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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------x : UNITED STATES OF AMERICA, : : -v: : RAJ RAJARATNAM, : : Defendant. : : ---------------------------------------------------------------x

S2 09 Cr. 1184 (RJH)

MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT RAJ RAJARATNAMS MOTION FOR BAIL PENDING APPEAL

John M. Dowd (admitted pro hac vice) Terence J. Lynam (admitted pro hac vice) James E. Sherry (admitted pro hac vice) Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Ave., NW Washington, D.C. 20036 (202) 887-4386 Samidh Guha (SG-5759) Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, NY 10036 (212) 872-1000 Attorneys for Raj Rajaratnam September 9, 2011 New York, New York

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TABLE OF CONTENTS I. II. INTRODUCTION ...............................................................................................................1 ARGUMENT .......................................................................................................................1 A. B. MR. RAJARATNAM POSES NO RISK OF FLIGHT OR DANGER TO THE COMMUNITY ................................................................................................2 MR. RAJARATNAMS APPEAL RAISES SUBSTANTIAL ISSUES LIKELY TO RESULT IN REVERSAL AND A NEW TRIAL ...............................4 1. The Denial of Mr. Rajaratnams Motion to Suppress the Wiretap Evidence Presents a Substantial Question for Appeal .................................6 a. b. c. The wiretaps should have been suppressed because the initial application failed to demonstrate necessity. ..........................7 The wiretaps should have been suppressed because the initial application failed to demonstrate probable cause. ...............14 The wiretaps should have been suppressed because the government was not authorized to use electronic surveillance to investigate insider trading......................................16

2. III.

Suppression of the Wiretap Evidence Will Require Reversal and a New Trial. ..................................................................................................20

CONCLUSION ..................................................................................................................22

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TABLE OF AUTHORITIES CASES Page(s)

Aguilar v. Texas, 378 U.S. 108 (1964) .................................................................................................................11 Alabama v. White, 496 U.S. 325 (1990) .................................................................................................................15 Chapman v. California, 386 U.S. 18 (1967) ...................................................................................................................21 Dalia v. United States, 441 U.S. 238 (1979) .................................................................................................................18 Franks v. Delaware, 438 U.S. 154 (1978) .................................................................................................................10 Spinelli v. United States, 393 U.S. 410 (1969) .................................................................................................................11 Thompson v. Wagner, 631 F. Supp. 2d 664 (W.D. Pa. 2008) ......................................................................................13 United States v. Bianco, 998 F.2d 1112 (2d Cir. 1993)...................................................................................................10 United States v. Canfield, 212 F.3d 713 (2d Cir. 2000)....................................................................................................15 United States v. Concepcion, 579 F.3d 214 (2d Cir. 2009).........................................................................................10, 13, 14 United States v. Coplan, 1:07-CR-00453 (S.D.N.Y., order issued Jan. 21, 2010) ............................................................6 United States v. Ebbers, 1:02-CR-01144 (S.D.N.Y., order issued Sept. 8, 2005) ............................................................6 United States v. Feguson, 758 F.2d 843 (2d Cir. 1985).....................................................................................................15 United States v. Fermin, 32 F.3d 674 (2d Cir. 1994).......................................................................................................15 United States v. Galanis, 695 F. Supp. 1565 (S.D.N.Y. 1980).......................................................................................4, 5 ii

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United States v. Giordano, 416 U.S. 505 (1974) ...................................................................................................................9 United States v. Hayes, 553 F.2d 824 (2d Cir. 1977)....................................................................................................15 United Sates v. Harris, 464 F.3d 733 (7th Cir. 2006) ....................................................................................................13 United States v. Lee, 549 F.3d 84 (2d Cir. 2008).................................................................................................21, 22 United States v. Levine, 690 F. Supp. 1165 (E.D.N.Y. 1988) ........................................................................................19 United States v. Lilla, 699 F.2d 99 (2d Cir. 1983)...............................................................................................8, 9, 10 United States v. Lombardozzi, 491 F.3d 61 (2d Cir. 2007)......................................................................................................22 United States v. Marion, 535 F.2d 697 (2d Cir. 1976)...............................................................................................17, 19 United States v. Masciarelli, 558 F.2d 1064 (2d Cir. 1976)..................................................................................................19 United States v. Miller, 116 F.3d 641 (2d Cir. 1997).................................................................................................7, 10 United States v. Perez, 247 F. Supp. 2d 459 (S.D.N.Y. 2003)......................................................................................13 United States v. Quiroz, 13 F.3d 505 (2d Cir 1993)............................................................................................20, 21, 22 United States v. Randell, 761 F.2d 122 (2d Cir. 1985).....................................................................................5, 12, 17, 20 United States v. Rigas, 1:02-CR-1236 (S.D.N.Y., order issued July 13, 2005) ..............................................................6 United States v. Rittweger, No. 02-CR-122, 2005 WL 3200901 (S.D.N.Y. 2005) ...............................................................5 United States v. Santiago, 695 F. Supp. 1490 (S.D.N.Y. 1988).......................................................................................4, 5

iii

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United States v. Stewart, 1:03-CR-717 (S.D.N.Y., order issued July 13, 2004) ................................................................6 United States v. Tortorello, 480 F.2d 764 (S.D.N.Y. 1973) .................................................................................................19 United States v. Tubol, 191 F.3d 88 (2d Cir. 1999).......................................................................................................21 United States v. Tunick, No. S3-98-CR-1238, 2001 WL 282698 (S.D.N.Y. March 22, 2001) ........................................5 Whiteley v. Warden, Wyo., State Penitentiary, 401 U.S. 560 (1971) .................................................................................................................11 STATUTES 15 U.S.C. 80b-3(e) .................................................................................................................................18 18 U.S.C. 1028A ....................................................................................................................................18 1514A ....................................................................................................................................18 2515.........................................................................................................................................8 2516.......................................................................................................................................17 2517...........................................................................................................................17, 18, 19 2518............................................................................................................................... passim 3143.....................................................................................................................................1, 4 OTHER AUTHORITIES S. Rep. 90-1097 (1968) ..............................................................................................................7, 17

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I.

