Seven Galleon defendants challenge U.S. wiretaps

* Stocks discussed in normal course of business – lawyers

* Government resorted to wiretaps prematurely -legal brief

By Grant McCool

NEW YORK, June 1 (BestGrowthStock) – Traders whose conversations
were secretly recorded by U.S. agents in the Galleon hedge fund
insider trading probe had legitimate discussions about stocks
and potential buyouts, lawyers for the traders argued in court

The May 28 documents said that all but one of the trades
cited in the January indictment of former Galleon employee Zvi
Goffer, and six others, predated the period during which the
government obtained court-approved wiretaps.

The defendants challenged the way in which prosecutors
obtained permission from 12 different Manhattan federal court
judges over eight months in 2007 and 2008 for the first
wiretaps ever used in an insider trading probe. The brief
argued that investigators resorted to wiretaps before
conventional techniques had been exhausted.

Galleon founder Raj Rajaratnam and another principal
co-defendant Danielle Chiesi, a former New Castle Funds LLC
trader, have made similar arguments in asking a judge to
suppress the recorded evidence from trial. [ID:nN07201249]

“Because it is the essence of a trader’s work to piece
together information available in the financial and commercial
community, the defendants should be entitled to know which of
the thousands of ‘tips’ they heard daily from 2006 through 2008
are alleged to have been misappropriated inside information,”
the lawyers for the seven defendants said in a joint brief.

They asked the court to compel the government to provide
defendants “which of the hundreds of trades they were
conducting were alleged to have been based on that

A spokeswoman for the office of the Manhattan U.S. Attorney
declined to comment.

In charging 21 former traders, executives and lawyers in
October and November last year, U.S. prosecutors described the
probe as the biggest hedge fund insider trading case in the
United States. Much of their evidence was gathered using
wiretaps and cooperators.

Traders Goffer, his brother Emmanuel Goffer, Michael
Kimelman, David Plate and Craig Drimal and lawyers Arthur
Cutillo and Jason Goldfarb have pleaded not guilty. They are
expected to go on trial next year.

Rajaratnam and Chiesi have also pleaded not guilty and
their trial is scheduled to start on Oct. 25.

The government intercepted phone calls of Drimal, Zvi
Goffer, Goldfarb, a hedge fund trader Thomas Hardin and trader
Gautham Shankar between Nov. 15, 2007 and July 14, 2008, the
brief said.

“After eight months of wiretaps, only one transaction
charged in the indictment — a purchase of Axcan by David Plate
on November 21, 2007 occurred during the monitoring period,”
the court document said.

Hardin has been identified in court documents as “Tipper X”
and a cooperator in the case. Shankar pleaded guilty last year
and is also cooperating, one of 11 defendants who have admitted
to charges of conspiracy and securities fraud.

The defense submission describes their seven clients as
“downstream tippees” of information obtained from ratings
agency Moody’s that was misappropriated by former Moody’s
employee Deep Shah, who is a fugitive.

Shah provided it to Roomy Khan, a former associate of
Rajaratnam’s. In turn, Khan gave it to Hardin who gave it to
Shankar who gave it to the Goffer brothers, Drimal, Kimelman
and Plate, according to court documents.

The cases are USA v. Goffer et al, U.S. District Court for
the Southern District of New York, No. 10-056 and USA v Raj
Rajaratnam and Danielle Chiesi, No. 09-01184.

Stock Market Basics
(Reporting by Grant McCool; Editing by Richard Chang)

Seven Galleon defendants challenge U.S. wiretaps