Rajat Gupta’s appeal to quash insider trading conviction fails

Rajat Gupta’s appeal to quash insider trading conviction fails

PTIUpdated: Saturday, June 01, 2019, 12:31 AM IST
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New York: In yet another setback for India-born former Goldman Sachs director Rajat Gupta, a federal US judge has rejected his appeal to overturn his two-year sentence and conviction on insider trading, rejecting his plea that there was “insufficient” evidence of him receiving “personal benefit” in exchange for providing tips. District Judge Jed Rakoff said in a 9-page ruling issued yesterday in the Southern District Court that Gupta’s argument that the evidence of personal benefits presented at the trial was insufficient to sustain his conviction calling it “both too late and too little”.

Gupta, 66, was convicted in 2012 of passing confidential boardroom information to now jailed hedge fund founder Raj Rajaratnam. He appealed his conviction on various grounds, but the US Federal Court of Appeals and even the Supreme Court rejected his arguments and affirmed the conviction. Gupta is currently serving a two-year prison term in a federal prison in Massachusetts state and is scheduled to be released in March next year. In his new appeal, Gupta cited the Appeals Court’s recent decision in which it reversed the insider convictions of hedge-fund managers Todd Newman and Anthony Chiasson. In the landmark ruling, the appeals court had ruled that for an insider trading conviction prosecutors must show that a defendant received a personal benefit for passing illegal tips. Gupta sought to vacate his sentence and the judgement against him on the basis of an argument that the trial court’s instruction to the jury concerning the “personal benefit” element of an insider trading violation was “erroneous” and there was insufficient evidence of such benefit. Rakoff said Gupta had raised the argument at trial but abandoned on appeal and he now “misreads” the Newman ruling. He said Gupta and Rajaratnam were “very close friends,” and Gupta was on a shortlist of five to 10 people allowed to speak with Rajaratnam at the end of the trading day adding “Furthermore, they were close business associates with a considerable history of exchanging financial favours”.

Rakoff said the tips for which Gupta was convicted “yielded the possibility of a more immediate benefit” to him. He cited the Voyager fund with Rajaratnam in which Gupta had a USD 10 million stake. “Specifically, because both Gupta and Voyager, in which Gupta held an equity stake, were investors in Galleon, any tips on which Rajaratnam traded had the potential to increase the value of Gupta’s and Voyager’s shares,” Rakoff said. “It is thus clear even on Gupta’s own reading of Newman, let alone on the reading this Court gives it, that Guptacannot satisfy any part of his claim. Accordingly, for the foregoing reasons, the Court hereby denies Gupta’s motion in its entirety,” Rakoff said. He also said in his ruling that whether the tips were part of an exchange that was “objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” was obvious from the very nature of the tips. With the first tip, Gupta conveyed to Rajaratnam that billionaire investor Warren Buffet planned to invest — in the midst of a financial crisis — USD 5 billion in Goldman Sachs two hours before that fact was announced to the public. “The second tip was no less momentous,” he said when Gupta informed Rajaratnam that Goldman’s “fourth-quarter result would be a loss”.

“Even if one were to read Newman the way Gupta erroneously does, as requiring a potential pecuniary benefit to Gupta, such a benefit was also clearly present, as demonstrated by prior exchanges,” he said adding that the wiretapped phone call between Gupta and Rajaratnam from July 29, 2008, less than two months before the tips at issue, illustrated the “mutually beneficial and quid pro quo nature of their relationship”.

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