SEC v. Galleon Management
US Court of Appeals for the Second Circuit
The Second Circuit ruled that a lower court’s order to compel civil discovery of the contents of thousands of defendant’s wiretapped conversations, the legality of which had not yet been adjudicated, violated defendant’s privacy rights. The court explained that “there is a distinct privacy right against the disclosure of wiretapped private communications that is separate and apart from the privacy right against the interception of such communications.” Thus, it had the authority to issue the writ because the privacy harm created by disclosing the conversations could not be addressed by a subsequent appeal of the final ruling. The court found that the extraordinary remedy of issuing a writ of mandamus was justified, as the lower court had clearly erred in its failure to determine the legality of the wiretaps or the relevance of the requested information before compelling discovery. The Second Circuit held that in determining the scope of required disclosures, courts “must balance the agency’s right of access to these materials in civil discovery against the privacy interests at stake.” Because the lower court failed to balance these interests and issued its order without regard to the legality or relevance of the wiretaps, the Second Circuit overturned the order.
The issue in SEC v Galleon is whether an individual is required to turn over more than 18,000 wiretapped conversations acquired by the government in a criminal case when the Securities and Exchange Commission (SEC) compels the disclosure of such material in a separate but related civil case. On October 16, 2009, the United States Attorney’s Office brought charges and the SEC filed a civil complaint against Raj Rajaratnam and others for insider trading. Rajaratnam is the founder of Galleon Group, a New York based hedge fund management firm.
Prosecutors in the criminal case have full access to the wiretapped telephone conversations between Rajaratnam and other individuals (including individuals who are not parties in the case), but the SEC does not and sought to force Rajaratnam to disclose the information. Rajaratnam and Danielle Chiesi (another named defendant) were given the wiretap evidence by prosecutors in the criminal case once they were indicted. No court has ruled on the propriety, Constitutionality, or relevance of the wiretaps.
The government intercepted over 18,000 telephone conversations and communications involving more than 550 individuals from ten different telephones over a sixteen-month period. While the SEC alleges that the communications reveal Rajaratnam and other defendants’ involvement in insider trading, the wiretaps unquestionably also include private communications. Some of the telephone calls consist of conversations between Rajaratnam and his wife, his daughter, other family members and his doctor.
As part of discovery in the civil case, the SEC sought to force Rajaratnam and Chiesi to turn over the wiretaps in December 2009. Both defendants opposed turning over the documents, and the SEC filed a motion with the district court to compel disclosure. On February 9, 2010, a federal district court in Manhattan ordered the defendants to produce the wiretap materials to the SEC by February 15, 2010. Rajaratnam and Chiesi were also ordered to produce the wiretap materials to any other party in the case who requested the documents.
On the same day the order was issued, Rajaratnam and Chiesi requested a stay pending appeal of the district court’s order, for a temporary administrative stay to allow the Court of Appeals to consider a stay, and for certification. The district court denied all of the requests on February 11, 2010. Immediately thereafter, Rajaratnam and Chiesi asked the Second Circuit Court of Appeals for an emergency stay pending appeal from the district court’s order, which was granted the next day.
The case has been referred to a three-judge appeals panel, and the appeals court set June 8 as the deadline for all briefs before a date for oral arguments is set.
EPIC has done extensive work in bringing to light the increased use of wiretapping and the importance of data minimization. EPIC’s webpage on wiretapping tracks the government’s use of wiretapping, which has increased over the years. According to the 2008 Wiretap report, federal and state courts issued 1,891 orders for the interception of wire, oral or electronic communications in 2008, down from 2,208 in 2007. As in the last three years, no applications for wiretap authorizations were denied by either state or federal courts. The total number of authorized wiretaps has grown in each of the six past calendar years, beginning in 2003.
In March 2010, EPIC filed an amicus brief in City of Ontario v. Quon, a case in which the Supreme Court had to decide whether a government employer could search the content of text messages sent from an employee’s pager. EPIC’s amicus brief argued that data minimization practices should be applied to public sector searches because of the Fourth Amendment reasonableness requirement and the fact that communications devices today collect and store detailed personal information, including internet search history, text messages, emails and locational data. In the Galleon case, the wiretap evidence contains information not relevant to the SEC’s case and personal conversations involving third parties that should not have to be disclosed.