INTRODUCTION Defendant Raj Rajaratnam respectfully requests that this Court permit him to remain

released pending appeal subject to his present bail conditions, which include a $100 million secured bond, electronic monitoring, and home confinement. Four times, this Court has found that Mr. Rajaratnam poses no risk of flight or danger to the community, and the last time it did so by clear and convincing evidence. Mr. Rajaratnams model compliance with bail conditions for the last 23 months has consistently corroborated this Courts judgment. Mr. Rajaratnam now intends to mount an appeal of his conviction that will raise substantial questions of law and fact with respect, inter alia, to the governments use of wiretap evidence in this case. These factors alone are sufficient to warrant release under 18 U.S.C. 3143(b). As this Court is also aware, Mr. Rajaratnam suffers from chronic, lifethreatening, and degenerative diseases. These conditions not only make it impossible for Mr. Rajaratnam to flee without placing his own life in immediate jeopardy, they require intensive medical treatment not available within the Bureau of Prisons and would be irreversibly exacerbated if he were to be detained pending appeal. For all of these reasons, release pending appeal is singularly appropriate in this case. II. ARGUMENT 18 U.S.C. 3143(b) governs bail pending appeal, and states that the court shall order the defendant released if: (1) the defendant demonstrates by clear and convincing evidence that he poses no risk of flight and no danger to the community; and (2) the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in reversal or a new trial. This Court has already found that Mr. Rajaratnam is not a flight risk or danger to the community, and his appeal will raise substantial issues, including the wiretap suppression issue that this Court has already acknowledged involves close and highly debatable questions of law. 1

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If resolved in Mr. Rajaratnams favor, the Franks suppression issue will require reversal and a new trial because the government has repeatedly acknowledged that those wiretaps were the core evidence in its case affecting all counts. Tr. at 5160, 5167, 5198, 5236, 5583 (04/20 21/11). A. MR. RAJARATNAM POSES NO RISK OF FLIGHT OR DANGER TO THE COMMUNITY

The government has never even suggested, let alone argued, that Mr. Rajaratnam poses a danger to the community. Nor could it. This Court previously found by clear and convincing evidence that Mr. Rajaratnam poses no danger at all to the community. See Tr. 5719: 24-25 (05/11/11). Instead, since the day he was arrested nearly two years ago, the government has sought to detain Mr. Rajaratnam on the grounds that he is a flight risk. This Court, however, has consistently rejected those efforts, concluding no fewer than four times that Mr. Rajaratnams continued appearance can be amply guaranteed by bail conditions short of detention. Mr. Rajaratnams exemplary conduct since his arrest has proven the Court right every time.1 Most recently, the government argued that Mr. Rajaratnam should be remanded following the jurys guilty verdict on May 11, 2011. Arguing that Mr. Rajaratnam faced a prison sentence of nearly 20 years under the Sentencing Guidelines and that he no longer enjoyed the presumption of innocence, the government asserted that the law is clear that he should be

The government first requested detention during Mr. Rajaratnams initial presentment on October 16, 2009. Magistrate Judge Eaton rejected that request, instead ordering that Mr. Rajaratnam surrender his passport, remit a $100 million secured bond, submit to regular supervision by the Pretrial Services Unit, and limit his movements to the New York City area. On November 4, 2009, the government submitted a brief reasserting its belie[f] that remand is warranted. Magistrate Judge Katz again rejected the governments request for detention. The government renewed its argument that Rajaratnam should be detained in a brief filed January 5, 2010, but the Court again rejected the governments request for detention. 2

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detained because he is obviously a risk of flight. Tr. at 5715 (05/11/11). But just as it had three times before, this Court denied the governments request for detention in light of Mr. Rajaratnams history of perfect compliance with the terms of his release: I believe that based on the defendants track record to date that he is not a risk, a significant risk of flight, and I am not sure there is anything more that the defendant could do to establish that other than what he has done. Tr. at 5720 (05/11/11). The Court therefore permitted Mr. Rajaratnam to remain released pending sentencing subject to his prior bail conditions, plus the additional conditions of electronic monitoring and home confinement. Id. The governments arguments for detention are the same as they have always been: Mr. Rajaratnam has an incentive to flee because he is wealthy and has ties overseas. But, if anything, those already rejected arguments have gotten even weaker in the four months since the verdict. First, the government continues to ignore that Mr. Rajaratnam has deep and abiding attachments to the local New York community, where his elderly parents, wife, and minor children all live with him. Second, Mr. Rajaratnams physicians, who oversee and administer the intensive treatment Mr. Rajaratnam requires for his severe health problems, are also in New York. Given his progressively worsening condition, flight overseas, especially to Sri Lanka as the government suggests, could deprive him of much-needed lifesaving treatments. Third, Mr. Rajaratnams personal wealth and overseas ties have in fact declined significantly as he has overseen the orderly wind-down of Galleon, including its overseas operations, liquidated the investments that he had outside the country and brought them to the U.S., expended a significant amount of his personal wealth to pay taxes on this, and other, income, reserved funds to defend this and related civil matters, and set aside funds to satisfy any financial obligations that may be imposed in this case or the related civil case.

