The Long Odds of an Acquittal for Raj Rajaratnam

HedgeCo News - After nearly seven weeks of testimony, the high-stakes insider trading trial of hedge fund manager Raj Rajaratnam has been handed to a federal jury in New York's Southern District.

Although there was no conclusion on the first day of deliberation, some are quick to tally the long odds of an acquittal for Rajaratnam, who faces serious prison time for the 14 criminal counts against him.

"This case has been an exceptionally strong prosecution - with wiretap evidence, including straightforward evidence of a defendant discussing trades based on insider information - and it has presented no technical elements that are beyond the grasp of a jury," former federal prosecutor and Congressman Artur Davis said. "A failure to convict or a muddled verdict like the one coming out the recent Barry Bonds steroids trial, would be a devastating blow to the prosecution."

Davis is now a partner in the white collar and government investigations practice at SNR Denton and a one-time member of the House Judiciary Committee.

A clear conviction, Davis believes, "will galvanize the government to duplicate the aggressive tactics used in the Galleon investigation. Investigations of high-dollar insider trading and other financial crimes will more and more resemble those in narcotics or public corruption cases, with wiretaps, extensive use of informants and even daring sting operations."

Davis acknowledges that the government's aggressive use of wiretap recordings - a tactic that is showing up in other Wall Street cases - may invite appellate scrutiny of electronic surveillance in insider trading cases. "In the Galleon example," he notes, "prosecutors got around the problem that the wiretap statute does not explicitly spell out securities fraud as a predicate crime by relying on case law that does allow wiretaps for general wire fraud cases. Still, the maneuver may draw closer attention from judges in future cases."

In broader context, Davis sounds a note of caution. "The Galleon investigation arguably tells us little about how judges and prosecutors are interpreting insider trading laws themselves," he notes. "For all the drama and publicity surrounding the trial, the legal basis of the Rajaratnam case is a garden variety claim that does not test novel or unlitigated theories of insider trading liability. That's a big contrast with, for instance, the Martha Stewart case, or other cases involving spousal sources of information and the definition of what constitutes confidential relationships under securities fraud laws."

Among the jurors are a former Israeli Defense Forces volunteer, a food services employee with the NY board of education, a city transportation agency worker, a graphic designer, an instructor for the blind, a retired bookkeeper and a nurse.