Decision in the Galleon Matter Illustrates Application of Wiretap Law in the Hedge Fund Context
Hedge Fund Law Report
On September 29, 2010, the U.S. Court of Appeals for the Second Circuit issued a writ of mandamus on behalf of Raj Rajaratnam, founder and general partner of Galleon Management, LP and Danielle Chiesi, former manager and consultant of New Castle Funds LLC (Defendants). The writ vacated a discovery order of the U.S. District Court for the Southern District of New York that had required Defendants to disclose thousands of wiretaps to the Securities and Exchange Commission (SEC) as part of its civil enforcement action. Defendants had obtained those wiretaps from the U.S. Attorney’s Office (USAO) in a parallel criminal action against them pursuant to Title III of the Omnibus Crime Control and Safe Streets Act of 1968 (18 U.S.C. §§2510-2522) (Title III or the Act). Recognizing that the USAO had taken the position that the Act prohibits it from disclosing these wiretaps to the SEC, the Second Circuit held that the Act does not prohibit a federal court from ordering the Defendants to disclose that information during discovery in a civil action. It reasoned that, in this instance, the district court clearly abused its discretion by issuing the order prior to a criminal court “ruling on the legality of the wiretaps and without limiting the disclosure to relevant considerations.” We detail the background of the action and the Second Circuit’s legal analysis.