UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
August 12, 2010
UNITED STATES OF AMERICA,
RAJ RAJARATNAM AND DANIELLE CHIESI, DEFENDANTS.
The opinion of the court was delivered by: Richard J. Holwell, District Judge
MEMORANDUM OPINION AND ORDER
In connection with his motion to suppress Title III intercepts, defendant Rajaratnam requests an evidentiary hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978) (a "Franks hearing"). Franks allows a defendant challenging the government's application for wiretap authorization to obtain an evidentiary hearing in certain circumstances. "[W]here the defendant makes a substantial preliminary showing that a false statement knowingly and intentionally, or with reckless disregard for the truth, was included by the affiant in the warrant affidavit, and if the allegedly false statement is necessary to the finding of probable cause, the Fourth Amendment requires that a hearing be held at the defendant's request." Franks, 438 U.S. at 155-56. "[M]aterially misleading omissions as well as misrepresentations may be challenged by the defense." United States v. Levasseur, 816 F.2d 37, 43 (2d Cir. 1987). As the Court reads Franks, the defendant must first make a substantial preliminary showing that the government recklessly or knowingly made a misleading statement or omission. If he or she does so, the Court must then determine whether the misstatement or omission was necessary to the issuing court's finding.*fn1 See also Colorado v. Nunez, 465 U.S. 324, 326--27 (1984) (defendant entitled to a Franks hearing "if he makes a substantial preliminary showing that an affiant knowingly and intentionally, or with reckless disregard for the truth, included in a warrant affidavit a false statement necessary to the finding of probable cause"). A misstatement would not be necessary to the issuing court's finding if, "after setting aside the allegedly misleading statements or omissions, there remains a residue of independent and lawful information sufficient to support" that finding. United States v. Levasseur, 816 F.2d 37, 43 (2d Cir. 1987) (internal quotation marks omitted).
Franks itself concerned an issuing judge's finding of probable cause. The issue here is different. It concerns Title III's requirement that any wiretap application contain "a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous." 18 U.S.C. § 2518(1)(c). According to Rajaratnam, when the government applied for permission to wiretap Rajaratnam on March 7, 2008, it misled the issuing court about whether there was an investigative need for wiretapping.*fn2
Although the Second Circuit has not directly addressed whether alleged misstatements in the necessity section of a warrant affidavit are subject to the standard set forth in Franks, it has extended the logic of Franks to other Title III requirements. See United States v. Bianco, 998 F.2d 1112, 1124--26 (2d Cir. 1993) (applying Franks to 18 U.S.C. § 2518(11)(a)(ii), which requires that the government explain why "specification of the place of interception is not practical"). By the same logic, Franks applies here. See United States v. Green, 175 F.3d 822, 828 (10th Cir. 1999) ("If a wiretap affidavit omits material information that would vitiate either the necessity or the probable cause requirements had it been included, the resultant evidence must be suppressed."); United States v. Ippolito, 774 F.2d 1482, 1485 (9th Cir. 1985) ("[A]lthough Franks dealt specifically with probable cause, its reasoning applies [to Title III's necessity requirement] as well...."); United States v. Sanchez-Flores, 1995 WL 765562, at *5 (S.D.N.Y. Dec. 29, 1995) (applying Franks to determine whether the government misled the court about the need for a wiretap); see also United States v. Heilman, 2010 WL 1583097, at *12 (3d Cir. Apr. 21, 2010) (while choosing not to decide the question, observing that "most appellate courts have held that Franks hearings are also appropriate when a defendant is challenging whether there are false statements or omissions in an affidavit for a wiretap application that speak to the necessity requirement").
Rajaratnam has made a substantial preliminary showing that the government recklessly or knowingly misleadingly omitted several key facts from its March 7 affidavit, including: (1) the existence of a lengthy SEC investigation that preceded the wiretap request, and a prior FBI investigation of Rajaratnam's connection to insider trading; (2) the fact that the SEC investigation generated some four million documents, all of which the government apparently had access to prior to its March 7, 2008 wiretap application to Judge Lynch; and (3) the fact that Galleon employees, including Rajaratnam, testified under oath and participated in witness interviews with the SEC, the transcripts of which were apparently available to the government prior to March 7. These omissions, particularly in light of what the affidavit did say, 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 determination that a wiretap was justified in this case.*fn3
Correcting the affidavit to account for these omissions, the Court concludes that the existence and scope of the SEC investigation raise a substantial question as to whether the government affidavit adequately demonstrated the necessity of a wiretap--that is, a showing that conventional investigative techniques had been tried and had failed, or that there would be little use in trying them because they would likely fail.
Whether or not Rajaratnam will be able to prove by a preponderance that the government made misstatements that were both reckless and material, he has at least established good grounds for holding a Franks hearing regarding the veracity of the March 7, 2008 affidavit and the issue vel non of whether the necessity requirement has been satisfied. A hearing shall be held on September 7, 2010, at 10 a.m.