trial. This Court has already found that Mr. Rajaratnam is not a flight risk or danger to the

community, and his appeal will raise substantial issues, including the wiretap suppression issue

that this Court has already acknowledged involves “close” and highly debatable questions of law.




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If resolved in Mr. Rajaratnam’s favor, the Franks suppression issue will require reversal and a

new trial because the government has repeatedly acknowledged that those wiretaps were the

“core evidence” in its case affecting “all counts.” Tr. at 5160, 5167, 5198, 5236, 5583 (04/20 -

21/11).

A. MR. RAJARATNAM POSES NO RISK OF FLIGHT OR DANGER TO

THE COMMUNITY

The government has never even suggested, let alone argued, that Mr. Rajaratnam poses a

danger to the community. Nor could it. This Court previously found by clear and convincing

evidence that Mr. Rajaratnam poses no danger at all to the community. See Tr. 5719: 24-25

(05/11/11).

Instead, since the day he was arrested nearly two years ago, the government has sought to

detain Mr. Rajaratnam on the grounds that he is a flight risk. This Court, however, has

consistently rejected those efforts, concluding no fewer than four times that Mr. Rajaratnam’s

continued appearance can be amply guaranteed by bail conditions short of detention. Mr.

Rajaratnam’s exemplary conduct since his arrest has proven the Court right every time.1

Most recently, the government argued that Mr. Rajaratnam should be remanded following

the jury’s guilty verdict on May 11, 2011. Arguing that Mr. Rajaratnam faced a prison sentence

of nearly 20 years under the Sentencing Guidelines and that he no longer enjoyed the

presumption of innocence, the government asserted that “the law is clear that he should be

1

The government first requested detention during Mr. Rajaratnam’s initial presentmenton October 16, 2009. Magistrate Judge Eaton rejected that request, instead ordering that Mr.Rajaratnam surrender his passport, remit a $100 million secured bond, submit to regular supervision by the Pretrial Services Unit, and limit his movements to the New York City area.On November 4, 2009, the government submitted a brief reasserting its “belie[f] that remand iswarranted.” Magistrate Judge Katz again rejected the government’s request for detention. Thegovernment renewed its argument that “Rajaratnam should be detained” in a brief filed January5, 2010, but the Court again rejected the government’s request for detention.




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detained” because he is “obviously a risk of flight.” Tr. at 5715 (05/11/11). But just as it had

three times before, this Court denied the government’s request for detention in light of Mr.

Rajaratnam’s history of perfect compliance with the terms of his release:

I believe that based on the defendant’s track record to date that he is not a risk, asignificant risk of flight, and I am not sure there is anything more that the

defendant could do to establish that other than what he has done.

Tr. at 5720 (05/11/11). The Court therefore permitted Mr. Rajaratnam to remain released

pending sentencing subject to his prior bail conditions, plus the additional conditions of

electronic monitoring and home confinement. Id.

The government’s arguments for detention are the same as they have always been: Mr.

Rajaratnam has an incentive to flee because he is wealthy and has ties overseas. But, if anything,

those already rejected arguments have gotten even weaker in the four months since the verdict.

First, the government continues to ignore that Mr. Rajaratnam has deep and abiding attachments

to the local New York community, where his elderly parents, wife, and minor children all live

with him. Second, Mr. Rajaratnam’s physicians, who oversee and administer the intensive

treatment Mr. Rajaratnam requires for his severe health problems, are also in New York. Given

his progressively worsening condition, flight overseas, especially to Sri Lanka as the government

suggests, could deprive him of much-needed lifesaving treatments. Third, Mr. Rajaratnam’s

personal wealth and overseas ties have in fact declined significantly as he has overseen the

orderly wind-down of Galleon, including its overseas operations, liquidated the investments that

he had outside the country and brought them to the U.S., expended a significant amount of his

personal wealth to pay taxes on this, and other, income, reserved funds to defend this and related

civil matters, and set aside funds to satisfy any financial obligations that may be imposed in this

case or the related civil case.




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Finally, and most importantly, Mr. Rajaratnam has continued to comply in every respect

and without a single complaint from his supervising officers with his bail conditions – including

the new and more restrictive conditions of electronic monitoring and home confinement. His

model behavior has led to his Pre-trial Services Officer Dennis Khilkevich granting him

permission for all requested trips outside of his apartment to meet with counsel or his physicians.

As the Court noted when it granted bail pending sentencing, there is nothing else Mr. Rajaratnam

could possibly do to demonstrate more convincingly that he is not a flight risk. See also United

States v. Santiago, 695 F. Supp. 1490, 1492 (S.D.N.Y. 1988) (Defendant’s history of compliance

with bail terms demonstrated that he was not a risk of flight pending appeal).

