White-Collar Wiretaps: Will Your Own Words Come Back to Haunt You?

The impact of the recent conviction of Galleon Group’s co-founder, Raj Rajaratnam,¹ for insider trading has been called “seismic,”² due to the novel use of wiretap evidence to bring the crime to life before the jury. As the recent trials of Mr. Rajaratnam, Zvi Goffer, and expert networking consultant Winifred Jiau have unfolded, the full scope of the government’s wiretapping has been revealed. The government’s recordings have ensnared not just traders and financiers but also officers and directors of public companies, lawyers, and consultants. As a result, Wall Street may now be wondering “is law enforcement listening?” whenever they pick up the phone, as U.S. Attorney Preet Bharara warned in announcing the arrest of Mr. Rajaratnam.

Indeed, many commentators have suggested that the newly aggressive use of wiretaps will have a profound chilling effect on the practices of the financial services sector. Following the revelations about the Rajaratnam wiretaps, hedge-fund managers wondered whether even legitimate exchanges caught on tape would draw scrutiny.³ One hedge fund executive has reportedly “instructed his colleagues to be extra careful about what they say on the phone, not because they are breaking the law, but because they are fearful that any conversation about stocks could be misconstrued.”⁴