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APRIL 22, 2011

When Wiretapping Crosses the Line

By MICHAEL ROTHFELD

U.S. officials have used secret wiretaps as a powerful weapon against cheaters on Wall Street. But recent insider-trading cases have raised fresh questions about when government surveillance crosses a line into unwarranted invasion of privacy.

Some of more than 40 secret recordings played for jurors at the trial of Galleon Group founder Raj Rajaratnam have contained stretches of dialogue that appear exclusively personal, focusing on marriages and alleged extramarital affairs, social visits and vacations.

In a ruling on Wednesday, a judge overseeing a different but related insider-trading case excoriated the government for monitoring intimate calls between trader Craig Drimal and his wife about their marriage, which had nothing to do with the case.

"The court is deeply troubled by this unnecessary, and apparently voyeuristic, intrusion into the Drimals' private life," wrote U.S. District Judge Richard Sullivan. He ruled, though, that the errors didn't justify Mr. Drimal's request to suppress more than 1,000 calls taped by the Federal Bureau of Investigation.

The use of secret surveillance is old hat for organized crime and narcotics suspects, whose lawyers say the government has for years captured personal conversations. "They listen to things that you wouldn't believe would be appropriate," said Gerald J. McMahon, who has represented organized crime figures.

The FBI is supposed to stop monitoring conversations that aren't relevant to an investigation or involve relationships that legally are privileged, such as those with a spouse, attorney, doctor or clergy member. They are allowed, however, to tune back in periodically to make sure the discussion hasn't changed.

"My experience has been that we have always erred on the more conservative side," said James K. Kallstrom, a retired former director of the New York FBI office who once oversaw the wiretap squad there.

But in the case of Mr. Drimal, scheduled for trial next month, Judge Sullivan said in his ruling Wednesday that on the wiretap, which began in late 2007, an FBI agent had monitored almost four minutes of a 6-1/2-minute call while Mr. Drimal and his wife had an intimate discussion about their marriage. The agent then listened to a 19-second call a minute later that was a continuation of the conversation, the judge said. The FBI monitored another call that was "obviously a marital spat," and discussions of the couple's children and home-renovation projects, the judge said.

"I recall a call between a man and a woman where they were discussing a child in school," FBI Special Agent David Ford had testified at a hearing on the matter in March. "And I remember kicking myself." The FBI and federal prosecutors declined to comment.

JaneAnne Murray, Mr. Drimal's lawyer, had called the recordings a "marital invasion." After the ruling, she noted that Manhattan U.S. Attorney Preet Bharara's prosecutors told the judge they were reviewing procedures. "Hopefully, the deeply troubling privacy intrusions" won't occur again, Ms. Murray said.

In Mr. Rajaratnam's case, U.S. District Judge Richard Holwell ruled that wiretap evidence could be presented at trial over objections from his lawyers, who contended in part that the recording illegally intruded on personal matters. But during the proceedings, the judge ordered the redaction of some portions of transcripts of calls, in part agreeing with defense lawyers that some discussion of the relationship between people on the tapes could unfairly influence the jury.

Defense lawyer John Dowd said calls between alleged co-conspirator Danielle Chiesi and a former Akamai Technologies Inc. executive contained "a great deal" about their relationship that had nothing to do with his client.

Prosecutors argued that the relationship showed why the executive, Kieran Taylor, allegedly gave Ms. Chiesi a tip about earnings projections for his company that she passed to Mr. Rajaratnam.

The judge deleted some personal passages, but left in others. In an Oct. 10, 2008, call, Mr. Taylor tells Ms. Chiesi it is his birthday. She apologizes for forgetting and wishes him a happy one.

"I'm all alone," he says.

"I had surgery last week, by the way," Ms. Chiesi interjects. "I was waiting for you to call me."

An FBI agent stopped recording as she began to describe her surgery. But later the pair was picked up discussing her stitches and an upcoming visit to New York. Mr. Taylor, who lives in Massachusetts, says he wants to hide from someone named "Lex."

"It's gonna be, like, clandestine," he says. "I'll stay at your place."

Mr. Taylor didn't respond to a request for comment.

Ms. Chiesi, a former hedge-fund trader and analyst pleaded guilty to conspiracy in January. A lawyer for Ms. Chiesi, who unsuccessfully opposed the admissibility of wiretaps in her case, said the public shouldn't be privy to irrelevant personal conversations.

"I don't think her privacy ought to be invaded," attorney Alan Kaufman said.

Write to Michael Rothfeld at michael.rothfeld@wsj.com