While the government emphasizes the sentence that he faces, Mr. Rajaratnam has been

fully aware from the moment of his arrest, and even more so in the four months since the verdict,

that he faces a potentially lengthy prison sentence. Despite that knowledge, Mr. Rajaratnam has

continued to demonstrate his determination to stand and defend himself vigorously within the

law, and to accept the lawful outcome of these proceedings, whatever it may be. See United

States v. Galanis, 695 F. Supp. 1565, 1569 (S.D.N.Y. 1980) (finding no risk of flight pending

appeal where it “must have been clear to [the defendant], since the verdict, that his sentence was

likely to involve a substantial period of incarceration”). As he now prepares to mount an appeal

of his conviction, Mr. Rajaratnam remains committed to seeing these proceedings through to

their lawful conclusion.

B. MR. RAJARATNAM’S APPEAL RAISES SUBSTANTIAL ISSUES

LIKELY TO RESULT IN REVERSAL AND A NEW TRIAL

To succeed on a motion for release pending appeal, the defendant must demonstrate that

the appeal raises a “substantial” question of law or fact “likely” to result in reversal or a new

trial. See 18 U.S.C. § 3143(b)(1)(B). A question is “substantial” within the meaning of the




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statute if it is “a close question or one that very well could be decided the other way,” and is

considered “likely” to result in reversal or a new trial if a successful appeal would require such

relief. United States v. Randell , 761 F.2d 122, 125 (2d Cir. 1985) (internal quotations omitted);

see also Galanis, 695 F. Supp. at 1568-70; United States v. Rittweger , No. 02-CR-122, 2005 WL

3200901 at *5 (S.D.N.Y. 2005); United States v. Tunick , No. S3-98-CR-1238, 2001 WL 282698

at *3 (S.D.N.Y. March 22, 2001) (all applying Randell test and granting bail pending appeal).

Bail does not, however, depend on the “willingness of the trial court to certify that it is likely to

be reversed.” Randell , 761 F.2d at 125 (quotations omitted). The trial judge need not find “that

the trial he or she had just concluded was so infected with error as to require a new trial,”

Galanis, 695 F. Supp. at 1568, or that the appeal “will ultimately succeed or that it has merit,”

Rittweger , 2005 WL 3200901 at *4. Instead, the statutory requirements are met where the appeal

presents a question which “has more merit than a question which is merely frivolous,” Galanis,

695 F. Supp. at 1569, and which is “so integral to the merits of the conviction on which the

defendant is to be imprisoned that a contrary appellate holding is likely to require reversal of the

conviction or a new trial,” Randell , 761 F.2d at 125 (quotations omitted).2

The longstanding presumption against unnecessary detention informs this balanced

standard for release pending appeal. See Galanis, 695 F. Supp. at 1569. Furthermore, because a

defendant free on bail is “readily accessible at all times to discuss the proof in the trial record and

the inferences flowing therefrom,” release pending appeal also enables the defendant to assist in

the appeal and thus promotes the interests of justice. Id. Judges in this district have accordingly

granted bail pending appeal in a number of complex, high-profile financial fraud cases, including

2The statute also requires the defendant to demonstrate that the appeal is not for the

purpose of delay, but an appeal that raises substantial issues is presumed not to be for the purpose

of delay. See Santiago, 695 F. Supp. at 1492.




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in cases where the defendants had substantial resources and were facing lengthy prison

sentences. See, e.g., United States v. Coplan, 1:07-CR-00453 (S.D.N.Y., order issued Jan. 21,

2010) (Bail pending appeal granted for multiple defendants in large-scale tax fraud case.); United

States v. Rigas, 1:02-CR-1236 (S.D.N.Y., order issued July 13, 2005) (Bail pending appeal

granted for two defendants convicted of conspiracy, bank fraud, and securities fraud and

sentenced to 15 and 20 years, respectively.); United States v. Stewart , 1:03-CR-717 (S.D.N.Y.,

order issued July 13, 2004) (Bail pending appeal granted to defendant convicted of conspiracy,

obstruction of justice, and making false statements to SEC); United States v. Ebbers, 1:02-CR-

01144 (S.D.N.Y., order issued Sept. 8, 2005) (Bail pending appeal granted to defendant

convicted of conspiracy, securities fraud, and false statements to the SEC and sentenced to 25

years).

1. The Denial of Mr. Rajaratnam’s Motion to Suppress the Wiretap

Evidence Presents a Substantial Question for Appeal

The government’s case against Mr. Rajaratnam relied critically on wiretapped telephone

calls between Mr. Rajaratnam and his alleged co-conspirators and on other evidence, including

cooperator testimony, that undisputedly was derived from those wiretaps. In all, the government

introduced forty-five separate wiretap recordings into evidence at trial. Some were offered as

direct evidence of insider trading. Others were offered to corroborate witness testimony, and

others as crosscutting evidence of Mr. Rajaratnam’s alleged “cover up” and “consciousness of

guilt.” According to the government itself, the wiretaps were its “best” and “most powerful”

evidence, and constituted the “core evidence in th[e] [government’s] case.” Tr. at 5583

(04/21/11); Tr. at 5160, 5167, 5198, and 5236 (04/20/11).