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Finally, and most importantly, Mr. Rajaratnam has continued to comply in every respect and without a single complaint from his supervising officers with his bail conditions including the new and more restrictive conditions of electronic monitoring and home confinement. His model behavior has led to his Pre-trial Services Officer Dennis Khilkevich granting him permission for all requested trips outside of his apartment to meet with counsel or his physicians. As the Court noted when it granted bail pending sentencing, there is nothing else Mr. Rajaratnam could possibly do to demonstrate more convincingly that he is not a flight risk. See also United States v. Santiago, 695 F. Supp. 1490, 1492 (S.D.N.Y. 1988) (Defendants history of compliance with bail terms demonstrated that he was not a risk of flight pending appeal). While the government emphasizes the sentence that he faces, Mr. Rajaratnam has been fully aware from the moment of his arrest, and even more so in the four months since the verdict, that he faces a potentially lengthy prison sentence. Despite that knowledge, Mr. Rajaratnam has continued to demonstrate his determination to stand and defend himself vigorously within the law, and to accept the lawful outcome of these proceedings, whatever it may be. See United States v. Galanis, 695 F. Supp. 1565, 1569 (S.D.N.Y. 1980) (finding no risk of flight pending appeal where it must have been clear to [the defendant], since the verdict, that his sentence was likely to involve a substantial period of incarceration). As he now prepares to mount an appeal of his conviction, Mr. Rajaratnam remains committed to seeing these proceedings through to their lawful conclusion. B. MR. RAJARATNAMS APPEAL RAISES SUBSTANTIAL ISSUES LIKELY TO RESULT IN REVERSAL AND A NEW TRIAL

To succeed on a motion for release pending appeal, the defendant must demonstrate that the appeal raises a substantial question of law or fact likely to result in reversal or a new trial. See 18 U.S.C. 3143(b)(1)(B). A question is substantial within the meaning of the 4

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statute if it is a close question or one that very well could be decided the other way, and is considered likely to result in reversal or a new trial if a successful appeal would require such relief. United States v. Randell, 761 F.2d 122, 125 (2d Cir. 1985) (internal quotations omitted); see also Galanis, 695 F. Supp. at 1568-70; United States v. Rittweger, No. 02-CR-122, 2005 WL 3200901 at *5 (S.D.N.Y. 2005); United States v. Tunick, No. S3-98-CR-1238, 2001 WL 282698 at *3 (S.D.N.Y. March 22, 2001) (all applying Randell test and granting bail pending appeal). Bail does not, however, depend on the willingness of the trial court to certify that it is likely to be reversed. Randell, 761 F.2d at 125 (quotations omitted). The trial judge need not find that the trial he or she had just concluded was so infected with error as to require a new trial, Galanis, 695 F. Supp. at 1568, or that the appeal will ultimately succeed or that it has merit, Rittweger, 2005 WL 3200901 at *4. Instead, the statutory requirements are met where the appeal presents a question which has more merit than a question which is merely frivolous, Galanis, 695 F. Supp. at 1569, and which is so integral to the merits of the conviction on which the defendant is to be imprisoned that a contrary appellate holding is likely to require reversal of the conviction or a new trial, Randell, 761 F.2d at 125 (quotations omitted).2 The longstanding presumption against unnecessary detention informs this balanced standard for release pending appeal. See Galanis, 695 F. Supp. at 1569. Furthermore, because a defendant free on bail is readily accessible at all times to discuss the proof in the trial record and the inferences flowing therefrom, release pending appeal also enables the defendant to assist in the appeal and thus promotes the interests of justice. Id. Judges in this district have accordingly granted bail pending appeal in a number of complex, high-profile financial fraud cases, including

The statute also requires the defendant to demonstrate that the appeal is not for the purpose of delay, but an appeal that raises substantial issues is presumed not to be for the purpose of delay. See Santiago, 695 F. Supp. at 1492. 5

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in cases where the defendants had substantial resources and were facing lengthy prison sentences. See, e.g., United States v. Coplan, 1:07-CR-00453 (S.D.N.Y., order issued Jan. 21, 2010) (Bail pending appeal granted for multiple defendants in large-scale tax fraud case.); United States v. Rigas, 1:02-CR-1236 (S.D.N.Y., order issued July 13, 2005) (Bail pending appeal granted for two defendants convicted of conspiracy, bank fraud, and securities fraud and sentenced to 15 and 20 years, respectively.); United States v. Stewart, 1:03-CR-717 (S.D.N.Y., order issued July 13, 2004) (Bail pending appeal granted to defendant convicted of conspiracy, obstruction of justice, and making false statements to SEC); United States v. Ebbers, 1:02-CR01144 (S.D.N.Y., order issued Sept. 8, 2005) (Bail pending appeal granted to defendant convicted of conspiracy, securities fraud, and false statements to the SEC and sentenced to 25 years). 1. The Denial of Mr. Rajaratnams Motion to Suppress the Wiretap Evidence Presents a Substantial Question for Appeal

