Former Goldman Sachs Group Inc. director Rajat Gupta asked a federal appeals court to overturn his insider-trading conviction, with his lawyer arguing that prosecutors shouldn’t have been allowed at his jury trial to use secretly wiretapped calls in which he wasn’t a participant.
Defense lawyer Seth Waxman also told a panel of three judges on the U.S. Court of Appeals in New York the defense was hindered by not being able to put on testimony from the defendant’s daughter about his state of mind prior to the alleged 2008 crimes. Waxman said Gupta was prevented from presenting evidence that he’d been swindled by the friend and business partner, fund manager Raj Rajaratnam, to whom he was accused of giving illegal tips. Gupta, his wife and four daughters all attended today’s hourlong hearing.
Three days before Gupta allegedly provided inside information about Goldman Sachs to Rajaratnam, the Galleon Group LLC co-founder, in September 2008, Gupta told his daughter Geetanjali he had discovered that Rajaratnam secretly withdrew $25 million from a fund which both men had invested in, Waxman said. The lawyer told the appeals court that conversation should have been presented as evidence.
“Mr. Gupta told her that he’d come to believe that Mr. Rajaratnam had cheated him out of millions of dollars,” said Waxman, who was U.S. Solicitor General under President Bill Clinton and is now with WilmerHale.
“That testimony could have powerfully refuted the government’s theory on motive and timing,” Waxman said, adding that it could have provided “an innocent explanation for the telephone calls in question.”
Procter & Gamble
Gupta, 64, who was a managing partner at McKinsey & Co., and a director at Procter & Gamble Co., was convicted in June of one count of conspiracy and three counts of securities fraud. He was accused of passing illegal information about New York-based Goldman Sachs to Rajaratnam.
The jury convicted Gupta of twice passing information about Goldman Sachs to Rajaratnam, once on Sept. 23, 2008, and again on Oct. 23, 2008. Waxman argued that Gupta’s conviction should be reversed and that he is entitled to a new trial. Waxman also said the government should be barred from using as evidence two court-authorized wiretaps of phone calls in September and October that don’t involve Gupta.
In one call intercepted by agents of the Federal Bureau of Investigation, Rajaratnam boasted to David Lau, a Galleon trader in Singapore, that he’d gotten a tip from someone on Goldman Sachs’s board.
“I heard yesterday from someone who’s on the board of Goldman Sachs that they’re going to lose $2 a share, the market has them making $2.50,” Rajaratnam said on the call. “I’m going to whack it.”
U.S. Circuit Judge Rosemary Pooler today questioned if Lau was a co-conspirator, and if not, whether the October wiretap of the call between Rajaratnam and Lau should be suppressed and the securities fraud charge stemming from that call should be dismissed.
Waxman argued that both wiretapped calls were admitted as evidence erroneously under the theory that they furthered the insider-trading conspiracy. Waxman said prosecutors didn’t allege Lau was a member of the Rajaratnam-Gupta conspiracy and in court papers called the boast to Lau “inadmissible braggadocio.”
Gupta also challenged the legality of the calls secretly recorded by the FBI, saying that U.S. District Judge Jed Rakoff, who presided over the case, wrongly allowed prosecutors to use three recordings of telephone calls of Rajaratnam talking about his sources, calls in which Gupta wasn’t a participant.
Waxman and defense lawyer Gary Naftalis said jurors got a “distorted picture” in which Rajaratnam’s statements to Galleon employees couldn’t be refuted by Gupta. They called Rajaratnam’s comments on the wiretaps “the self-serving hearsay of a known fabulist beyond Gupta’s powers to cross-examine.”
U.S. Circuit Judge Jon Newman today questioned Waxman about how the appeals court should view phone records introduced by the government as evidence showing that Gupta called Rajaratnam within minutes of leaving Goldman Sachs board meetings in September and October 2008, after sensitive information was disclosed.
“I’m not sure what you’re asking us to conclude,” Newman said. “He comes out of the board meeting, he makes a call. He talks to a man within seconds. The man he talks to makes trades within seconds. Are you telling us that’s a coincidence?”
Assistant U.S. Attorney Richard Tarlowe argued that the government provided substantial evidence to prove that Gupta had repeatedly tipped Rajaratnam about nonpublic information he’d learned from board meetings at Goldman Sachs.
“Gupta was doing it not to unselfishly help Rajaratnam but to help himself,” Tarlowe said, adding that there was “overwhelming evidence Gupta tipped Rajaratnam.”
The other judge on today’s panel was Amalya Kearse.
Gupta already has won one victory from the New York-based appeals court. In December, it allowed him to remain free while he fought his conviction. The court overturned U.S. District Judge Jed Rakoff’s ruling ordering Gupta to surrender to prison authorities on Jan. 8 and begin serving his two-year sentence.
Rajaratnam, who was convicted in 2011 of directing the biggest hedge fund insider-trading scheme in U.S. history, is serving an 11-year prison term at the Federal Medical Center Devens in Ayers, Massachusetts. His request to be allowed to remain free pending appeal was refused.
Gupta’s lawyers echoed arguments made by Rajaratnam’s lawyers that prosecutors improperly won authority to wiretap the fund manager’s calls. In October, a separate panel of three appeals court judges, Robert Sack, Jose Cabranes and Susan Carney, voiced concern over the Rajaratnam wiretaps. That panel hasn’t ruled yet.
Rajaratnam’s lawyers argued prosecutors misled the federal judge who authorized the wiretaps in 2008 by omitting key facts from their request for the secret recordings.
Gupta’s lawyers argued today that Rakoff improperly barred lawyers from presenting evidence that Rajaratnam had an alternative Goldman Sachs tipper, David Loeb, a former Goldman Sachs executive. Gupta’s lawyers had sought to play wiretapped recordings of Loeb allegedly tipping Rajaratnam and offer other evidence that Rakoff blocked at trial. Loeb hasn’t been charged with any crimes.
Rakoff ruled the defense was improperly attempting to get that information before the jury without a witness and that the evidence would confuse the jury.
Tarlowe argued today that Gupta’s conviction should stand, saying there was ample evidence that Rajaratnam and Gupta were partners in several business ventures, including the Voyager Fund in which Gupta alleges Rajaratnam secretly withdrew $25 million.
He told the appeals court that the evidence showed Gupta continued to provide the fund manager with inside tips because he would benefit from any trades made by Rajaratnam.
“Whatever Gupta’s feelings were toward Rajaratnam about the Voyager Fund, he was still motivated to help Rajaratnam, as evidenced by these tips,” Tarlowe said.
Tarlowe also said today that the wiretaps were lawfully obtained and that Rakoff correctly allowed prosecutors to play the secretly recorded calls during the trial because Rajaratnam’s statements “were an obvious admission that he had committed a serious crime.”
The case is U.S. v. Gupta, 12-4448, U.S. Court of Appeals for the Second Circuit (Manhattan).