Mr. Rajaratnam will argue on appeal, inter alia, that the wiretaps, and the evidence

derived from them, should have been suppressed because they were obtained on the basis of a




7

sworn affidavit so riddled with reckless falsehoods and misleading, material omissions that this

Court found it to be not merely deficient, but devoid of the content explicitly required by Title III

and the Fourth Amendment. Following a four-day evidentiary hearing during which the Court

heard testimony from four witnesses and received over 230 exhibits into evidence, this Court

specifically found that the government had recklessly “omitted and misstated important

information” bearing on probable cause and had completely “failed to disclose the heart and soul

of its [conventional] investigation, without which a reasoned evaluation of the necessity of

employing wiretaps was impossible.” Order at 43 (11/24/10). Those factual findings mandated

suppression of the wiretaps under Title III and the Constitution, as did the government’s use of

wiretaps to investigate securities fraud, an offense not enumerated in Title III. The Court’s denial

of Mr. Rajaratnam’s motion to suppress therefore raises a number of substantial questions for

appeal.

a. The wiretaps should have been suppressed because the initial

application failed to demonstrate necessity.

Before a wiretap may be authorized, Title III mandates that the government provide the

court with a “full and complete statement as to whether or not other investigative procedures

have been tried and failed or reasonably appear to be unlikely to succeed if tried.” 18 U.S.C.

§2518(1)(c). The statute means exactly what it says: the government must disclose precisely

“what, if any, investigative techniques were attempted prior to the wiretap request,” United

States v. Miller , 116 F.3d 641, 663 (2d Cir. 1997). The purpose of the mandatory “full and

complete statement” is to enable the issuing judge – “based on the facts submitted to him” and

“after consideration of all the facts and circumstances” – to decide independently whether the

government’s application presents the “precise and discriminate circumstances” under which a

wiretap is justified. S. Rep. 90-1097 at 73-34 (1968). When the government fails to provide the




8

mandatory “full and complete statement,” the wiretap evidence must be suppressed. See 18

U.S.C. §§2515, 2518(10); United States v. Lilla, 699 F.2d 99, 105 (2d Cir. 1983).

In this case, the government not only did not provide a “full and complete statement” of

the investigatory procedures it had already used, but in fact, submitted a sworn affidavit to Judge

Gerard E. Lynch on March 7, 2008 that this Court found “was nearly a full and complete

omission of what investigative procedures in fact had been tried” and, in so doing, “deprived

Judge Lynch of the opportunity to assess” the necessity of a wiretap. Order at 40. More

specifically, the government’s application completely failed to disclose that the SEC, FBI, and

USAO had been conducting an “extensive” conventional insider trading investigation of Mr.

Rajaratnam for a full year before the application was submitted and flatly told Judge Lynch,

under oath, that the government could not obtain information that the government, in fact, had

obtained and was continuing to obtain through conventional investigative techniques. See Order

at 36. As this Court found, the government’s conventional investigation yielded over twenty

depositions and interviews (including three with Mr. Rajaratnam himself) and “a mountain” of

relevant documents. Id. at 36-42 & n.23. But instead of disclosing these salient facts, the

wiretap affidavit “blandly assured Judge Lynch” that interviewing Mr. Rajaratnam was “too

risky,” and that relevant documents could not be located. Id. By misrepresenting these critical

facts, the Court found that the government recklessly withheld from Judge Lynch “precisely the

nuts and bolts of an investigation that must be presented to a court if it is to fulfill the function of

determining whether conventional investigative techniques are likely to prove inadequate.”

Order at 42. Those substantial and material omissions prevented Judge Lynch from being able to

perform the independent review that is constitutionally and statutorily indispensable. As this

Court stated:




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A judge hearing an ex parte application relies entirely on the government’s

representation that it has disclosed all material facts. But how could Judge Lynchassess whether conventional investigative techniques had failed or were likely to

fail without even knowing that they were presently being used in an ongoing SEC

investigation upon which the prosecutor and FBI were relying—almost entirely— to construct their own case? . . . [T]he Court is at a loss to understand how the

government could have ever believed that Judge Lynch could determine whether awiretap was necessary to this investigation without knowing about the most

important part of that investigation—the millions of documents, witnessinterviews, and the actual deposition of Rajaratnam himself, all of which it was

receiving on a real time basis and all of which was being acquired through the useof conventional investigative techniques . . . . That omission deprived Judge

Lynch of the opportunity to assess what a conventional investigation of Rajaratnam could achieve by examining what the SEC’s contemporaneous,

conventional investigation of the same conduct was, in fact, achieving.

