A former Goldman Sachs Group Inc
Rajat Gupta is fighting civil charges that he tipped one-time hedge fund billionaire Raj Rajaratnam, the central figure in a sprawling insider trading case, about Warren Buffett's plans to invest in Goldman Sachs at the height of the financial crisis.
In court papers, Gupta said the Securities and Exchange Commission is trying to retroactively apply the new Dodd-Frank financial reform law by filing a so-called administrative proceeding against him. The proceeding means he must defend himself in a court that is part of the SEC rather than in a federal court, where he could have a jury decide the case.
The SEC's move is an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged, according to his complaint filed in Manhattan federal court on Friday.
The SEC unveiled its case against Gupta on March 1, just days before Rajaratnam's criminal trial began. Gupta is one of the highest-ranking corporate leaders implicated in the government's wide-ranging insider trading probe tied to Rajaratnam. Gupta has not been criminally charged, and he denies all accusations of wrongdoing.
At Rajaratnam's trial this week, jurors heard a secretly recorded telephone call in July 2008 between the Galleon Group hedge fund founder and Gupta, then a Goldman director.
On the call, Gupta is heard telling Rajaratnam about talks among the investment bank's board members about whether takeovers of Wachovia Corp or American International Group
Gupta also is a former worldwide managing director at management consultant McKinsey & Co. Neither McKinsey nor Goldman has been charged with wrongdoing.
The SEC's civil case against Gupta has raised questions among some legal experts about whether the administrative proceeding marks a new trend by the agency in shifting big enforcement cases out of federal courts. The Dodd-Frank law, enacted last July, gives the SEC more power to bring administrative cases.
Securities law experts said that Gupta's complaint raises intriguing legal issues, but they questioned whether he would be successful in moving the case.
Speaking generally, it seems highly improbable that you could get a U.S. District Court judge to intervene in an SEC proceeding at this point, said Sam Buell, a law professor at Duke University in Durham, North Carolina.
Jill Fisch, a professor at the University of Pennsylvania Law School, called the lawsuit very unusual and said it was unclear whether a federal judge would want to get involved.
On the other hand, I could imagine a proactive judge at least putting it to the SEC and asking the SEC, 'Well what about this?' Why did you decide to proceed this way? she said.
Florence Harmon, a spokeswoman for the SEC, declined to comment on Gupta's complaint.
The case is Gupta v. Securities and Exchange Commission, U.S. District Court, Southern District of New York, No. 11-1900. (Additional reporting by Basil Katz and Grant McCool) (Reporting by Martha Graybow, Editing by Lisa Von Ahn, Gerald E. McCormick, Dave Zimmerman)