Federal agents have for years been tapping the cell phones of drug traffickers and mafia dons, but the latest insider trading bust shows they are now using the method to go after rogue traders and fund managers. US authorities charged Galleon Group hedge fund founder Raj Rajaratnam recently with making up to $20 million in profits on insider information.
Key evidence came from court- approved wire taps for the first time ever in a Wall Street insider trading case. An official government report on court-approved wiretaps shows the majority were used in narcotics cases such as the drug traffickers depicted in the popular HBO series The Wire. Some were for homicide, assault and gambling investigations.
But experts said its use in financial crime investigations should not be so surprising and there could be more as the government steps up its crackdown on insider trading.
"It's considered a very good technique for something with not a lot of physical evidence," said Steven Bellovin, a Columbia University professor. But Jim Dempsey, vice president for public policy at the Center for Democracy & Technology, said wiretaps may be more effective in drug cases than in fighting white-collar crime because they are safer than going undercover and provide timely information such as the locations of future deliveries.
Wiretapping insider trading cases may be less effective because it is hard to sift criminal activity from a large volume of conversations. But Dempsey added that Washington policies could influence how wiretaps are used.
Experts say the government has gained more authority over surveillance in the past decade, although University of Colorado Law School professor Paul Ohm said it is still difficult for officials to obtain court approval for wire taps, called "super warrants" among law enforcement officials. Court approvals require, for example, that other methods have failed or were too dangerous.
"Turning on a wiretap is considered much more invasive than the most secret traditional searches so they layer on lots and lots of additional requirements," said Ohm, who has also worked for the US Department of Justice's computer crime and intellectual property section. "You have to show you've already pulled their trash and interviewed neighbours."
But once approval is granted, listening is not too hard. Surveillance can include wiretaps on home telephones, business phones, or cellphones, although court reports show that, of the 1,891 wiretaps authorised last year, 1,793 were for wireless devices. Only 31 were for homes and even less were for business lines. That is quite a change from 10 years ago, when US judges approved more than 300 surveillance authorisations for home phones, while wireless phones were included in the category of 584 "other" locations.
The taps on Rajaratnam showed some people were worried about the possibility of calls being monitored. "I don't like talking over cell phone on this," co-defendant Rajiv Goel, an executive at Intel Capital, was quoted as saying at one point.
The FBI targeted not only cellphones but also landlines. But with court approval, authorities are able to directly access a mobile phone network.