SEC Says Gupta Can't Stop Administrative Action

Apr 4 2011 | 12:35pm ET

The Securities and Exchange Commission has asked a federal judge to toss accused Raj Rajaratnam tipster Rajat Gupta's lawsuit against it, saying there is nothing he can do to stop the administrative action against him.

The SEC said in court papers filed on Friday that U.S. District Judge Jed Rakoff doesn't have jurisdiction over the case. Gupta, the only one of the 24 people the SEC has sued in the Galleon Group insider-trading case to face an administrative hearing rather than a jury-trial lawsuit, has asked Rakoff to block the administrative proceedings, scheduled to begin on July 18.

Administrative hearings are widely seen as more favorable to the SEC than full trials before a U.S. District Court judge, such as Rakoff.

But "even if he gets the ruling he is asking for, it doesn't stop the rest of the proceedings," SEC lawyer Richard Humes said. Humes and fellow SEC attorney Christopher Bruckmann said that federal law provides Gupta the opportunity to appeal SEC administrative decisions to a federal appeals court and not to a district court.

"Gupta is essentially seeking to convert potential factual, legal and constitutional defenses to an administrative proceeding to a claim that he is entitled to immediate" review in federal court.

Rakoff has appeared skeptical of the SEC's actions, calling the singling out of Gupta "bizarre" in one hearing. In another, he said, "23 of them are charged in federal court where they have the right to a jury trial, and one of them is not and is charged only in an administrative proceeding. Does that implicate the equal protection clause of the Constitution as well as a jury trial clause of the Constitution?"

Gupta, who is expected to testify for the defense in Rajaratnam's trial, has denied any wrongdoing.

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