It’s almost certain that the government recorded conversations between Rajat Gupta and Raj Rajaratnam.
On Friday, federal prosecutors said they had recordings that proved Gupta is a co-conspirator with Rajaratnam in an insider trading scheme. This surprised many because the SEC never mentioned having recordings in its complaint against Gupta.
But it really shouldn’t be that surprising. All of the alleged insider trading misdeeds took place while the government was tapping Rajaratnam’s phones.
The government first got permission to start tapping phones as part of its probe in March of 2008. This was a major breakthrough for the case, which reportedly had been going nowhere before the taps. It was also an extraordinary legal maneuver—for the first time the government was using tactics against suspected insider traders that it typically uses to catch drug kingpins and terrorists.
The SEC alleges that the leaks from Gupta to Rajaratnam took place over the phone, from June of 2008 to Janaury of 2009. It’s almost certain that federal prosecutors were listening in on those calls.
Not many people understand how extensive the FBI’s wire-tapping program was. They caught conversations about everything from company secrets to husbands arguing with their wives. It would be shocking if they didn’t get Gupta on tape.
So why didn’t the SEC mention the tapes in its complaint? Probably because the rules about collusion between regulators and prosecutors prohibit the FBI from handing the tapes over to the SEC.
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