U.S. Appeals Court Agrees to Review Rajat Gupta Appeal

Feb 4 2016 | 9:51pm ET

The U.S. Second Circuit Court of Appeals in Manhattan has agreed to revisit its rejection of Rajat Gupta’s appeal. 

The former Goldman Sachs and McKinsey executive was convicted of insider trading in a high-profile case that alleged he passed tips about Berkshire Hathaway’s $5 billion investment in Goldman to Galleon co-founder Raj Rajaratnam. He served 19 months in federal prison and was released in mid-January. 

The court had previously rejected Gupta’s appeal last December. It will now review whether jurors in the case received improper instructions and whether Gupta, the highest-ranking executive to be convicted of insider trading-related offenses as part of U.S. Attorney Preet Bharara’s multi-year crackdown, is actually innocent in light of the now-infamous Newman ruling.

That case, which reversed the judgments against Todd Newman and Anthony Chaisson, ruled that the person passing privileged information had to receive some benefit for doing so, and significantly raised the bar necessary for insider trading convictions. 

Since it was handed down in December, the decision has placed a large number of insider-trading cases under renewed scrutiny. Moreover, the U.S. Supreme Court has agreed to hear an unrelated appeal in which the key element of “benefit” will be more precisely determined and a standard established. 

In his original appeal, Gupta argued that the U.S. prosecutor did not prove he received a personal benefit from passing information on to Rajaratnam. U.S. District Judge Jed Rakoff denied the motion in Julyof 2015, and the Second Circuit upheld the decision in December. Now, in light of the new standards imposed by the Newman case and pending further clarification from the Supreme Court, the Second Circuit has agreed to review its rejection of Gupta’s request. 

Earlier this week, hedge fund manager Doug Whitman was granted bail from a halfway house with roughly four months left in his sentence pending a renewed appeal on much the same grounds.

The case is Rajat Gupta v. U.S., 15-2707 and 15-2712, U.S. Court of Appeals, Second Circuit (Manhattan.)

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