The Rajaratnam Trial and the Integral Role of the SEC

The New Yorker this week includes an article about Galleon, Raj Rajaratnam and Preet Bharara, the US Attorney bringing the case.  The most interesting thing about the case is the role played by the SEC in detecting the fraud and causing the US Attorneys Office to initiate the investigation.  As the article described:  "In March, 2007, the S.E.C. briefed the F.B.I. and the United States Attorney’s Office for the Southern District of New York, which opened a criminal case."  

Most interestingly, the SEC staff identified a party that potentially had information about possible insider trading at Galleon, Roomy Khan.  The witness was turned over to the FBI who promptly questioned her.  The testimony of the witness and her actions afterwards provided the basis for the all important wiretaps. 

• As part of her coöperation, Khan began recording her calls with Rajaratnam. She caught him on enough “dirty” calls that, in March, 2008, Judge Gerard E. Lynch, of the Southern District, approved the government’s application for a thirty-day wiretap on Rajaratnam’s cell phone. The order was renewed through the rest of the year. The Rajaratnam recordings led to taps on other phones, including Chiesi’s, and identified other conspirators, harvesting a huge crop of direct evidence. By the time of the October, 2009, arrests, the government had taped thousands of calls.

And when the case went to trial, there was Johanthan Streeter and Reed Brodsky from the US Attorneys Office.  In addition, though, there was Andrew Michaelson from the SEC.  Why?  According to the New Yorker, "he knew more about the Gallenon case than anyone else."

In other words, this case emerged from hard and skilled work by the SEC.  This does not diminish what the US Attorneys Office did.  The lawyers there had to take the handoff and make it work, which they did.  But had the SEC not done its job, this case would never have been brought.

In the post-Madoff period when the SEC has to live with the criticism that came from missing some frauds (and has that used against it by some in Congress in the funding battles), it deserves credit when its hard work and skill result in critically important cases.  The SEC's role in the Rajaratnam case is one such example.