Id. at 36-40 (emphasis in original)

These factual findings required suppression of the wiretap evidence under Title III as a

matter of statutory command. The Supreme Court has held that, by providing a suppression

remedy in Title III itself, “Congress intended to require suppression where there is a failure to

satisfy any of those statutory requirements that directly and substantially implement the

congressional intention to limit the use of intercept procedures to those situations clearly calling

for the employment of this extraordinary investigative device.” United States v. Giordano, 416

U.S. 505, 527 (1974). The requirement that wiretap applications contain a “full and complete

statement” demonstrating necessity is one of the provisions that “directly and substantially

implements” Congress’s intention to limit wiretapping. See Lilla, 699 F.2d at 103. Accordingly,

“an affidavit in support of a wiretap warrant must provide some basis for concluding that less

intrusive investigative procedures are not feasible,” and one which does not must be suppressed.

Lilla, 699 F.2d at 103. (emphasis added). This one did not. Instead, the Court found that it was

completely devoid of any truthful description of the government’s use of conventional

techniques. Whereas Title III requires a “full and complete statement,” the government

presented Judge Lynch with a “full and complete omission.” Order at 40. Giordano makes clear




10

that suppression must follow when the government so comprehensively fails to observe Title

III’s plain mandates. 3

The Court’s factual findings also required suppression of the wiretap evidence under the

Fourth Amendment, because the government’s affidavit recklessly misstated and omitted

material facts. See Franks v. Delaware, 438 U.S. 154, 158 (1978). This Court correctly found

that the government’s omissions and misstatements were reckless, but it denied the motion to

suppress because it concluded that they were not material. Order at 45-56. But under Franks,

any omission so “full and complete” that it “deprives [the issuing judge] of the opportunity to

assess what a conventional investigation . . . could achieve,” Order at 40, is necessarily material,

because such an omission completely prevents the “neutral and disinterested” review of the

application that the Constitution requires “before embarking upon a search.” Franks, 438 U.S. at

164. Franks itself described this process of independent and informed judicial review before the

search as the “bulwark of Fourth Amendment protection.” Franks, 438 U.S. at 164 (emphasis

added). That protection ceases to exist if the government is given a post hoc do-over for warrant

applications so utterly lacking in truthful content that they deprived the issuing judge of the

3 Mr. Rajaratnam argued to this Court, and will argue again on appeal, that, under theSupreme Court’s decision in Giordano, Title III independently mandates suppression as a matter

of statutory law whenever the government fails to make a “full and complete statement” of factsestablishing necessity, and that a further showing of recklessness and materiality under Franks is

not required. To be sure, the Second Circuit has applied the Franks test to suppression motions

arising under other sections of Title III. See United States v. Bianco, 998 F.2d 1112, 1125-26 (2d

Cir. 1993) (applying Franks to “roving bug” provisions of 18 U.S.C. §2518(110(a)(ii)); United States v. Miller , 116 F.3d 641, 664 (2d Cir. 1997) (applying Franks to probable cause challengeunder Title III). But what is critical here is that the Second Circuit has never applied the Franksstandard to a necessity challenge; that court has never suggested that post hoc justifications cansubstitute for Title III’s demand for proof of necessity before the warrant issues; the Second

Circuit’s decisions have resolved necessity challenges without reference to Franks. See United

States v. Lilla, 699 F.2d 99, 104 (2d Cir. 1983); United States v. Concepcion, 579 F.3d 214, 217

(2d Cir. 2009).




11

opportunity to conduct the neutral and disinterested review that the Constitution requires before

the search is undertaken. The government’s position in this case, in other words, quite literally

writes the independent review of a neutral decision-maker before a search occurs right out of the

Constitution.

This Court concluded that the government’s “full and complete omission” was immaterial

only because it considered and credited factual claims that the government never made in its

original affidavit. See Order at 3 (“[D]isclosure of all the details of the SEC’s investigation that

the government recklessly omitted [from its original affidavit] would ultimately have shown that

a wiretap was necessary.”). That will not suffice. The Constitution plainly requires prior judicial

review and prior informed judicial authorization for wiretaps, and an “an otherwise insufficient

affidavit cannot be rehabilitated by testimony concerning information possessed by the affiant

when he sought the warrant but did not disclose to the issuing magistrate.” Whiteley v. Warden,

Wyo. , State Penitentiary, 401 U.S. 560, 565 n.8 (1971); see also Aguilar v. Texas, 378 U.S. 108,

109 n.1 (1964) (“It is elementary that in passing on the validity of a warrant, the reviewing court

may consider only information brought to the magistrate’s attention.”); Spinelli v. United States,

393 U.S. 410, 413 n.3 (1969) (same). The “contrary rule” adopted by this Court “render[s] the

warrant requirements of the Fourth Amendment meaningless,” Whiteley, 401 U.S. at 565 n.8, and

wipes out Title III’s requirement that the issuing judge “determin[e] on the basis of the facts

submitted by the applicant ” whether a wiretap is necessary, 18 U.S.C. §2518(3). Title III and the

Constitution do not permit the after-the-fact second bite at the apple that the government was

afforded in this case. The very core of the Fourth Amendment’s warrant requirement is a

constitutional judgment that it is not equally permissible for the government to wiretap first, and

then obtain independent judicial review and authorization second.




