Next up: Undoubtedly, Raj will appeal the denial of bond to the Second Circuit, emphasizing the wiretap issue. When it does come time to appeal, he will also have at least four sentencing arguments: The amount of loss, the enhancements for supervisory role and obstruction of justice and the disparity of sentences issue.

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Galleon hedge fund's ex-CEO Raj Rajaratnam, convicted by a jury in May of 14 counts of security fraud and conspiracy, will be sentenced today in federal court in New York. The Government is asking for 19.5 to 24.5 years. Rajaratnam is asking for 6 1/2 to 8 years.

Judge Richard Holwell will have to decide several issues, from the amount of loss (the Government puts it at $72 million, the defense argues only realized gain should be counted as loss and Raj personally only made $7.4 million in management fees and from Galleon trades) to whether Raj gets a supervisory role increase under the guidelines and an increase for obstruction of justice. The Government alleges Raj lied under oath to the U.S. Securities and Exchange Commission in a civil proceeding in 2007. The defense says he just provided general denials and DOJ policy is not to prosecute in such circumstances because general denials do not meaningfully obstruct or impede the government’s investigation. It says the same should apply to sentencing enhancements.

Raj says he suffers from chronic, life-threatening and degenerative diseases which warrant a lesser sentence. The Government says Bureau of Prisons facilities are prepared to treat him.

A huge issue today will be bail pending appeal. The test in federal courts is whether the defendant demonstrates that the appeal raises a “substantial” question of law or fact “likely” to result in reversal or a new trial. A question is #8220;substantial” in this context if if it is “a close question or one that very well could be decided the other way.”

The defense says in pleadings available on PACER that the wiretap applications and orders were improper, raising a substantial question of law or fact likely to result in reversal or a new trial.

Mr. Rajaratnam will argue on appeal...that the wiretaps, and the evidence derived from them, should have been suppressed because they were obtained on the basis of a 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.”

Those factual findings mandated suppression of the wiretaps under Title III and the Constitution, as did the government’s use of wiretaps to investigate securities fraud, an offense not enumerated in Title III. The Court’s denial of Mr. Rajaratnam’s motion to suppress therefore raises a number of substantial questions for appeal.

What the Government failed to disclose:

[T]he government’s 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.

...As this Court found, the government’s conventional investigation yielded over twenty depositions and interviews (including three with Mr. Rajaratnam himself) and “a mountain” of relevant documents. 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.

The judge found that the government’s omissions and misstatements were reckless, but denied the motion to suppress concluding that they were not material. The Defense argues the wiretap statute mandates suppression and the standard set out in the landmark case of Franks v. Delaware of materially false or recklessly made misstatements or ommissions doesn't apply to necessity challenges:

This Court concluded that the government’s “full and complete omission” was immaterial only because it considered and credited factual claims that the government never made in its original affidavit....[T]he 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 III’s demand for proof of necessity before the warrant issues; the Second Circuit’s decisions have resolved necessity challenges without reference to Franks.

The defense says the Seventh Circuit has ruled that a district court conducting Franks analysis may not consider supplemental information offered by the Government.

The Government filed a very long brief vehemently opposing an appeal bond. (It does not object to Raj staying out for the next 3 weeks while the Bureau of Prisons decides where to send him.) The Government asserts that Franks is completely applicable to the wiretap necessity challenge. It also says Raj is a flight risk and even though we've had an extradition treaty with Sri Lanka, where Raj is originally from, for a long time, it's never been used. Raj's attorneys argue:

These [medical] 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.

Raj has been on a $100 million secured bond, with electronic monitoring and home confinement, for 23 months. The jury deliberated 12 days before convicting him of five counts of conspiracy and nine counts of securities fraud.

As for what sentence is reasonable and comparable to other insider trading sentences, Law Prof Doug Berman at Sentencing Law and Policy wrote in May,

It appears that nobody has received more than a decade for insider trading and that sentences of six year or much less are more common for this crime. Does this entail that the sentencing judges in Raj Rajaratnam's case ought to feel a special statutory obligation to impose a below-guideline sentence based on Congress's instruction in 18 USC 3553(a)(6) to consider at sentencing "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct"?

Team Raj argues in its sentencing brief:

Only nine defendants were sentenced for insider trading under § 2B1.4 last year. Eight of those nine defendants received a downward departure or otherwise received a sentence below the indicated Guidelines range. The ninth defendant received a sentence within the Guidelines range.

They also recite a litany of other defendants in securities fraud cases with larger loss amounts than that involved in Raj's case who received comparatively lesser sentences than being requested here, and point out:

...[A]s several courts have concluded, the sentencing Guidelines as applied to securities fraud have “so run amok that they are patently absurd on their face.”

Bloomberg News has this recap of the sentences imposed on other Galleon defendants and defendants in other insider trading cases.