The governments case against Mr. Rajaratnam relied critically on wiretapped telephone calls between Mr. Rajaratnam and his alleged co-conspirators and on other evidence, including cooperator testimony, that undisputedly was derived from those wiretaps. In all, the government introduced forty-five separate wiretap recordings into evidence at trial. Some were offered as direct evidence of insider trading. Others were offered to corroborate witness testimony, and others as crosscutting evidence of Mr. Rajaratnams alleged cover up and consciousness of guilt. According to the government itself, the wiretaps were its best and most powerful evidence, and constituted the core evidence in th[e] [governments] case. Tr. at 5583 (04/21/11); Tr. at 5160, 5167, 5198, and 5236 (04/20/11). Mr. Rajaratnam will argue on appeal, inter alia, that the wiretaps, and the evidence derived from them, should have been suppressed because they were obtained on the basis of a 6

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sworn affidavit so riddled with reckless falsehoods and misleading, material omissions that this Court found it to be not merely deficient, but devoid of the content explicitly required by Title III and the Fourth Amendment. Following a four-day evidentiary hearing during which the Court heard testimony from four witnesses and received over 230 exhibits into evidence, this Court specifically found that the government had recklessly omitted and misstated important information bearing on probable cause and had completely failed to disclose the heart and soul of its [conventional] investigation, without which a reasoned evaluation of the necessity of employing wiretaps was impossible. Order at 43 (11/24/10). Those factual findings mandated suppression of the wiretaps under Title III and the Constitution, as did the governments use of wiretaps to investigate securities fraud, an offense not enumerated in Title III. The Courts denial of Mr. Rajaratnams motion to suppress therefore raises a number of substantial questions for appeal. a. The wiretaps should have been suppressed because the initial application failed to demonstrate necessity.

Before a wiretap may be authorized, Title III mandates that the government provide the court with a full and complete statement as to whether or not other investigative procedures have been tried and failed or reasonably appear to be unlikely to succeed if tried. 18 U.S.C. 2518(1)(c). The statute means exactly what it says: the government must disclose precisely what, if any, investigative techniques were attempted prior to the wiretap request, United States v. Miller, 116 F.3d 641, 663 (2d Cir. 1997). The purpose of the mandatory full and complete statement is to enable the issuing judge based on the facts submitted to him and after consideration of all the facts and circumstances to decide independently whether the governments application presents the precise and discriminate circumstances under which a wiretap is justified. S. Rep. 90-1097 at 73-34 (1968). When the government fails to provide the 7

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mandatory full and complete statement, the wiretap evidence must be suppressed. See 18 U.S.C. 2515, 2518(10); United States v. Lilla, 699 F.2d 99, 105 (2d Cir. 1983). In this case, the government not only did not provide a full and complete statement of the investigatory procedures it had already used, but in fact, submitted a sworn affidavit to Judge Gerard E. Lynch on March 7, 2008 that this Court found was nearly a full and complete omission of what investigative procedures in fact had been tried and, in so doing, deprived Judge Lynch of the opportunity to assess the necessity of a wiretap. Order at 40. More specifically, the governments application completely failed to disclose that the SEC, FBI, and USAO had been conducting an extensive conventional insider trading investigation of Mr. Rajaratnam for a full year before the application was submitted and flatly told Judge Lynch, under oath, that the government could not obtain information that the government, in fact, had obtained and was continuing to obtain through conventional investigative techniques. See Order at 36. As this Court found, the governments conventional investigation yielded over twenty depositions and interviews (including three with Mr. Rajaratnam himself) and a mountain of relevant documents. Id. at 36-42 & n.23. But instead of disclosing these salient facts, the wiretap affidavit blandly assured Judge Lynch that interviewing Mr. Rajaratnam was too risky, and that relevant documents could not be located. Id. By misrepresenting these critical facts, the Court found that the government recklessly withheld from Judge Lynch precisely the nuts and bolts of an investigation that must be presented to a court if it is to fulfill the function of determining whether conventional investigative techniques are likely to prove inadequate. Order at 42. Those substantial and material omissions prevented Judge Lynch from being able to perform the independent review that is constitutionally and statutorily indispensable. As this Court stated:

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A judge hearing an ex parte application relies entirely on the governments representation that it has disclosed all material facts. But how could Judge Lynch assess whether conventional investigative techniques had failed or were likely to fail without even knowing that they were presently being used in an ongoing SEC investigation upon which the prosecutor and FBI were relyingalmost entirely to construct their own case? . . . [T]he Court is at a loss to understand how the government could have ever believed that Judge Lynch could determine whether a wiretap was necessary to this investigation without knowing about the most important part of that investigationthe millions of documents, witness interviews, and the actual deposition of Rajaratnam himself, all of which it was receiving on a real time basis and all of which was being acquired through the use of conventional investigative techniques . . . . That omission deprived Judge Lynch of the opportunity to assess what a conventional investigation of Rajaratnam could achieve by examining what the SECs contemporaneous, conventional investigation of the same conduct was, in fact, achieving. Id. at 36-40 (emphasis in original) These factual findings required suppression of the wiretap evidence under Title III as a matter of statutory command. The Supreme Court has held that, by providing a suppression remedy in Title III itself, Congress intended to require suppression where there is a failure to satisfy any of those statutory requirements that directly and substantially implement the congressional intention to limit the use of intercept procedures to those situations clearly calling for the employment of this extraordinary investigative device. United States v. Giordano, 416 U.S. 505, 527 (1974). The requirement that wiretap applications contain a full and complete statement demonstrating necessity is one of the provisions that directly and substantially implements Congresss intention to limit wiretapping. See Lilla, 699 F.2d at 103. Accordingly, an affidavit in support of a wiretap warrant must provide some basis for concluding that less intrusive investigative procedures are not feasible, and one which does not must be suppressed. Lilla, 699 F.2d at 103. (emphasis added). This one did not. Instead, the Court found that it was completely devoid of any truthful description of the governments use of conventional techniques. Whereas Title III requires a full and complete statement, the government presented Judge Lynch with a full and complete omission. Order at 40. Giordano makes clear 9

