Former Goldman Sachs Group Inc. director Rajat Gupta lost his latest bid to throw out his insider-trading conviction and prison sentence, even after an appeals court last year made it harder to prosecute tipping cases.
Gupta, 66, convicted in 2012 and now serving a two-year prison term in Massachusetts, asked U.S. District Judge Jed Rakoff to dismiss his case, arguing the U.S. failed to prove he got a personal benefit for passing tips to his friend, billionaire hedge fund manager Raj Rajaratnam. Rakoff ruled Thursday that the appeals court ruling doesn’t help Gupta.
A federal jury in New York found Gupta guilty of passing tips to Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs and the bank’s financial results for two quarters in 2008.
In December, an appeals court said prosecutors must prove defendants knew tips came from someone who had a duty to keep them secret and got a personal benefit for leaking them. That ruling has imperiled several convictions obtained by Manhattan U.S. Attorney Preet Bharara.
Gupta, the highest-profile executive convicted in the U.S. crackdown on insider trading at hedge funds, argued the appeals court’s decision meant what he did is no longer considered a crime, because jurors failed to find his tips were part of an exchange of information for “consequential benefits.”
Rakoff said Thursday the appeals court’s decision dealt with traders far removed from the original source of inside information, while the evidence showed Gupta provided Rajaratnam with the nonpublic information. Gupta was also a former McKinsey & Co. managing partner.
“Such tippee knowledge is irrelevant to Gupta, a tipper,” Rakoff said. “As the Supreme Court has repeatedly made clear, a tipper is liable for securities fraud if he takes sensitive market information.”
Rakoff also rejected Gupta’s argument he didn’t receive any personal benefit from Rajaratnam and cited how the two men had “a considerable history of exchanging financial favors.”
The appeals court’s decision means there must be proof of a “meaningful” close personal relationship that “represents at least a potential gain” of money or something similarly valuable, Rakoff said.
The judge noted that Gupta was involved in Galleon and also had a financial stake in two newer ventures with Rajaratnam, including Voyager Capital Partners and New Silk Route. Gupta would therefore stand to profit personally from any money Rajaratnam made as a result of his illicit tips, the judge said.
Gupta has lost earlier bids to reverse the verdict, including an unsuccessful appeal to the U.S. Supreme Court,
Rajaratnam, 58, is serving an 11-year sentence in the same federal prison complex as Gupta for masterminding a multimillion-dollar insider scheme. Gupta is scheduled to be released in March, according to the Bureau of Prisons website.
Gupta’s lawyer, Gary Naftalis, declined to comment on Thursday’s ruling.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).