Jonathan B. New, a partner in Baker Hostetler’s New York office and a member of the firm’s White Collar Defense and Corporate Investigations Team, along with associate attorney Sammi Malek recently authored the article, “White Collar Wiretaps: Will Your Own Words Come Back to Haunt You?” published in the July 21, 2011 issue of the New York Law Journal.
The article examines the prosecution and conviction of Raj Rajaratnam, Galleon Group’s co-founder, for insider trading — a significant conviction due to the novel use of wiretap evidence to bring the crime to life before the jury. New and Malek explore the history of wiretapping, limitations on the use of wiretaps and the effects that prosecutors’ newly aggressive use of wiretaps will have on the practices of the financial services sector.
“The government’s recordings have ensnared not just traders and financiers but also officers and directors of public companies, lawyers, and consultants. As a result,” the authors explain, “Wall Street may now be wondering ‘is law enforcement listening?’ whenever they pick up the phone, as U.S. Attorney Preet Bharara warned in announcing the arrest of Mr. Rajaratnam.”
Wiretaps and Financial Crimes
Historically, law enforcement has used wiretaps to assist in investigations of narcotics trafficking and organized crime. “Nevertheless, the Galleon case reflects a recent coordinated effort by law enforcement to use electronic surveillance and ‘organized crime’ style approaches more frequently in white collar cases.”
Limitations
New and Malek examine the limitations and conditions of wiretap use. “The government can only seek a wiretap if there is probable cause to believe that a predicate offense is being committed, and a court may suppress a wiretap if the application fails to meet this standard or for government misconduct. The number of crimes that may be investigated using wiretaps has expanded over time, but still does not include securities fraud.”
Implications
“The authors analyze electronic surveillance in the Galleon case, and what this will mean for corporate America going forward. Although electronic surveillance of the financial sector may not become routine, its dramatic use in the Galleon and expert networking investigations has highlighted the need for effective and comprehensive compliance programs to identify and address questionable practices before they become widespread. With the government having publicly declared its policy of aggressively pursuing cases of financial fraud, companies are well-advised to take this opportunity to review and update their internal policies and procedures currently in place, to retrain their employees on best practices, and establish a culture in which employees seek advice on actions that may be close to the line…. Compliance officers and IROs [investment relations officers] who seize this opportunity stand a greater chance of preventing or detecting early even an inadvertent improper disclosure of material nonpublic information, which not only protects the company and its insiders from criminal prosecution, but also benefits the investing public.”