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that suppression must follow when the government so comprehensively fails to observe Title IIIs plain mandates. 3 The Courts factual findings also required suppression of the wiretap evidence under the Fourth Amendment, because the governments affidavit recklessly misstated and omitted material facts. See Franks v. Delaware, 438 U.S. 154, 158 (1978). This Court correctly found that the governments omissions and misstatements were reckless, but it denied the motion to suppress because it concluded that they were not material. Order at 45-56. But under Franks, any omission so full and complete that it deprives [the issuing judge] of the opportunity to assess what a conventional investigation . . . could achieve, Order at 40, is necessarily material, because such an omission completely prevents the neutral and disinterested review of the application that the Constitution requires before embarking upon a search. Franks, 438 U.S. at 164. Franks itself described this process of independent and informed judicial review before the search as the bulwark of Fourth Amendment protection. Franks, 438 U.S. at 164 (emphasis added). That protection ceases to exist if the government is given a post hoc do-over for warrant applications so utterly lacking in truthful content that they deprived the issuing judge of the

Mr. Rajaratnam argued to this Court, and will argue again on appeal, that, under the Supreme Courts decision in Giordano, Title III independently mandates suppression as a matter of statutory law whenever the government fails to make a full and complete statement of facts establishing necessity, and that a further showing of recklessness and materiality under Franks is not required. To be sure, the Second Circuit has applied the Franks test to suppression motions arising under other sections of Title III. See United States v. Bianco, 998 F.2d 1112, 1125-26 (2d Cir. 1993) (applying Franks to roving bug provisions of 18 U.S.C. 2518(110(a)(ii)); United States v. Miller, 116 F.3d 641, 664 (2d Cir. 1997) (applying Franks to probable cause challenge under Title III). But what is critical here is that the Second Circuit has never applied the Franks standard to a necessity challenge; that court has never suggested that post hoc justifications can substitute for Title IIIs demand for proof of necessity before the warrant issues; the Second Circuits decisions have resolved necessity challenges without reference to Franks. See United States v. Lilla, 699 F.2d 99, 104 (2d Cir. 1983); United States v. Concepcion, 579 F.3d 214, 217 (2d Cir. 2009). 10

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opportunity to conduct the neutral and disinterested review that the Constitution requires before the search is undertaken. The governments position in this case, in other words, quite literally writes the independent review of a neutral decision-maker before a search occurs right out of the Constitution. This Court concluded that the governments full and complete omission was immaterial only because it considered and credited factual claims that the government never made in its original affidavit. See Order at 3 ([D]isclosure of all the details of the SECs investigation that the government recklessly omitted [from its original affidavit] would ultimately have shown that a wiretap was necessary.). That will not suffice. The Constitution plainly requires prior judicial review and prior informed judicial authorization for wiretaps, and an an otherwise insufficient affidavit cannot be rehabilitated by testimony concerning information possessed by the affiant when he sought the warrant but did not disclose to the issuing magistrate. Whiteley v. Warden, Wyo., State Penitentiary, 401 U.S. 560, 565 n.8 (1971); see also Aguilar v. Texas, 378 U.S. 108, 109 n.1 (1964) (It is elementary that in passing on the validity of a warrant, the reviewing court may consider only information brought to the magistrates attention.); Spinelli v. United States, 393 U.S. 410, 413 n.3 (1969) (same). The contrary rule adopted by this Court render[s] the warrant requirements of the Fourth Amendment meaningless, Whiteley, 401 U.S. at 565 n.8, and wipes out Title IIIs requirement that the issuing judge determin[e] on the basis of the facts submitted by the applicant whether a wiretap is necessary, 18 U.S.C. 2518(3). Title III and the Constitution do not permit the after-the-fact second bite at the apple that the government was afforded in this case. The very core of the Fourth Amendments warrant requirement is a constitutional judgment that it is not equally permissible for the government to wiretap first, and then obtain independent judicial review and authorization second.

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This Court rejected Mr. Rajaratnams reliance on Whiteley because it concluded that the entire premise of the Franks approach is that the court must consider information that did not appear in the original affidavit. Order at 46. We respectfully disagree. The entire premise and purpose of Franks is to permit the defendant to prove the substantive deficiency of a facially sufficient affidavit; it is not to supplant the requirement of prior judicial authorization of a constitutionally sufficient warrant with post hoc approval of a hypothesized warrant application that was never submitted and on which the warrant that was issued plainly did not rest. In any event, the only question at this juncture is whether Mr. Rajaratnams legal objection to this Courts ruling has substantial merit. It plainly does, as reflected in this Courts 68-page opinion finding that this case involved not isolated missteps by the government, but a wholesale reckless abandonment of the duty to truthfully, fully, and completely disclose what conventional investigative techniques had already been employed and the success of their results. Mr. Rajaratnam can find no Franks case, nor did the government or this Court cite any, that involved such comprehensive and sweeping material omissions, pervading every aspect of the statutorily and constitutionally required showing. In addition, this Court specifically acknowledged that aspects of its analysis involved close[] question[s], Order at 2, 58, and implicated unsettled areas of law, id. at 18-20 & n.13, 26 n.19, 43, 46-47, which necessarily demonstrates that Mr. Rajaratnams appeal will raise a close question . . . that very well could be decided the other way, Randell, 761 F. 2d at 125. Even more pointedly, a federal court of appeals has rejected the very analysis on which this Courts ruling critically depended. The Seventh Circuit has ruled that a district court conducting Franks analysis may not consider supplemental information offered by the