12

This Court rejected Mr. Rajaratnam’s reliance on Whiteley because it concluded that “the

entire premise of the Franks approach is that the court must consider information that did not

appear in the original affidavit.” Order at 46. We respectfully disagree. The entire premise and

purpose of Franks is to permit the defendant to prove the substantive deficiency of a facially

sufficient affidavit; it is not to supplant the requirement of prior judicial authorization of a

constitutionally sufficient warrant with post hoc approval of a hypothesized warrant application

that was never submitted and on which the warrant that was issued plainly did not rest.

In any event, the only question at this juncture is whether Mr. Rajaratnam’s legal

objection to this Court’s ruling has “substantial” merit. It plainly does, as reflected in this

Court’s 68-page opinion finding that this case involved not isolated missteps by the government,

but a wholesale reckless abandonment of the duty to truthfully, fully, and completely disclose

what conventional investigative techniques had already been employed and the success of their

results. Mr. Rajaratnam can find no Franks case, nor did the government or this Court cite any,

that involved such comprehensive and sweeping material omissions, pervading every aspect of

the statutorily and constitutionally required showing. In addition, this Court specifically

acknowledged that aspects of its analysis involved “close[] question[s],” Order at 2, 58, and

implicated unsettled areas of law, id. at 18-20 & n.13, 26 n.19, 43, 46-47, which necessarily

demonstrates that Mr. Rajaratnam’s appeal will raise “a close question . . . that very well could

be decided the other way,” Randell , 761 F. 2d at 125.

Even more pointedly, a federal court of appeals has rejected the very analysis on which

this Court’s ruling critically depended. The Seventh Circuit has ruled that a district court

conducting Franks analysis may not consider supplemental information offered by the




13

government that was never presented to or considered by the issuing magistrate. In language that

speaks directly to this case, the Seventh Circuit held that:

[c]onsidering new information presented in the supplemental filing that supporteda finding of probable cause was beyond the trial court's analytical reach. Rather,

its consideration of new information omitted from the warrant affidavit shouldhave been limited to facts that did not support a finding of probable cause . . . .

Allowing the government to bolster the magistrate's probable cause determinationthrough post-hoc filings does not satisfy the Fourth Amendment concerns

addressed in Franks.

United Sates v. Harris, 464 F.3d 733, 738-30 (7th Cir. 2006). Other decisions equally support Mr.

Rajaratnam’s position and thus document the substantiality of his claims on appeal. See, e.g.,

United States v. Perez , 247 F. Supp. 2d 459, 482 n.11 (S.D.N.Y. 2003) (“Of course, the reviewing

court [in a Franks hearing] cannot consider material outside of the affidavit. Thus, evidence that

emerged after the warrant issued – evidence highly relevant to the agents' state of mind – will not

be considered in the probable cause inquiry in the first instance.” (citations omitted)); Thompson

v. Wagner , 631 F. Supp. 2d 664 (W.D. Pa. 2008) (“It is one thing for a court to insert exculpatory

evidence that has been wrongfully omitted from an affidavit of probable cause. It is quite

another for a court to insert inculpatory evidence that an affiant has neglected to include in his or

her affidavit of probable cause . . . . . Acceptance of [this] argument would effectively turn the

Fourth Amendment upside down.”).

The question remains open within the Second Circuit, and there is at least a substantial

chance that the Second Circuit will agree with the Seventh Circuit, rather than create an inter-

circuit conflict for the Supreme Court to resolve. Indeed, in Concepcion, the Second Circuit

addressed a case in which the only conventional investigative technique available to investigators

was “traditional [physical] surveillance.” 579 F.3d at 219. Ultimately, the court concluded that

the government had alleged “just enough facts” to demonstrate the necessity for a wiretap, but

admonished the government for providing only “general explanations” and described the case as




14

“exceptionally close.” Id. Given that the insufficiency of the government’s affidavit in

Concepcion was “exceptionally close,” this case goes over the edge, having managed to combine

both repeatedly condemned “boilerplate” general allegations, Order at 41, and pervasively false,

flawed, and grossly deficient allegations of necessity. Tellingly, in contrast to the investigators in

Concepcion, the government in this case also had a full slate of conventional investigative

techniques at its disposal that it had used and was continuing to use successfully. The only

difference is that the government did not bother to mention that to Judge Lynch. That, of course,

makes this case profoundly worse for the government than the skeletal record with which it

barely eked by in Concepcion.

b. The wiretaps should have been suppressed because the initial

application failed to demonstrate probable cause.

