Exch. Comm'n v. Rajaratnam
| Decision Date | 29 September 2010 |
| Docket Number | Docket No. 10-462-cv. |
| Citation | 622 F.3d 159 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Raj RAJARATNAM, Danielle Chiesi, Defendants-Appellants, Galleon Management, LP, Ali Hariri, Ali T. Far, Anil Kumar, Choo-Beng Lee, David Plate, Deep Shah, Far & Lee LLC, Gautham Shankar, Mark Kurland, New Castle Funds LLC, Rajiv Goel, Robert Moffat, Roomy Khan, S2 Capital Management, LP, Schottenfeld Group LLC, Spherix Capital LLC, Steven Fortuna, Zvi Goffer, Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
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Kevin P. McGrath, Senior Trial Counsel, Securities and Exchange Commission, New York, NY (Valerie A. Szczepanik, Senior Trial Counsel, Securities and Exchange Commission, New York, NY; David M. Becker, General Counsel, Mark D. Cahn, Deputy General Counsel, Jacob H. Stillman, Solicitor, Mark Pennington, Assistant General Counsel, David Lisitza, Senior Counsel, Securities and Exchange Commission, Washington, DC, on the brief), for Plaintiff-Appellee.
Patricia A. Millett, Akin Gump Strauss Hauer & Feld LLP, Washington, DC (Robert H. Hotz, Jr., Samidh Guha, Akin Gump Strauss Hauer & Feld LLP, New York, NY; John M. Dowd, Terence J. Lynam, William E. White, Kevin R. Amer, Issaac J. Lidsky, Anne J. Lee, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, Alan R. Kaufman, James M. Keneally, Thomas B. Kinzler, Kelley Drye & Warren LLP, New York, NY, on the brief), for Defendants-Appellants.
Reed M. Brodsky, (Andrew L. Fish, on the brief), Assistant United States Attorneys for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Amicus Curiae United States of America in support of Plaintiff-Appellee.
Craig Green, Associate Professor, Temple Law School, Philadelphia, PA, Douglas R. Jensen, Park & Jensen LLP, New York, NY, for Amici Curiae John Does Number One, Two and Three.
Marc Rotenberg, (John Verdi, Jared Kaprove, on the brief), Electronic Privacy Information Center, Washington, DC, for Amicus Curiae Electronic Privacy Information Center (EPIC) in support of Defendants-Appellants.
Before: RAGGI, LYNCH, and CHIN, Circuit Judges.
Defendants-Appellants Raj Rajaratnam and Danielle Chiesi (hereinafter, “Appellants”) appeal from a district court (Jed S. Rakoff, Judge ) discovery order compelling Appellants to disclose thousands of wiretapped conversations, originally provided to Appellants by the United States Attorney's Office (“USAO”) in parallel criminal proceedings, to Plaintiff-Appellee Securities and Exchange Commission (“SEC”) for use in this civil enforcement action against Appellants. We conclude that Title III of the Omnibus Crime Control and Safe Streets Act of 1968 (“Title III”), 18 U.S.C. §§ 2510-2522, does not absolutely prohibit the disclosure of wiretapped conversations from defendants in a civil enforcement proceeding to a civil enforcement agency where the defendants have received those conversations lawfully pursuant to Title III. However, in deciding whether and how much to disclose, a district court must balance the agency's right of access to these materials in civil discovery against the privacy interests at stake. In the instant case, we conclude that although there is no interlocutory jurisdiction over an appeal from this order, a writ of mandamus is warranted, because the district court clearly exceeded its discretion in ordering disclosure of thousands of conversations involving hundreds of parties, prior to any ruling on the legality of the wiretaps and without limiting the disclosure to relevant conversations.
On October 16, 2009, the United States Attorney's Office for the Southern District of New York unsealed criminal complaints charging several defendants, including Appellants Raj Rajaratnam and Danielle Chiesi, with securities fraud and conspiracy.
The same day, the SEC filed a civil complaint against Appellants and others, charging them with insider trading and conspiracy based on the same conduct at issue in the criminal case. Two months later, Appellants were indicted for insider trading and conspiracy.
The Appellants' criminal case was assigned to Judge Richard Holwell. See United States v. Rajaratnam, No. 09 Cr. 1184(RJH). Meanwhile, a separate indictment charging similar crimes against other defendants, arising from the same investigation, was assigned to Judge Richard Sullivan. See United States v. Goffer, No. 10 Cr. 56(RJS). The instant civil SEC action was assigned to yet a third judge, Judge Jed Rakoff.