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government that was never presented to or considered by the issuing magistrate. In language that speaks directly to this case, the Seventh Circuit held that: [c]onsidering new information presented in the supplemental filing that supported a finding of probable cause was beyond the trial court's analytical reach. Rather, its consideration of new information omitted from the warrant affidavit should have been limited to facts that did not support a finding of probable cause . . . . Allowing the government to bolster the magistrate's probable cause determination through post-hoc filings does not satisfy the Fourth Amendment concerns addressed in Franks. United Sates v. Harris, 464 F.3d 733, 738-30 (7th Cir. 2006). Other decisions equally support Mr. Rajaratnams position and thus document the substantiality of his claims on appeal. See, e.g., United States v. Perez, 247 F. Supp. 2d 459, 482 n.11 (S.D.N.Y. 2003) (Of course, the reviewing court [in a Franks hearing] cannot consider material outside of the affidavit. Thus, evidence that emerged after the warrant issued evidence highly relevant to the agents' state of mind will not be considered in the probable cause inquiry in the first instance. (citations omitted)); Thompson v. Wagner, 631 F. Supp. 2d 664 (W.D. Pa. 2008) (It is one thing for a court to insert exculpatory evidence that has been wrongfully omitted from an affidavit of probable cause. It is quite another for a court to insert inculpatory evidence that an affiant has neglected to include in his or her affidavit of probable cause . . . . . Acceptance of [this] argument would effectively turn the Fourth Amendment upside down.). The question remains open within the Second Circuit, and there is at least a substantial chance that the Second Circuit will agree with the Seventh Circuit, rather than create an intercircuit conflict for the Supreme Court to resolve. Indeed, in Concepcion, the Second Circuit addressed a case in which the only conventional investigative technique available to investigators was traditional [physical] surveillance. 579 F.3d at 219. Ultimately, the court concluded that the government had alleged just enough facts to demonstrate the necessity for a wiretap, but admonished the government for providing only general explanations and described the case as 13

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exceptionally close. Id. Given that the insufficiency of the governments affidavit in Concepcion was exceptionally close, this case goes over the edge, having managed to combine both repeatedly condemned boilerplate general allegations, Order at 41, and pervasively false, flawed, and grossly deficient allegations of necessity. Tellingly, in contrast to the investigators in Concepcion, the government in this case also had a full slate of conventional investigative techniques at its disposal that it had used and was continuing to use successfully. The only difference is that the government did not bother to mention that to Judge Lynch. That, of course, makes this case profoundly worse for the government than the skeletal record with which it barely eked by in Concepcion. b. The wiretaps should have been suppressed because the initial application failed to demonstrate probable cause.

Title III also requires wiretap applications to contain a full and complete statement of the facts and circumstances establishing probable cause. 18 U.S.C. 2518(1)(b). As with the governments necessity allegations, this Court found as a matter of fact that the governments initial application to wiretap Mr. Rajaratnams telephone did not contain the statutorily required full and complete statement. Quite the opposite, as this Court found, the affidavit made recklessly misleading claims about cooperating witness Roomy Khans credibility, failed to disclose Khans prior fraud conviction, failed to disclose that Khan had cooperated in an earlier, unsuccessful investigation of Mr. Rajaratnam, made the literally false claim that she had only been cooperating since 2007, and misrepresented the critical content of two consensually recorded telephone calls between Khan and Mr. Rajaratnam. See Order at 22-25. These misstatements and omissions also require suppression under both Title III and the Constitution. Not only was the governments affidavit not full and complete as required by the statute, it was affirmatively misleading in its claims about the reliability of a key government 14

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informant. Order at 2. As the Court noted, the governments omission of highly relevant information regarding Khans prior criminal record was [p]articularly disturbing, since that information was peculiarly probative of [her] credibility. Order at 25 (citing United States v. Hayes, 553 F.2d 824, 827 (2d Cir. 1977)). And its misdescription of the consensually recorded telephone calls also evidence[d] a lack of frankness that g[a]ve the Court pause. Despite these glaring shortcomings, the Court denied suppression or a Franks hearing on the issue of probable cause because the Court ruled that a corrected affidavit contained a residue of independent and lawful information sufficient to support probable cause. Order at 16 (citing United States v. Canfield, 212 F.3d 713, 718 (2d Cir. 2000)).4 As with the governments full and complete omission of truthful allegations showing the need for wire surveillance, the governments reckless misstatements and omissions concerning probable cause impermissibly circumvented the statutory and constitutional requirement of independent and neutral advance review by an informed judge. As importantly, the governments affidavit, when corrected to remove the misleading claims about Khans credibility and the content of the consensually recorded calls, did not support a fair probability that . . . evidence of a crime w[ould] be found on Mr. Rajaratnams cell phone. Alabama v. White, 496 U.S. 325, 330 (1990) (quotation omitted). Without the inculpatory glue of Khans now-known-to-be unreliable allegations to bind them together, the affidavits remaining content

