Gupta Loses Wiretap Bid, Will Get SEC Notes

Mar 28 2012 | 12:33pm ET

Like every insider-trading defendant before him ensnared in the Justice Department's current crackdown, Rajat Gupta has failed to have wiretap evidence thrown out of his fraud case.

U.S. District Judge Jed Rakoff followed his colleagues, all of whom have upheld the legality of wiretap evidence, beginning with the case against Galleon Group founder Raj Rajaratnam, whom Gupta is accused of tipping.

"Insider-trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps," Rakoff ruled.

Gupta, the former head of McKinsey & Co., is accused of passing confidential information about Goldman Sachs and Proctor & Gamble to Rajaratnam. Gupta served on the boards of both companies.

While he did not testify at Rajaratnam's trial, which led to his longtime friend and business partner's conviction and an 11-year prison sentence, Gupta's voice was heard on a wiretapped conversation with Rajaratnam. Goldman CEO Lloyd Blankfein testified at that trial that the information Gupta gave Rajaratnam was privileged.

Rakoff also rejected Gupta's request that he dismiss several of the six counts against him. But he did hand Gupta a couple of victories, including the right to depose Blankfein.

The judge also ordered prosecutors to review the Securities and Exchange Commission's notes from 44 witness interviews, and to turn over any evidence that might support Gupta's defense. The SEC conducted the interviews as part of its civil case against Gupta.

"Where, as here, the overwhelming bulk of witness interviews were jointly conducted, there can be no doubt that exculpatory disclosures made during these joint interviews that are reflected in the notes or memoranda of either agency must be disclosed to the defense," Rakoff ruled.

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