Title III also requires wiretap applications to contain a “full and complete statement of

the facts and circumstances” establishing probable cause. 18 U.S.C. § 2518(1)(b). As with the

government’s necessity allegations, this Court found as a matter of fact that the government’s

initial application to wiretap Mr. Rajaratnam’s telephone did not contain the statutorily required

full and complete statement. Quite the opposite, as this Court found, the affidavit made

recklessly “misleading” claims about cooperating witness Roomy Khan’s credibility, failed to

disclose Khan’s prior fraud conviction, failed to disclose that Khan had cooperated in an earlier,

unsuccessful investigation of Mr. Rajaratnam, made the “literally false” claim that she had only

been cooperating since 2007, and misrepresented the critical content of two consensually

recorded telephone calls between Khan and Mr. Rajaratnam. See Order at 22-25.

These misstatements and omissions also require suppression under both Title III and the

Constitution. Not only was the government’s affidavit not “full and complete” as required by the

statute, it was affirmatively misleading in its claims about the reliability of a “key government




15

informant.” Order at 2. As the Court noted, the government’s “omission of highly relevant

information regarding Khan’s prior criminal record” was “[p]articularly disturbing,” since that

information was “‘peculiarly probative of [her] credibility.’” Order at 25 (citing United States v.

Hayes, 553 F.2d 824, 827 (2d Cir. 1977)). And its misdescription of the consensually recorded

telephone calls also “evidence[d] a lack of frankness” that “g[a]ve the Court pause.” Despite

these glaring shortcomings, the Court denied suppression or a Franks hearing on the issue of

probable cause because the Court ruled that a “corrected” affidavit contained “‘a residue of

independent and lawful information sufficient to support probable cause.’” Order at 16 (citing

United States v. Canfield , 212 F.3d 713, 718 (2d Cir. 2000)).4

As with the government’s “full and complete omission” of truthful allegations showing

the need for wire surveillance, the government’s reckless misstatements and omissions

concerning probable cause impermissibly circumvented the statutory and constitutional

requirement of independent and neutral advance review by an informed judge. As importantly,

the government’s affidavit, when corrected to remove the misleading claims about Khan’s

credibility and the content of the consensually recorded calls, did not support “a fair probability

that . . . evidence of a crime w[ould] be found” on Mr. Rajaratnam’s cell phone. Alabama v.

White, 496 U.S. 325, 330 (1990) (quotation omitted). Without the inculpatory glue of Khan’s

now-known-to-be unreliable allegations to bind them together, the affidavit’s “remaining content”

4

As with necessity, Mr. Rajaratnam intends to argue on appeal that Title III and Giordanoindependently require suppression as a statutory matter when the government fails to make the“full and complete statement” of facts establishing probable cause required by the plain text of

the statute by omitting facts that are material to the probable cause determination. A mere“residue” of truthful information is insufficient. Mr. Rajaratnam recognizes, however, the

Second Circuit has applied the “residue” standard to probable cause challenges to wiretapapplications in the past. See, e.g., United States v. Fermin, 32 F.3d 674 (2d Cir. 1994); United States v. Feguson, 758 F.2d 843 (2d Cir. 1985).




16

– i.e., the consensual recordings (when accurately transcribed), toll analysis, and wiretap

interceptions over other individuals’ telephones – were not sufficient to establish probable cause.

Indeed, without Khan’s specific allegations of criminal wrongdoing by Mr. Rajaratnam, none of

that “residual” evidence reflected anything more suspicious than a professional portfolio

manager talking about stocks and trading stocks. The credibility of Khan’s asserted criminal

overlay thus was indispensable to the probable cause determination, which means that the

government’s repeatedly misleading and “literally false” allegations about her credibility, Order

at 22, struck at the heart of the probable cause decision.

Once again, there can be little doubt that these questions present substantial and close

issues for appeal. For one thing, the Second Circuit has never approved a warrant or wiretap

affidavit that knowingly and recklessly withheld from the issuing judge that a “key government

informant” had a prior fraud conviction “peculiarly probative of [the informant’s] credibility.”

See Order at 26, n.19. And it certainly has never approved the knowing and reckless omission of

a key informant’s fraud conviction where that conviction arose out of a failed prior investigation

of the wiretap target for exactly the same conduct. It thus is reasonably debatable whether

suppression is warranted under either Title III or the Constitution when the government so

recklessly omits critical and probative facts from a warrant application, and whether the skeletal

remains of the government’s “corrected” affidavit failed to establish probable cause.

c. The wiretaps should have been suppressed because the

government was not authorized to use electronic surveillance

to investigate insider trading.

