* Judge denies motions to strike out some charges

(Adds judge's opinion, lawyer statement)

By Grant McCool

NEW YORK, (Reuters) - Galleon hedge fund founder Raj
Rajaratnam made a "substantial preliminary showing" that U.S.
investigators "knowingly or recklessly" omitted key facts in
seeking permission to record his telephone conversations in an
insider trading probe, a judge said.

The ruling means that the 53-year-old money manager will
get another day in court to argue that wiretap evidence amassed
by the government should be thrown out of his criminal trial
scheduled for January. The case marks the first time wiretaps
were used in a widespread probe of insider trading on Wall

Manhattan federal Judge Richard Holwell granted the Sri
Lankan-born U.S. citizen a relatively uncommon evidentiary
hearing to consider more information over a March 2008
affidavit to another judge requesting wiretap permission.

Holwell, whose opinion was dated Aug. 12 and made public
Friday, set the hearing for Sept. 7.

Separately, the judge dismissed motions by Rajaratnam and
his principal co-defendant, former New Castle Funds LLC trader
Danielle Chiesi, 44, to strike one count of the indictment
against them and other charges they said the government added.

Rajaratnam and Chiesi deny fraud and conspiracy charges
related to allegations of insider trading.

In a written statement, Rajaratnam's lead attorney, John
Dowd, said the judge's order is "a vindication of the principle
that the government must be candid with the court when seeking
permission to eavesdrop on private conversations."

Chiesi's lawyer, Alan Kaufman, declined to comment.

Holwell's order said "several key facts" omitted from the
affidavit included prior probes by the U.S. Securities and
Exchange Commission and the FBI, 4 million documents in
evidence and transcripts of investigators' interviews with
Rajaratnam and Galleon employees.

The judge wrote that the omissions "are serious enough to
constitute a substantial preliminary showing that the
government acted knowingly or recklessly."

"Moreover, the omissions, at least as Rajaratnam has
presented them at this time, appear material to Judge Lynch's
(U.S. District Judge Gerard Lynch) determination that a wiretap
was justified in this case."

He wrote that the existence and scope of the SEC
investigation raised a substantial question over whether the
affidavit showed conventional investigative techniques "had
been tried and had failed, or that there would be little use in
trying them because they would likely fail."

Yusill Scribner, a spokeswoman for Manhattan U.S. Attorney
Preet Bharara, declined to comment on the order.

When authorities charged Rajaratnam, Chiesi and 19 others
last October and November, U.S. prosecutors described the case
as the biggest probe of insider trading at hedge funds in the
United States.

The case is USA v Raj Rajaratnam and Danielle Chiesi, U.S.
District Court for the Southern District of New York, No.
(Reporting by Grant McCool. Editing by Robert MacMillan)