As with necessity, Mr. Rajaratnam intends to argue on appeal that Title III and Giordano independently require suppression as a statutory matter when the government fails to make the full and complete statement of facts establishing probable cause required by the plain text of the statute by omitting facts that are material to the probable cause determination. A mere residue of truthful information is insufficient. Mr. Rajaratnam recognizes, however, the Second Circuit has applied the residue standard to probable cause challenges to wiretap applications in the past. See, e.g., United States v. Fermin, 32 F.3d 674 (2d Cir. 1994); United States v. Feguson, 758 F.2d 843 (2d Cir. 1985). 15

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i.e., the consensual recordings (when accurately transcribed), toll analysis, and wiretap interceptions over other individuals telephones were not sufficient to establish probable cause. Indeed, without Khans specific allegations of criminal wrongdoing by Mr. Rajaratnam, none of that residual evidence reflected anything more suspicious than a professional portfolio manager talking about stocks and trading stocks. The credibility of Khans asserted criminal overlay thus was indispensable to the probable cause determination, which means that the governments repeatedly misleading and literally false allegations about her credibility, Order at 22, struck at the heart of the probable cause decision. Once again, there can be little doubt that these questions present substantial and close issues for appeal. For one thing, the Second Circuit has never approved a warrant or wiretap affidavit that knowingly and recklessly withheld from the issuing judge that a key government informant had a prior fraud conviction peculiarly probative of [the informants] credibility. See Order at 26, n.19. And it certainly has never approved the knowing and reckless omission of a key informants fraud conviction where that conviction arose out of a failed prior investigation of the wiretap target for exactly the same conduct. It thus is reasonably debatable whether suppression is warranted under either Title III or the Constitution when the government so recklessly omits critical and probative facts from a warrant application, and whether the skeletal remains of the governments corrected affidavit failed to establish probable cause. c. The wiretaps should have been suppressed because the government was not authorized to use electronic surveillance to investigate insider trading.

The propriety of the governments landmark use of electronic surveillance to investigate insider trading offenses at all will present yet another substantial question on appeal. As has been oft-repeated by the government, this case represents the first time that court-authorized wiretaps have been used to target significant insider trading on Wall Street. Tr. of Press Conf. at 16

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4. Their use here was undeniably historic; whether it was also lawful is precisely the kind of novel and close question that satisfies the standard for release pending appeal. Randell, 761 F.2d at 125. Electronic surveillance can only be authorized to investigate offenses specified in Title III. See 18 U.S.C. 2516. There is no dispute that neither insider trading nor securities fraud is on that list. The absence of insider trading and securities fraud from Section 2516 means that Congresss determined that wiretaps are not necessary for such investigations. While the list has been expanded numerous times over the past four decades, Congress has never seen fit to include insider trading as a predicate offense for Title III surveillance, even as it has added other specific fraud crimes. Title III does include a plain view-style provision which permits the government to use wiretap evidence of other crimes, even unlisted ones, when that evidence is obtained during the course of authorized investigation of an enumerated offense. See 18 U.S.C. 2517(5). But to do so, the government must obtain judicial approval and show that the original order was lawfully obtained, that it was sought in good faith and not as a subterfuge search, and that the communication was in fact incidentally intercepted during the course of a lawfully executed order. United States v. Marion, 535 F.2d 697, 700 (2d Cir. 1976) (quoting S. Rep. No. 90-1097, at 12 (1968), reprinted in 1968 U.S.C.C.A.N. 2112, 2189). This Court held that, [b]ecause Title III authorizes the government to use wiretaps to investigate wire fraud, the government was authorized to use wiretaps to investigate an alleged insider trading scheme using interstate wires even though Title III does not specifically authorize wiretaps to investigate insider trading alone. Order at 1. The Court also found that the

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interception of evidence of securities fraud was a by-product of the interception of evidence of wire fraud and was thus valid under 18 U.S.C. 2517(5). Id. at 12. The Second Circuit may well determine on appeal, however, that those conclusions are contradicted by Title IIIs plain text, history, and purposes, as well as this Courts other findings. As explained in Mr. Rajaratnams suppression briefs, there is no indication in the statutory text or legislative history that in adding wire fraud as a predicate offense to Title III in 1984, Congress meant also to sweep in countless other fraud offenses that could be recharacterized as wire fraud. To the contrary, (i) Congresss treatment of insider trading and securities fraud as distinct from wire fraud in numerous other statutory contexts, see, e.g., 18 U.S.C. 1514A; 18 U.S.C. 1028A; 15 U.S.C. 80b-3(e); (ii) Congresss subsequent addition of crimes like computer fraud, that would be entirely redundant of wire fraud under the governments sweeping reading, and (iii) the consistently cautious manner in which Congress set forth with meticulous care the particular offenses warranting wiretaps, Dalia v. United States, 441 U.S. 238, 249 (1979), demonstrate that Congress did not intend the inclusion of wire fraud in Title III to serve as a catch-all license to wiretap a litany of unenumerated crimes. Moreover, this Court recognized that this case is different from the usual one involving Section 2517(5), where the government gets permission to investigate one crime using a wiretap, and while doing so happens upon an entirely different crime. Order at 10. Here, in contrast, there is no denying that, in intercepting communications that would provide evidence of wire fraud, the government expected to get evidence of securities fraud, too, ibid., since the government made it quite clear [in its applications] that it wanted to use wiretaps to investigate an insider trading conspiracy, id. at 8. That type of intended and purposeful employment of a wiretap for an unenumerated offense is simply not incidental as Congress contemplated. See

