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

GSAM's Papagiannis: Liquid Alternatives For The Long Run

Apr 21 2017 | 8:44pm ET

Interest in liquid alternatives cooled a bit last year amid a broad shift in investor...

Lifestyle

Aston Martin Returns To Debt Market As DB11 Drives Turnaround

Mar 31 2017 | 5:21pm ET

James Bond’s preferred carmaker is returning to the public debt markets for the...

Guest Contributor

Debunking Conventional Investment Wisdom (Part II)

Apr 17 2017 | 5:56pm ET

The alternative investment industry is currently replete with buzzwords around data...