UPDATE: Goffer Lawyer Argues Government's Wiretap Was Misused

The government exceeded regulations meant to protect individuals from wiretaps in its Galleon Group insider trading investigation, a lawyer for defendant Zvi Goffer argued in a court filing.

Cynthia Monaco, Goffer's lawyer, said that the government's use of a wiretap in the case consistently didn't reveal the key information needed to extend its use and that all but one of the trades at issue in the case actually happened before the government tap started.

She said discovery in the case has shown the government obtained information that the alleged insider information Goffer and others had was actually publicly available.

"Indeed, although touted as a case that exposed hedge fund traders with an 'illegal edge,' the wiretap evidence obtained in this case reveals traders with no edge at all," Monaco wrote. "Equally egregious, the government made no effort to comply with Title III's monitoring and minimization requirements, intercepting scores of irrelevant and inappropriate calls."

Goffer, who worked for a time at Galleon and is the founder of trading firm Incremental Capital, has been indicted for his alleged involvement in the insider-trading scheme that's reached across hedge funds, big corporations and well-known investors. Prosecutors have alleged Galleon founder Raj Rajaratnam was at the center of the scheme.

Goffer and Rajaratnam have denied wrongdoing.

Prosecutors from the U.S. Attorney's office in Manhattan allege that Goffer and Jason Goldfarb, an associate at a New York law firm, shared inside information with others regarding deals in which law firm Ropes & Gray LLP, which employed neither man, was acting as an adviser. Those deals included Bain Capital Partners LLC's failed bid to acquire 3Com Corp. (COMS) and Axcan Pharma Inc.'s acquisition by TPG Capital.

Goldfarb's lawyer was also part of the filing, which was dated Friday and requests the government be made to provide specific information on the charges, known as a Bill of Particulars. The lawyers said in order to prepare a defense they needed to know "which of the thousands of 'tips' [the defendants] heard daily from 2006 to 2008, are alleged to have been, in fact, misappropriated inside information."

Specifically, the lawyers said they needed more information about a list of stocks that prosecutors said they will introduce as evidence but have not been filed as part of the charges.

The filing said those stocks, some of which have been involved in mergers and acquisitions, were P.F. Chang's China Bistro Inc. (PFCB), Clear Channel Communications Inc., ATI Technologies Inc., Advanced Micro Devices Inc. (AMD), Alliance Data Systems Corp. (ADS), Avaya Inc. (X-AV), Alexion Pharmaceuticals Inc. (ALXN) and NuSkin Enterprises Inc., Allied Waste Industries Inc., Cadbury Schweppes PLC and inVentive Health Inc. (VTIV).

The filing also said that the government has alleged Goffer provided Rajaratnam with material non-public information on PF Chang's and Clear Channel Communications, but has not given over the wiretaps that would provide "crucial evidence" on the charges. The filing also said that Goffer and other Galleon traders "lost many millions of dollars" on PF Chang's and Clear Channel which would suggest the information was "far from material."

The lawyers for the defendants also argued Tuesday that "in many instances the defendants were downstream tippees by multiple levels, rendering it next to impossible to prove knowledge of the source of the information in question."

The defendants say they will file an "extensive" set of pretrial motions "addressing the deficiencies in the indictment and the investigation."

-By David Benoit, Dow Jones Newswires; 212-227-2017; [e-mail]