This is the second post covering an ongoing trial that accuses two financial professionals of using insider information to illegally earn $67 million in profits. The last post briefly explained insider trading charges and this one will look at the use of wiretap devices in large fraud cases.
Like many federal criminal cases in which prosecutors have access to enormous investigative resources, this trial involves evidence from a wiretap. While the Constitution puts strong limits on when and how police and other investigators can use technology to eavesdrop on citizens, the law does allow this kind of evidence.
In a relatively common move, authorities convinced another co-conspirator to cooperate with their investigation. This co-conspirator allowed the FBI to install a wiretap on his phone to listen in on a conversation with another one of the defendants.
During the conversation, the FBI heard the two men discuss how they could claim that the insider trades were actually the result of research. The other participant ended the call by warning the cooperative co-conspirator about the risk of wiretaps. However, it was too late and the government plans to use this evidence in its case.
The law does impose some limits on when police can resort to wiretaps. In general, investigators must show “probable cause” that establishes a reason to think that a certain kind of crime likely took place. These crimes include some types of fraud like insider trading. Even if a court approves a wiretap, it can only occur for a limited amount of time – just enough to get the evidence police need.
Authorities might have more room to use other, less intrusive forms of technology. For example, some devices allow police to track the numbers that communicate with a phone without actually “listening in.”
When a wiretap is involved in an investigation, it often yields important evidence for the government. This means that an effective defense strategy needs to examine every possible way in which a wiretap could be illegal or even unconstitutional.
Source: Bloomberg Businessweek, “Hedge Fund Co-Founder Faces Jury as FBI Raids Yield Trial,” Patricia Hurtado, Nov. 7, 2012