While the Appellants' civil and criminal cases are proceeding before different judges, both cases revolve around the same allegations: that Appellants engaged in widespread and repeated insider trading at several hedge funds, including Galleon Management, LP, a firm founded by Appellant Rajaratnam, where he remains the managing general partner, and New Castle Funds LLC, where Appellant Chiesi was a hedge fund manager and investment consultant. According to the SEC, the scheme, which allegedly generated over $52 million in illegal profits, involved tips from insiders concerning “market moving events such as quarterly earnings announcements, takeovers, and material contracts,” that spurred the defendants to trade shares of numerous public companies illegally.
The criminal investigation into these allegations included court-ordered wiretapping of communications between the defendants and others. According to Appellants, the wiretapped conversations, which spanned sixteen months, included 18,150 communications involving 550 separate individuals, which were intercepted from ten separate telephones-including Appellants' home, office and mobile phones. As part of criminal discovery, the USAO provided to Appellants copies of these wiretapped communications, the orders authorizing the wiretaps, and the government's applications for those orders. The USAO did not, however, share those materials with the SEC. 1
The SEC instead sought access to the wiretap recordings by demanding them from Appellants in discovery in the civil case before Judge Rakoff. Appellants opposed the demand on the grounds that the materials were not relevant and that disclosure was prohibited by Title III, the statute that authorizes such wiretaps. The SEC then moved to compel disclosure.
The district court heard oral argument on the motion, and, pursuant to a written opinion, ordered Appellants to produce the wiretapped conversations to the SEC and to any other party to the civil action that demanded them. 2 The court noted that while the USAO had not shared the wiretap materials with the SEC, the Appellants possessed these materials, they apparently asserted the right to share them with other defendants pursuant to a joint defense agreement, and no protective order had been issued in the criminal case barring Appellants from using the wiretap materials in the civil case, or from disclosing them to the SEC. It found that “the notion that only one party to a litigation should have access to some of the most important non-privileged evidence bearing directly on the case runs counter to basic principles of civil discovery in an adversary system and therefore should not readily be inferred, at least not when the party otherwise left in ignorance is a government agency charged with civilly enforcing the very same provisions that are the subject of the parallel criminal cases arising from the same transactions.” 3
The court acknowledged Appellants' argument that the privacy and other concerns that led Congress to pass Title III weighed in favor of reading the statute as implicitly prohibiting any disclosure of recordings not expressly authorized, but considered that argument foreclosed by our statement in In re Newsday, Inc., 895 F.2d 74 (2d Cir.1990), that while “Title III generates no right of access, [ ] it is a non-sequitur to conclude the obverse: that Congress intended § 2517 ... to forbid public access by any other means on any other occasion.” Id. at 77. The court then noted that Title III made clear that “[a]ny person” could disclose wiretap contents during testimony, and therefore it would be “absurd for the civil attorneys preparing the witness not to have access to the wiretap recordings beforehand.”
To accommodate the relevant privacy interests and because Appellants indicated that they would move to suppress the wiretap recordings on the ground that they were unlawfully obtained, the court entered a protective order prohibiting disclosure of the wiretap recordings to any non-party until, at a minimum, a court of competent jurisdiction had ruled on the suppression motion. Appellants appealed the order and we granted a stay pending appeal. 4
At the time of the district court's order, it had scheduled the civil trial to begin on August 2, 2010. However, when Judge Holwell, who is presiding over Appellants' parallel criminal proceeding, set the criminal trial for October 25, 2010, the USAO intervened and moved to adjourn the civil trial until after the completion of the criminal trial. While no party opposed this adjournment, the district court reserved judgment “because of the strong public interest in having cases of this kind move forward promptly.”
Following our grant of a stay of the discovery order, however, the court found that this stay, along with an indication from the bench during the oral argument on the stay motion that the appeal could be affected by a resolution of the suppression motion in the criminal case then scheduled to be heard on June 17, 2010, “tipped the balance toward adjournment.” Because resolution of the wiretap issue could not reasonably be expected prior to July 2010 and because counsel for the Appellants would by then be preoccupied preparing for the October criminal trial, the court found that the August trial date was no longer...
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