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Insider trader's lawyers ask NY court to nix case

NEW YORK -- A lawyer for a onetime billionaire serving 11 years for insider trading asked a federal appeals court Thursday to toss out the bulk of the evidence in his case and reverse his conviction.

The attorney, Patricia Millett, asked the 2nd U.S. Circuit Court of Appeals in Manhattan to decide that the government acted improperly to persuade a judge in March 2008 to permit a wiretap to be placed on Raj Rajaratnam's cellphone.

The wiretap was used to record 2,200 private conversations by the founder of the Galleon group of 14 hedge funds as he spoke with at least 130 of his colleagues, employees, friends and family.

Millett said the government at Rajaratnam's trial introduced 45 wiretap recordings into evidence, along with extensive evidence derived from the recordings. During its summation, the government repeatedly stressed to the jury that the wiretaps were the "core evidence in this case" for "all the crimes" charged, she noted in court papers before the arguments.

She said the government left vital information out of papers it submitted to get court authority to wiretap Rajaratnam's phone, including information about an extensive probe that began in 2004 into Rajaratnam and his business by the Securities and Exchange Commission. The investigation produced 4 million documents along with numerous witness interviews and a deposition of Rajaratnam.

"This leaves on the cutting room floor the sum and substance, the heart and soul, the most important aspect of the investigation of what took place in this case," she told the appeals court panel of the government's failure to describe the SEC investigation in its request for a wiretap.

The government from the time of its arrest of Rajaratnam in fall 2009 made much of its use of wiretaps, saying it was the first time in history that wiretaps had been used extensively in an insider trading case. Prosecutors obtained 26 convictions in all, saying the $75 million obtained by Rajaratnam through illegal tips made it the biggest insider trading prosecution in history.

The wiretaps were challenged almost immediately by lawyers for Rajaratnam and other defendants. Judge Richard Howell, who has since resigned from the bench and re-entered private practice, ruled that wiretaps could be used in an insider trading case even though the financial crime is not specifically listed in federal law as an offense for which wiretaps can be authorized. He also said the government's application for a wiretap had "omitted and misstated important information regarding the credibility of a key government informant."

Government lawyer Andrew Fish told the three-judge panel that the government acted properly to obtain the wiretaps.

He said "there was no effort to hide the SEC" probe, but those submitting the wiretap application just didn't think to include more about it.

The court didn't immediately rule.