Gupta Says U.S. Judge in New York Should Handle Suit to Block SEC's Action
Former Goldman Sachs Group Inc. Board Member Rajat Gupta
Seokyong Lee/Bloomberg
Former Goldman Sachs Group Inc. board member Rajat Gupta.
Former Goldman Sachs Group Inc. board member Rajat Gupta. Photographer: Seokyong Lee/Bloomberg
Former Goldman Sachs Group Inc. (GS) board member Rajat Gupta asked that a federal judge hear his lawsuit against the Securities and Exchange Commission instead of dismissing the complaint as the agency has requested.
The SEC, in an administrative proceeding filed March 1 in Washington, accuses Gupta of giving information to Galleon Group LLC co-founder Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. The agency also alleges Gupta told Rajaratnam about the New York-based bank’s quarterly earnings and those of Procter & Gamble Co., where Gupta was also a director. Gupta hasn’t been criminally charged.
On March 18, Gupta sued the SEC in federal court in Manhattan, denying the SEC’s allegations and seeking a jury trial. Gupta also asked to block the agency from pursuing its administrative claims and said the SEC’s allegations occurred at least 1 1/2 years before regulators were allowed to bring such an action under the Dodd-Frank Act.
“Mr. Gupta is the only Galleon-related defendant faced with the denial of the right to a jury and important procedural protections available only in federal court,” Gupta’s lawyer, Gary Naftalis, said in court papers filed yesterday.
Naftalis asked U.S. District Judge Jed Rakoff, who is presiding over Gupta’s lawsuit, to reject the SEC’s bid to dismiss the case for lack of jurisdiction. He noted that at least two dozen Galleon-related individuals or businesses have been sued by the SEC as part of the Galleon investigation which are all pending in federal court in New York.
‘Unprecedented Step’
“The commission took the unprecedented step of instituting an administrative proceeding for civil penalties alleging insider trading against a non-regulated person,” Naftalis said.
“The impact of this ‘first use’ is to single out Mr. Gupta as the only Galleon-related defendant being pursued by the commission administratively.”
The SEC said in court papers filed April 1 that federal courts don’t have jurisdiction in the dispute before any findings are made in its administrative action against Gupta. If there is a finding in the administrative proceeding, Gupta must take any appeal directly to the U.S. Court of Appeals, the agency said.
Brenda Murray, the SEC’s chief administrative law judge, who is presiding over the commission’s case against Gupta, has scheduled a July 18 administrative trial.
Blankfein Testimony
Goldman Sachs Chief Executive Officer Lloyd Blankfein on March 23 testified at Rajaratnam’s trial that he presented confidential information at board meetings attended by Gupta. Prosecutors claim Gupta leaked some of that information to Rajaratnam.
The jury has also heard a July 29, 2008, telephone call, secretly recorded by the FBI, in which Gupta told Rajaratnam that the Goldman board had discussed acquiring a commercial bank or an insurance company.
Rajaratnam, 53, is on trial in federal court in Manhattan in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from tips leaked by corporate insiders including Gupta. He denies wrongdoing, saying he based trades on research.
The case is Gupta v. SEC, 11-cv-01900, U.S. District Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.
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