Gupta Defends Lawsuit Against SEC As Judge Expresses 'Concern'

Apr 13 2011 | 4:28pm ET

Former McKinsey & Co. chief Rajat Gupta offered a defense of his lawsuit against the Securities and Exchange Commission on the same day that the federal judge overseeing the case expressed concern about the very SEC powers that brought about the litigation.

In a court filing on Monday, Gupta's lawyer urged U.S. District Judge Jed Rakoff not to dismiss his client's claim against the regulator, which alleges that the SEC's bringing of an administrative action against Gupta in the Galleon Group insider-trading case violates his constitutional rights to a jury trial. Gupta is accused of passing confidential information about two companies on whose board he served to Galleon founder Raj Rajaratnam.

The SEC has countered that Gupta can't stop the administrative action and that Rakoff has no jurisdiction. The agency said that Gupta can only sue it after the administrative proceedings, scheduled to begin on July 18, have concluded. The SEC has several marked advantages in administrative hearings, as opposed to jury trials, such as its ability to use hearsay evidence and more favorable discovery rules.

"Mr. Gupta is the only Galleon-related defendant faced with the denial of the right to a jury and important procedural protections available only in federal court," Gupta's lawyer, Gary Naftalis wrote.

"The commission took the unprecedented step of instituting an administrative proceeding for civil penalties alleging insider-trading against a non-regulated person," Naftalis continued. "The impact of this 'first use' is to single out Mr. Gupta as the only Galleon-related defendant being pursued by the commission administratively."

The SEC won the power to launch such administrative actions only last year, under the Dodd-Frank financial regulation reform bill. But Gupta's lawyer notes that it received that authority almost two years after Gupta's alleged infractions occurred.

Rakoff, who earlier called the SEC's action in the Gupta case "bizarre," expressed further skepticism on Monday in a lecture at the Fordham University School of Law in New York.

"One concern I have about Dodd-Frank is that it puts more adjudication into the hands of the SEC and its administrative judges," Rakoff said.


In Depth

High Time For A Cannabis Hedge Fund?

Sep 30 2014 | 7:07am ET

Launching a hedge fund is always a gamble, but Leslie Bocskor's decision to launch...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

September 2014 Cover

High frequency market making

High frequency trading is not evil, it is not a conspiracy and it really is not new; it is the natural evolution of the professional trading community making markets, providing liquidity and hopefully...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.