U.S. District Judge Naomi Reice Buchwald in Manhattan ruled that the indictment adequately alleged the essential elements of the crimes charged.
Buchwald agreed that four securities fraud counts were “internally inconsistent” with a conspiracy charge contained in the indictment.
But she withheld ruling on whether to dismiss them in order to allow the government to decide whether to proceed on those charges.
A lawyer for Rajaratnam did not respond to a request for comment. A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment.
The case, set for a June 17 trial, is one of a wave of insider trading prosecutions pursued by Bharara’s office, resulting in 80 convictions since October 2009.
Raj Rajaratnam, founder of the hedge fund Galleon Group, received an 11-year prison sentence in October 2011 after a jury convicted him on charges related to insider trading.
A grand jury subsequently indicted Rengan Rajaratnam, a former portfolio manager at Galleon, in March 2013 on one conspiracy count and six counts of securities fraud.
Prosecutors alleged that Rengan Rajaratnam, 43, had conspired with his brother to trade on non-public information related to technology companies and Clearwire Corp and Advanced Micro Devices Inc (AMD.N), netting $1.2 million in illegal profits.
Rajaratnam’s lawyers had argued the indictment failed to charge that he knew two alleged tippers of non-public information received personal benefits in exchange for giving tips to Raj Rajaratnam.
The tippers, prosecutors said, were Rajiv Goel, an employee of Intel Corp (INTC.O), and Anil Kumar, a former McKinsey director. Both admitted to providing tips to Rajaratnam and received probation in 2012 after pleading guilty and cooperating with the investigation.
In her ruling Friday, Buchwald said while the indictment did not explicitly state the tippers received benefits, it provided enough details to give Rajaratnam notice of the charges against him.
She added that the indictment’s sufficiency was a separate issue from whether she would require prosecutors at trial to prove Rajaratnam knew of any benefits received by the tippers.
The issue is set to be considered Tuesday by the 2nd U.S. Circuit Court of Appeals in an appeal by insider trading defendants Todd Newman, a former portfolio manager at the hedge fund Diamondback Capital Management, and Anthony Chiasson, co-founder of the hedge fund Level Global Investors.
Newman and Chiasson were convicted in 2012 and subsequently sentenced to 4-1/2 years and 6-1/2 years in prison, respectively.
With regard to the four “inconsistent” securities fraud counts against Rajaratnam, Buchwald raised issue with how prosecutors could allege in one part of the indictment that Raj Rajaratnam caused Galleon funds to buy Clearwire stock and then later say Rengan caused those stock purchases.
Buchwald said she would dismiss those four counts unless the prosecutors offer “a coherent, logical theory as to how defendant aided and abetted the alleged securities fraud.”
She gave the government until May 1 to decide whether to move forward on those counts.
The cases are U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 13-cr-00211; and SEC v. Rajaratnam in the same court, No. 13-01894.(Reuters)