By Grant McCool
NEW YORK (Reuters) - Galleon hedge fund founder RajRajaratnam challenged the legality of investigators' recordinghis private conversations in an insider trading probe, callingon a U.S. prosecutor and an FBI agent to testify in court onMonday.
The case marks the first wiretaps used in a widespreadprobe of insider trading on Wall Street and an eventual rulingby the judge on whether the wiretap evidence is to be thrownout will be significant to Rajaratnam's trial in January.Wiretaps are tactics normally used in drug and organized crimecases.
Rajaratnam's lawyer John Dowd presented his evidence inManhattan federal court that in applying for wiretap permissionin March 2008, an FBI agent failed to tell a judge about priorlengthy probes of his client by securities regulators and theFBI.
He also entered evidence regarding 4 million documents andtranscripts of investigators' interviews with Rajaratnam andemployees of his fund, which once managed $7 billion. Galleonwas wound down after Rajaratnam's arrest last October.
The agent, B.J. Kang, was scheduled to testify in therelatively uncommon pretrial evidentiary hearing.
Dowd said the information would "show beyond any doubt thatevery single one of these facts were known to Kang and omitted.The lawyer said the wiretap application was "pure boilerplatecopied from an earlier application."
Rajaratnam and principal co-defendant, former New CastleFunds LLC trader Danielle Chiesi, were arrested on Oct. 16,2009. They face as many as 20 years in prison if convicted.
Both have denied any wrongdoing in a case that U.S.prosecutors describe as the biggest probe of allegations ofinsider trading at hedge funds in the United States.
U.S. District Judge Richard Holwell granted the hearing inAugust, ruling that Rajaratnam made a "substantial preliminaryshowing" that investigators "knowingly or recklessly" omittedfacts in seeking permission to record his conversations.
Dowd said he would call four witnesses, including three whohad worked for the government on the case.
U.S. prosecutor Jonathan Streeter told the judge in anopening statement at Monday's hearing that none of the three"were being knowingly deceitful or engaging in the kind ofrecklessness that calls for the sanction of suppression ofevidence."
Another Rajaratnam lawyer, Terence Lynam, questionedprosecutor Andrew Michaelson, who investigated Galleon for thecivil enforcement division of the U.S. Securities and ExchangeCommission and was then transferred to the criminal case.
"I agree that the authorities were working closelytogether," Michaelson replied in court to a question about thepartnership of the SEC, the FBI and the office of the U.S.Attorney in Manhattan on the case.
The case is USA v Raj Rajaratnam et al, U.S. District Courtfor the Southern District of New York, No. 09-01184. (Reporting by Grant McCool, editing by Maureen Bavdek)