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United States of America v. Raj Rajaratnam

February 2, 2011

UNITED STATES OF AMERICA,
v.
RAJ RAJARATNAM,
DEFENDANT.



The opinion of the court was delivered by: Richard J. Holwell, District Judge

MEMORANDUM OPINION AND ORDER

Before the Court is a motion by defendant Raj Rajaratnam and third party Galleon Management LP ("Galleon") for an order denying the government's request for leave to issue a subpoena duces tecum to Galleon pursuant to Rule 17 of the Federal Rules of Criminal Procedure. Rajaratnam and Galleon in essence contend that the subpoena should not be issued because the government could have used grand jury subpoenas to obtain the documents it now seeks. For the reasons set forth below, the motion is denied.

BACKGROUND

Defendant Rajaratnam was arrested on October 16, 2009 pursuant to a criminal complaint that charged him with trading or conspiring to trade in securities on the basis of inside information. The criminal complaint identified seven issuers in whose securities Rajaratnam allegedly traded or conspired to trade. The criminal complaint also alleged that Rajaratnam conspired to trade in the securities of other unidentified issuers.

On October 22, December 4, and December 29, 2009, the government served Galleon with three grand jury subpoenas. Those subpoenas requested, inter alia, records of trading in the securities of ten issuers, documents reflecting all communications by Rajaratnam, documents reflecting compensation to Galleon employees, including Rajaratnam, and documents reflecting payments to five alleged co-conspirators. According to a sworn affidavit filed by the government, counsel for Galleon and the government agreed to certain limits on the documents Galleon would produce in response to the subpoenas, including, for example, producing only documents containing certain search terms. The government made that agreement subject to the proviso that it could request supplemental production.

On December 15, 2009, a grand jury returned an indictment charging Rajaratnam with five counts of conspiracy to commit securities fraud and six counts of securities fraud related to an alleged insider trading scheme at Galleon. The indictment alleged that Rajaratnam traded or conspired to trade in the securities of nine identified issuers, including the seven issuers identified in the criminal complaint. The indictment also alleged that Rajaratnam conspired to trade in the securities of other, unspecified issuers. On February 9, 2010, the grand jury returned a Superseding Indictment alleging that Rajaratnam conspired to trade in the securities of three additional issuers. By letter dated March 22, 2010, the government identified twenty-two issuers in whose securities Rajaratnam allegedly conspired to trade but who were not identified in the Superseding Indictment.

On April 1, 2010, the government served a fourth grand jury subpoena on Galleon requesting communications to and from Galleon employees (other than Rajaratnam) regarding three issuers identified in the March 22, 2010 letter. The subpoena also requested personnel files, employment agreements, and compensation information.

Rajaratnam moved to quash the subpoena on the ground that it was issued for the purpose of obtaining evidence to be used at trial. The Court denied the motion.

On April 16, 2010, Rajaratnam filed a motion for a Bill of Particulars and a separate motion to dismiss Count One of the Superseding Indictment and to "strike" certain details identified in the March 22, 2010 letter and others following it. In a July 13, 2010 memorandum opinion and order, the Court granted the motion for a Bill of Particulars in part. The government filed a Bill of Particulars on July 26, 2010. In an August 12, 2010 memorandum opinion and order, the Court denied Rajaratnam's motion to dismiss Count One and to strike.

According to the government's sworn affidavit, in November 2010 the government contacted counsel for Galleon to request OMS data for trading in securities of some twenty-two of the issuers identified in the Superseding Indictment and/or in the government's letters to Rajaratnam. OMS data is a form of electronic trading record that identifies the portfolio manager and trader responsible for executing a given trade. According to the government's affidavit, counsel for Galleon promised to begin compiling the data while determining whether the company would demand a subpoena to produce it. Counsel for Galleon later informed the government that Galleon would only produce the requested OMS data in response to a subpoena. At the same time, the government determined that certain e-mails responsive to its 2009 grand jury subpoenas had not been produced.

On January 13, 2011, the government filed an application for leave to issue a subpoena duces tecum on Galleon returnable prior to trial pursuant to Rule 17(c) of the Federal Rules of Criminal Procedure. The application enclosed a subpoena signed by the Clerk of Court requesting the following:

1. OMS data for trading in the securities of sixteen issuers;

2. Documents regarding Rajaratnam's and three other Galleon employees' investments in and compensation by Galleon;

3. Documents in which Rajaratnam and/or the three other Galleon employees acknowledged Galleon ...


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