The propriety of the government’s landmark use of electronic surveillance to investigate

insider trading offenses at all will present yet another “substantial question” on appeal. As has

been oft-repeated by the government, “this case represents the first time that court-authorized

wiretaps have been used to target significant insider trading on Wall Street.” Tr. of Press Conf. at




17

4. Their use here was undeniably historic; whether it was also lawful is precisely the kind of

“novel” and “close” question that satisfies the standard for release pending appeal. Randell , 761

F.2d at 125.

Electronic surveillance can only be authorized to investigate offenses specified in Title

III. See 18 U.S.C. § 2516. There is no dispute that neither insider trading nor securities fraud is

on that list. The absence of insider trading and securities fraud from Section 2516 means that

Congress’s determined that wiretaps are not necessary for such investigations. While the list has

been expanded numerous times over the past four decades, Congress has never seen fit to include

insider trading as a predicate offense for Title III surveillance, even as it has added other specific

fraud crimes.

Title III does include a “plain view”-style provision which permits the government to use

wiretap evidence of other crimes, even unlisted ones, when that evidence is obtained during the

course of authorized investigation of an enumerated offense. See 18 U.S.C. § 2517(5). But to do

so, the government must obtain judicial approval and show that “the original order was lawfully

obtained, that it was sought in good faith and not as a subterfuge search, and that the

communication was in fact incidentally intercepted during the course of a lawfully executed

order.” United States v. Marion, 535 F.2d 697, 700 (2d Cir. 1976) (quoting S. Rep. No. 90-1097,

at 12 (1968), reprinted in 1968 U.S.C.C.A.N. 2112, 2189).

This Court held that, “[b]ecause Title III authorizes the government to use wiretaps to

investigate wire fraud, the government was authorized to use wiretaps to investigate an alleged

insider trading scheme using interstate wires even though Title III does not specifically authorize

wiretaps to investigate insider trading alone.” Order at 1. The Court also found that “the




18

interception of evidence of securities fraud was a by-product of the interception of evidence of

wire fraud” and was thus valid under 18 U.S.C. § 2517(5). Id. at 12.

The Second Circuit may well determine on appeal, however, that those conclusions are

contradicted by Title III’s plain text, history, and purposes, as well as this Court’s other findings.

As explained in Mr. Rajaratnam’s suppression briefs, there is no indication in the statutory text or

legislative history that in adding wire fraud as a predicate offense to Title III in 1984, Congress

meant also to sweep in countless other fraud offenses that could be recharacterized as “wire

fraud.” To the contrary, (i) Congress’s treatment of insider trading and securities fraud as distinct

from wire fraud in numerous other statutory contexts, see, e.g., 18 U.S.C. § 1514A; 18 U.S.C.

§ 1028A; 15 U.S.C. § 80b-3(e); (ii) Congress’s subsequent addition of crimes like computer

fraud, that would be entirely redundant of wire fraud under the government’s sweeping reading,

and (iii) the consistently cautious manner in which Congress “set forth with meticulous care” the

particular offenses warranting wiretaps, Dalia v. United States, 441 U.S. 238, 249 (1979),

demonstrate that Congress did not intend the inclusion of wire fraud in Title III to serve as a

catch-all license to wiretap a litany of unenumerated crimes.

Moreover, this Court recognized that “this case is different from the usual one involving

Section 2517(5), where the government gets permission to investigate one crime using a wiretap,

and while doing so happens upon an entirely different crime.” Order at 10. Here, in contrast,

“there is no denying that, in intercepting communications that would provide evidence of wire

fraud, the government expected to get evidence of securities fraud, too,” ibid., since “the

government made it quite clear [in its applications] that it wanted to use wiretaps to investigate

an insider trading conspiracy,” id . at 8. That type of intended and purposeful employment of a

wiretap for an unenumerated offense is simply not “incidental” as Congress contemplated. See




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United States v. Tortorello, 480 F.2d 764, 781 (S.D.N.Y. 1973) (Section 2517(5) applies to

“unanticipated intercepted conversations”). Indeed, the reference to wire fraud was simply a

facade for targeting securities fraud, as evidenced by the government’s failure to ever charge

wire fraud in this case. See United States v. Levine, 690 F. Supp. 1165, 1170, 1171 (E.D.N.Y.

1988) (the failure to “prosecute those specified crimes” strongly suggests that the government

has engaged in “subterfuge surveillance” and “the court might infer that they were uninterested

in [them] and had sought the eavesdropping order only to get evidence of [other] offenses.”).

The government’s use of wiretaps to obtain evidence of insider trading cannot be both a clearly

stated purpose and a “by-product” of its investigation. The Second Circuit thus may conclude

that transforming the wire fraud provision into an open-ended license to wiretap for any type of

fraud that (as most everything does these days) involves a wire would cause Title III to “rapidly

degenerate into . . . the electronic equivalent of a general search warrant.” Marion, 535 F.2d at

701 (internal quotation marks omitted). The legality of such surveillance is an issue of first

impression in this Circuit – indeed, in any court – and accordingly constitutes a “substantial

question” meriting release pending appeal.

