Why wasn't former McKinsey & Co. chief Rajat Gupta charged with a crime for allegedly passing confidential information on to Galleon Group founder Raj Rajaratnam? Indeed, why is he the subject only of a Securities and Exchange Commission administrative action, rather than a lawsuit, a move a federal judge this week called "bizarre"?
The answer, it seems, may lie in the 18-minute long telephone conversation prosecutors played for jurors in Rajaratnam's insider-trading case this week. While the tape appears to show Gupta at the very least failing in his fiduciary duties as a Goldman Sachs board member by sharing confidential matters discussed by that body with Rajaratnam, it also appears to show that he wasn't engaging in insider trading under the letter of the law.
On the call, from July 2008, Rajaratnam is heard telling Gupta, "I called you because I am meeting with Gary Cohn on Thursday." Cohn is Goldman's president. That comment could be used by Gupta to show that he didn't know Rajaratnam planned to trade on the information he was providing.
Indeed, the opinion of the legal community is that Gupta is likely in the clear when it comes to criminal charges.
"If they were interested in criminally charging him, they would have done it by now," Richard Scheff of Montgomery McCracken Walker & Rhoads told Bloomberg News. "Usually, the fact that the SEC was allowed to proceed with its case means there won't be criminal charges," Dewey Pegno & Kramarsky's Tom Dewey added.
Dewey said he believes the call played this week—the only one that prosecutors will use that includes Gupta, Bloomberg reports—is not enough to support criminal charges. On the tape, Gupta is heard telling Rajaratnam that the Goldman board had discussed acquiring Wachovia Corp. and insurance giant American International Group.
Gupta's lawyer has repeatedly denied that his client did anything wrong.