SEC, Gupta Drop Cases Against One Another

Aug 5 2011 | 1:13pm ET

The Securities and Exchange Commission and former McKinsey & Co. chief Rajat Gupta have agreed to something of a ceasefire.

The regulator has agreed to drop the administrative proceedings it brought against Gupta for insider-trading—Gupta allegedly served as one of Galleon Group founder Raj Rajaratnam's sources of confidential tips—and, in exchange, Gupta has agreed to drop his lawsuit against the SEC seeking to force it to sue him, rather than bring him before an administrative law judge.

As part of the agreement between the two sides, the SEC will be permitted to file a civil lawsuit against Gupta, as it has done in 28 other civil cases filed in the Galleon case. And the agency pledged it would do so—if not quite yet.

The SEC "is fully committed to the case and will proceed as appropriate," spokesman John Nester said. The spokesman added that while "it is in the public interest" to dismiss the administrative case, in which the SEC would have several procedural and evidentiary advantages, "dismissing these proceedings will not prevent the Commission from filing an action against Mr. Gupta in the United States District Court."

If the SEC does so, the two sides have agreed that it will be heard before U.S. District Judge Jed Rakoff, who has been critical of the SEC's use of an administrative proceeding against Gupta.

The deal is an unabashed victory for Gupta, whose lawsuit had accused the SEC of attempting to deny his right to a jury trial. Gupta has denied the allegations against him, namely passing on confidential information about Goldman Sachs and Procter & Gamble to Rajaratnam. Gupta sat on the board of directors at each company.

Gupta's lawyer, Gary Naftalis, said that his client "has achieved all of the relief he sought."

"Mr. Gupta is very pleased that as a result of his lawsuit the SEC has dismissed its administrative proceeding and he will no longer be singled out for disparate treatment," Naftalis said. "If the SEC should refile any of the charges against Mr. Gupta, it must do so in federal court, where he will have a right to a jury trial, the right to depose witnesses, the protection of the federal rules of evidence—procedural safeguards not available in an administrative proceeding."

Rajaratnam was convicted earlier this year on all 14 counts against him. Gupta did not testify—he might have been called by the defense—but his voice was heard on some of the wiretaps played at the trial. In addition, Goldman CEO Lloyd Blankfein testified that some of the information passed by Gupta was non-public and that Gupta's actions violated Goldman's policies.


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