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United States v. Rajarantnam

United States District Court, S.D. New York

April 17, 2014




On March 20, 2013, defendant Rajarengan Rajaratnam ("defendant") was charged in a seven-count indictment (the "Indictment"). Count One charges defendant with conspiracy to commit securities fraud, while Counts Two through Seven charge substantive securities fraud violations. Defendant has moved to: (1) dismiss the Indictment for failure to allege the essential elements of the crimes charged; (2) dismiss or narrow Count One on grounds of duplicity; (3) dismiss Counts Four and Seven as repugnant; and (4) suppress wiretap evidence. Oral argument on the motions was heard on March 27, 2014. Additional substantive submissions were filed by the parties thereafter. For the reasons set forth below, we reserve decision on the motion to dismiss Counts Four and Seven pending the Government's determination on whether it will proceed on these counts, and we deny the other motions.


According to the Indictment, the allegations of which we accept as true for purposes of the present motions, United States v. Goldberg , 756 F.2d 949, 950 (2d Cir. 1985), defendant, while employed as a portfolio manager at the Galleon Group hedge fund in 2008, conspired with his brother, Raj Rajaratnam ("Raj"), and various others to engage in insider trading. Specifically, defendant is charged with receiving from Raj material, non-public information relating to the common stock of two companies, Clearwire Corporation ("Clearwire") and Advanced Micro Devices, Inc. ("AMD"), and then trading on that information in his personal brokerage account at Fidelity Investments and in certain Galleon Group funds. Raj obtained the information about Clearwire and AMD from insiders Rajiv Goel ("Goel") and Anil Kumar ("Kumar"), respectively, in violation of their fiduciary duties. Thus, in the chain of information disclosure, Goel and Kumar are the tippers, Raj the immediate tippee, and defendant the remote tippee.


I. The Indictment Adequately Alleges the Essential Elements of the Crimes Charged.

The issue of whether the Indictment is legally sufficient is addressed in a well-established context. An indictment "need do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime." United States v. Stringer , 730 F.3d 120, 124 (2d Cir. 2013) (internal quotation marks omitted). "[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and second, enables him to plead an acquittal or conviction in bar of future prosecutions." Hamling v. United States , 418 U.S. 87, 117 (1974) (citations omitted). Indeed, Federal Rule of Criminal Procedure 7(c) merely requires that an Indictment contain "a plain, concise, and definite written statement of the essential facts constituting the offense charged."

Beyond the customary framework in which an indictment is evaluated, however, insider trading cases, especially those involving tippee-defendants, present a somewhat different challenge since the elements of the crime have been heavily shaped through caselaw. The Government and defendant agree that the elements of tippee liability include: (1) that the tipper benefited in some way from disclosing the inside information, and (2) that the tippee knew that the tipper breached his fiduciary duties. See Def. Br. at 5, 7; Govn't Opp. Br. at 11. However, the parties disagree on whether the tippee must have knowledge of the tipper's personal benefit. Defendant argues that it is an element, and that the Indictment is defective because it fails to allege such knowledge. He also argues that the Indictment is defective because it fails to allege that either tipper received a personal benefit.

First, regarding defendant's later argument, it is accurate that the Indictment does not explicitly state that the tippers received a personal benefit. However, the Indictment alleges that the tippers disclosed the inside information in breach of their fiduciary duties. (See Indictment ¶¶ 9, 11, 22, 35.) Such a breach necessarily implies a personal benefit. See Dirks v. SEC , 463 U.S. 646, 662 (1983) ("Absent some personal gain, there has been no breach of duty to stockholders."). Therefore, because "[a]n indictment must be read to include facts that are necessarily implied by the specific allegations made, " United States v. Stavroulakis , 952 F.2d 686, 693 (2d Cir. 1992), the Indictment adequately alleges a personal benefit.[1] See also United States v. Silverman , 430 F.2d 106, 111 (2d Cir. 1970) (holding that use of the term of art "labor organization" in the indictment "necessarily implies... the essential element of interstate commerce").

Second, whether a tippee must have knowledge of a tipper's personal benefit in order to be held criminally liable has not yet been resolved in the Second Circuit. See United States v. Whitman, 2014 U.S.App. LEXIS 2942, at *17 (2d Cir. 2014) ("We have yet to decide whether a remote tippee must know that the original tipper received a personal benefit in return for revealing inside information."); compare United States v. Whitman , 904 F.Supp.2d 363, 374 (S.D.N.Y. 2012) (knowledge of personal benefit required), and United States v. Rajaratnam , 802 F.Supp.2d 491, 499 (S.D.N.Y. 2011) (same), with United States v. Newman, 2013 U.S. Dist. LEXIS 70242, at *5 (S.D.N.Y. May 7, 2013) (knowledge of personal benefit not required). Although there is no question that a tippee must know of the tipper's breach of fiduciary duty, defendant argues that under Dirks v. SEC , 463 U.S. 646 (1983), and its progeny, knowledge of a tipper's breach requires knowledge of a personal benefit. Assuming the correctness of defendant's position, then charging knowledge of a breach of fiduciary duty as was done here necessarily charges knowledge of a personal benefit, thus making the Indictment sufficient. (See Indictment ¶ 8 (alleging that defendant "kn[ew] that the Inside Information had been disclosed in violation of duties of trust and confidence"), ¶¶ 13, 14 (alleging that defendant "kn[ew] that the Intel Inside Information had been improperly obtained").)

Other courts have reached the same conclusion. For example, in United States v. Whitman , 904 F.Supp.2d 363, 374 (S.D.N.Y. 2012), Judge Rakoff required the Government to prove that the defendant knew about the personal benefit to the tipper, but had earlier refused to dismiss the indictment, which did not specifically allege such knowledge, because it alleged, like the Indictment in the instant case, that the "inside information... was obtained in violation of duties of trust and confidence." See 12 Cr. 125 (JSR), June 21, 2012 Oral Argument Tr. at 3, 24. Likewise, in United States v. Santoro , 647 F.Supp. 153 (E.D.N.Y. 1986), aff'd mem. 880 F.2d 1319 (2d Cir. 1989), then-District Judge McLaughlin agreed that a tippee must know of the tipper's personal benefit, and that the jury had to have this explained "as an element of knowledge of the breach." Santoro , 647 F.Supp. at 170. But, like Judge Rakoff, Judge McLaughlin ruled that the indictment was not facially deficient for alleging only knowledge of a breach of fiduciary duty. Id. at 170-71.

Thus, defendant's motion to dismiss the Indictment for failure to allege the essential elements of the crimes charged is denied. The Indictment tracks the language of the relevant statutes (see Indictment ¶¶ 33, 34, 38), provides sufficient particulars to apprise defendant of the charges against him and avoid double jeopardy problems, and adequately alleges the essential elements of tippee liability that have developed through caselaw.

To be clear, however, the sufficiency of the Indictment is an issue separate and apart from whether the Court will charge that the defendant needs to have knowledge of a personal benefit received by the tipper. In this regard, we fully appreciate that the parties need guidance on the legal issue in advance of trial. However, this issue is currently pending before the Second Circuit, [2] and some guidance may be forthcoming. If such guidance ...

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