(Reuters) - A federal appeals court on Monday upheld the insider trading conviction of Galleon Group hedge fund founder Raj Rajaratnam, rejecting his argument that wiretap evidence was used improperly to convict him.

The decision by a unanimous three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York was a victory for federal prosecutors, who have used wiretaps to win convictions or guilty pleas for dozens of defendants in a wide-ranging investigation into insider trading that was unveiled in October 2009.

A Manhattan federal jury convicted Rajaratnam of nine counts of securities fraud and five counts of conspiracy in May 2011.

The government said Rajaratnam made as much as $63.8 million in illicit profits from 2003 to March 2009 trading on stocks, including ATI Technologies Inc, which was bought by Advanced Micro Devices Inc; eBay Inc; Goldman Sachs Group Inc; Google Inc; and Intel Corp.

In challenging the wiretaps, Rajaratnam claimed an FBI agent improperly omitted information regarding the reliability of a cooperating witness when he sought a federal judge's approval for tapping into his calls in March 2008, and appealed trial judge Richard Holwell's decision to admit the wiretaps.

Writing for the 2nd Circuit, Judge Jose Cabranes said "we cannot conclude that the government omitted certain information about the SEC investigation with 'reckless disregard for the truth.'" He said disclosing the details would have actually strengthened the wiretap application.

Cabranes also rejected Rajaratnam's argument that Holwell's jury instructions on the use of information were erroneous.

Patricia Millett, a lawyer for Rajaratnam, declined to comment through a spokesman.

A spokeswoman for U.S. Attorney Preet Bharara in Manhattan declined to comment.

Rajaratnam, 56, is serving an 11-year prison term in Massachusetts. His firm once managed $7 billion. Holwell is now in private practice.

The case is U.S. v. Rajaratnam, 2nd U.S. Circuit Court of Appeals, No. 11-4416.

(Reporting by Jonathan Stempel in New York; Editing by Gerald E. McCormick and Jeffrey Benkoe)

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