Finally, as the Court acknowledged, Order at 10-11, there is also room for debate as to

whether the interception of other-crimes evidence must be “inadvertent,” which the

government’s eavesdropping on securities fraud clearly was not. The Second Circuit has at times

stated that evidence should be “inadvertent” to be authorized under 18 U.S.C. § 2517(5). See

Marion, 535 F.2d at 701; United States v. Masciarelli, 558 F.2d 1064, 1067 (2d Cir. 1976). But

this Court also cited other decisions it believes may have “implicitly rejected” inadvertence as

the test. Order at 11. This lack of clarity on the standard for Section 2517(5) evidence is further




20

indication that this issue presents a close question that the appeals court could decide the other

way.

2. Suppression of the Wiretap Evidence Will Require Reversal and a

New Trial.

If the Court of Appeals agrees with Mr. Rajaratnam that the wiretaps should have been

suppressed, reversal and a new trial on every count will necessarily follow, because the wiretaps

were “integral to the merits of [Mr. Rajaratnam’s] conviction.” Randell , 761 F.2d at 125

(quotations omitted). According to the government’s own summation, the forty-five wiretaps

introduced at trial were “devastating evidence of the defendant’s guilt” that “alone” compelled

the “unshakeable conclusion that he is guilty as charged” of “all the crimes” in the indictment.

Tr. at 5160, 5167 (04/20/11) (emphasis added). There is no question, and no dispute, that the

wiretaps were the government’s “best” and “most powerful” evidence, and constituted the “core

evidence in th[e] [government’s] case.” Tr. at 5583 (04/21/11); Tr. at 5160, 5167, 5198, and

5236 (04/20/11).

Of the indictment’s fourteen counts, eleven were based directly on wiretap recordings

that, the government argued, showed Mr. Rajaratnam “in the act” of committing insider trading

(i.e., Counts 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12). Two others (Counts 13 and 14) depended upon

the testimony of cooperating witnesses that the government found and obtained cooperation from

because of the wiretaps. In addition, as the government stressed in summation, some of the

wiretap evidence cut across all charged counts as it was used by the government to prove its

alleged “cover up” or to show Mr. Rajaratnam’s “state of mind, that he knew he was doing

wrong.” Tr. at 5296; see also United States v. Quiroz , 13 F.3d 505, 513 (2d Cir 1993) (error in




21

admitting false exculpatory statement was not harmless where government argued in summation

that the statement reflected consciousness of guilt).5

Even before they were used at trial, the wiretaps were critically important during the

investigatory stage of this case—as the government repeatedly admitted and argued both before

and during the Franks hearing—and yielded much of the non-wiretap evidence, including

cooperator testimony, that the government introduced at trial.6 All of that derivative evidence

will also have to be suppressed as fruits of the illegal wiretap if Mr. Rajaratnam prevails on his

appeal. See 18 U.S.C. § 2518(10) (providing for the suppression of wiretap recordings and

evidence “derived therefrom”). Accordingly, the wiretaps influenced the proof in every count on

which Mr. Rajaratnam was convicted, and reversal on appeal accordingly would erase the basis

for any sentence to be served.

Because the denial of Mr. Rajaratnam’s motion to suppress was an error of both statutory

and constitutional dimension, the government will bear the heavy burden of demonstrating

“beyond a reasonable doubt that the error complained of did not contribute to the verdict

obtained.” Chapman v. California, 386 U.S. 18, 24 (1967); accord United States v. Lee, 549 F.3d

5 Even with respect to Count 2 – the Roomy Khan Conspiracy – suppression of thewiretaps would require reversal. Many of the wiretaps introduced at trial – including most

significantly the so-called “consciousness of guilt” and “cover up” wiretaps – were not count-specific and thus contributed to the government’s proof as to Count 2 as much as other counts.

See Quiroz , 13 F.3d at 513. Indeed, given the paucity of evidence on Count 2, the impact of suchwiretaps as well as the cumulative impact of the wiretap evidence as a whole cannot be

disentangled from proof of that count. See United States v. Tubol , 191 F.3d 88, 97 (2d Cir. 1999)(error was not harmless where evidence improperly admitted as to one count “could have

infected the jury’s verdict” on other counts).6

During oral argument on Mr. Rajaratnam’s motion to suppress prior to the Frankshearing, the government stressed that without the wiretaps its investigation “wouldn’t have led

necessarily” to much of the evidence subsequently discovered, including the cooperation of witnesses such as Ali Far, which the Court noted could “come back to bite the government.” Tr.

at 98 (07/27/10).











Documents

Rajaratnam's Motion for Bail Pending Appeal