Cases like Galleon present an opportunity for courts to affect privacy protection in instances where the government has collected wiretap evidence. The district court’s decision to force the defendants to disclose the wiretap evidence threatens to erode the privacy protections inherent in the Wiretap Act, which strictly limits how wiretap evidence may be disclosed.
Second Circuit Court of Appeals
SEC v. Galleon Management Group, et al., Case No. 10-0462
- Second Circuit Opinion, Sep. 29, 2010
- EPIC amicus brief, Apr. 30, 2010
- Rajaratnum Emergency Motion to Stay Order, Feb. 11, 2010
- Court Order to Stay, Feb. 16, 2010
- Appellants’ Brief, Apr. 23, 2010
- Joint Appendix
United States District Court for the Southern District of New York
SEC v. Galleon Management, LP, et al., Case No. 09-CV-8811-JSR (S.D.N.Y.)
- SEC Complaint Against Galleon, Oct. 16, 2009
- Rajaratnam Answer, Nov. 24, 2009
- SEC Request for Wiretap Evidence, Jan. 20, 2010
- Government Letter Supporting Defendant Production of Wiretap Evidence, Jan. 20, 2010
- Rajaratnam Opposition to SEC Motion to Compel, Jan. 22, 2010
- Chiesi Opposition to SEC Motion to Compel, Jan. 22, 2010
- Rajaratnam Additional Opposition to SEC Motion to Compel, Jan. 27, 2010
- Chiesi Additional Opposition to SEC Motion to Compel, Jan. 27, 2010
- Government Supplemental Support for Defendant Production of Wiretap Evidence, Jan. 27, 2010
- Rajaratnam Further Opposition to Disclosure, Jan. 29, 2010
- Chiesi Further Opposition to Disclosure, Jan. 29, 2010
- SEC Further Argument for Disclosure, Jan. 29, 2010
- Government Further Support of SEC Motion to Compel, Jan. 29, 2010
- Court Memorandum Order, Feb. 9, 2010
- Rajaratnum Motion to Stay Order Pending Appeal, Feb. 9, 2010
- SEC Opposition to Stay, Feb. 11, 2010
- Court Order Denying Motion to Stay, Feb. 11, 2010
- Rajaratnum Notice of Appeal, Feb. 11, 2010
- Court Issued Protective Order, Feb. 25, 2010
- Galleon Founder Rajaratnam Wins Right to Keep Wiretap Papers Confidential, Patricia Hurtado, Bloomberg News, April 29, 2010
- Rajaratnam Wants New Insider-Trading Allegations Excluded, Chad Bray, Wall Street Journal, April 16, 2010
- Rajaratnam seeks to prevent wiretap release, Telis Demos, Financial Times, Mar. 31, 2010
- State of Play in the Galleon Insider Trading Case, Peter J. Henning, DealBook Blog, The New York Times, Mar. 30, 2010
- UPDATE 2 – Galleon founder wins stay of wiretaps in civil case, Grant McCool, Reuters, Mar. 24, 2010
- Appeals Court Stays Order to Turn Over Galleon Wiretaps, Michael J. de la Merced, The New York Times, Mar. 24, 2010
- Judge Delays SEC’s Galleon Case, Chad Bray, Wall Street Journal, Mar. 24, 2010
- Skeptical court mulls Galleon wiretaps, Jonathan Stempel, Reuters, Mar. 23, 2010
- Appeals Court to Weigh Galleon Wiretap Issue, The New York Times, Feb. 12, 2010
- Rajaratnam Wins Emergency Stay on Wiretaps, Chad Bray, Wall Street Journal, Feb. 12, 2010
- Behind the Challenge to the Galleon Case Wiretaps, Zachery Kouwe, The New York Times, Feb. 10, 2010
- Galleon Defendants Ordered to Turn Over Wiretaps, Zachery Kouwe, The New York Times, Feb. 9, 2010
- S.E.C. Admits It Received Galleon Wiretaps, Zachery Kouwe, The New York Times, Feb. 2, 2010
- Can the S.E.C. Get the Galleon Wiretaps?, Peter J. Henning, DealBook Blog, The New York Times, Jan. 8, 2010
Support Our Work
EPIC's work is funded by the support of individuals like you, who allow us to continue to protect privacy, open government, and democratic values in the information age.Donate