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United States v. Tortorello, 480 F.2d 764, 781 (S.D.N.Y. 1973) (Section 2517(5) applies to unanticipated intercepted conversations). Indeed, the reference to wire fraud was simply a facade for targeting securities fraud, as evidenced by the governments failure to ever charge wire fraud in this case. See United States v. Levine, 690 F. Supp. 1165, 1170, 1171 (E.D.N.Y. 1988) (the failure to prosecute those specified crimes strongly suggests that the government has engaged in subterfuge surveillance and the court might infer that they were uninterested in [them] and had sought the eavesdropping order only to get evidence of [other] offenses.). The governments use of wiretaps to obtain evidence of insider trading cannot be both a clearly stated purpose and a by-product of its investigation. The Second Circuit thus may conclude that transforming the wire fraud provision into an open-ended license to wiretap for any type of fraud that (as most everything does these days) involves a wire would cause Title III to rapidly degenerate into . . . the electronic equivalent of a general search warrant. Marion, 535 F.2d at 701 (internal quotation marks omitted). The legality of such surveillance is an issue of first impression in this Circuit indeed, in any court and accordingly constitutes a substantial question meriting release pending appeal. Finally, as the Court acknowledged, Order at 10-11, there is also room for debate as to whether the interception of other-crimes evidence must be inadvertent, which the governments eavesdropping on securities fraud clearly was not. The Second Circuit has at times stated that evidence should be inadvertent to be authorized under 18 U.S.C. 2517(5). See Marion, 535 F.2d at 701; United States v. Masciarelli, 558 F.2d 1064, 1067 (2d Cir. 1976). But this Court also cited other decisions it believes may have implicitly rejected inadvertence as the test. Order at 11. This lack of clarity on the standard for Section 2517(5) evidence is further

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indication that this issue presents a close question that the appeals court could decide the other way. 2. Suppression of the Wiretap Evidence Will Require Reversal and a New Trial.

If the Court of Appeals agrees with Mr. Rajaratnam that the wiretaps should have been suppressed, reversal and a new trial on every count will necessarily follow, because the wiretaps were integral to the merits of [Mr. Rajaratnams] conviction. Randell, 761 F.2d at 125 (quotations omitted). According to the governments own summation, the forty-five wiretaps introduced at trial were devastating evidence of the defendants guilt that alone compelled the unshakeable conclusion that he is guilty as charged of all the crimes in the indictment. Tr. at 5160, 5167 (04/20/11) (emphasis added). There is no question, and no dispute, that the wiretaps were the governments best and most powerful evidence, and constituted the core evidence in th[e] [governments] case. Tr. at 5583 (04/21/11); Tr. at 5160, 5167, 5198, and 5236 (04/20/11). Of the indictments fourteen counts, eleven were based directly on wiretap recordings that, the government argued, showed Mr. Rajaratnam in the act of committing insider trading (i.e., Counts 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12). Two others (Counts 13 and 14) depended upon the testimony of cooperating witnesses that the government found and obtained cooperation from because of the wiretaps. In addition, as the government stressed in summation, some of the wiretap evidence cut across all charged counts as it was used by the government to prove its alleged cover up or to show Mr. Rajaratnams state of mind, that he knew he was doing wrong. Tr. at 5296; see also United States v. Quiroz, 13 F.3d 505, 513 (2d Cir 1993) (error in

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admitting false exculpatory statement was not harmless where government argued in summation that the statement reflected consciousness of guilt).5 Even before they were used at trial, the wiretaps were critically important during the investigatory stage of this caseas the government repeatedly admitted and argued both before and during the Franks hearingand yielded much of the non-wiretap evidence, including cooperator testimony, that the government introduced at trial.6 All of that derivative evidence will also have to be suppressed as fruits of the illegal wiretap if Mr. Rajaratnam prevails on his appeal. See 18 U.S.C. 2518(10) (providing for the suppression of wiretap recordings and evidence derived therefrom). Accordingly, the wiretaps influenced the proof in every count on which Mr. Rajaratnam was convicted, and reversal on appeal accordingly would erase the basis for any sentence to be served. Because the denial of Mr. Rajaratnams motion to suppress was an error of both statutory and constitutional dimension, the government will bear the heavy burden of demonstrating beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained. Chapman v. California, 386 U.S. 18, 24 (1967); accord United States v. Lee, 549 F.3d

Even with respect to Count 2 the Roomy Khan Conspiracy suppression of the wiretaps would require reversal. Many of the wiretaps introduced at trial including most significantly the so-called consciousness of guilt and cover up wiretaps were not countspecific and thus contributed to the governments proof as to Count 2 as much as other counts. See Quiroz, 13 F.3d at 513. Indeed, given the paucity of evidence on Count 2, the impact of such wiretaps as well as the cumulative impact of the wiretap evidence as a whole cannot be disentangled from proof of that count. See United States v. Tubol, 191 F.3d 88, 97 (2d Cir. 1999) (error was not harmless where evidence improperly admitted as to one count could have infected the jurys verdict on other counts). 6 During oral argument on Mr. Rajaratnams motion to suppress prior to the Franks hearing, the government stressed that without the wiretaps its investigation wouldnt have led necessarily to much of the evidence subsequently discovered, including the cooperation of witnesses such as Ali Far, which the Court noted could come back to bite the government. Tr. at 98 (07/27/10).
5

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