NEW YORK, March 7 (Reuters Legal) - When the Securities and Exchange Commission brought charges against former Goldman Sachs director Rajat Gupta in an administrative proceeding -- rather than in federal court -- it signaled a possible new front in the SEC's pursuit of insider-trading cases.

The SEC typically sues insider-trading defendants in federal court; Gupta will instead be defending himself in a court that is an arm of the agency that is suing him, in a proceeding overseen by an administrative law judge who works for the agency.

One of the questions this case raises is: is the SEC going to start shifting major enforcement cases out of federal district court and into administrative proceedings? said Thomas Gorman, a partner at Dorsey & Whitney who specializes in securities enforcement cases.

Gupta, 62, a former worldwide managing director at consulting firm McKinsey & Co., is accused of passing on tips about Warren Buffett's plans to invest in Goldman Sachs to Galleon Group hedge fund founder Raj Rajaratnam. Gupta's lawyer, Gary Naftalis, has called the charges baseless. He declined to comment for this story.

Administrative courts are generally considered a less favorable environment than federal district courts for defendants. Some of the basic protections available to defendants in federal courts are not available in administrative proceedings. There is no right to a jury trial, for example, and the ability to take depositions is severely limited. Moreover, respondents -- as defendants are known in these proceedings -- have fewer evidence protections, such as the protection against hearsay, than they do in federal court.

NEW POWER, MORE ADMINISTRATIVE CASES

Thanks to a new power bestowed to the SEC by the Dodd-Frank financial reform law, the agency could bring more cases through the administrative route. The law, passed in July, allows the SEC to seek monetary penalties in administrative court proceedings against anyone. Previously the SEC could seek penalties in administrative proceedings only against the people and entities that register with the SEC, such as investment advisers or broker-dealers.

The question of whether the SEC's charge against Gupta is a use of the new Dodd-Frank provision is likely to be in dispute in the case. It turns on whether, as an outside director of Goldman Sachs, which has subsidiaries that are registered entities, Gupta falls into the category of a registered person.

In any case, the Gupta order stands out because it represents a significant departure from the typical SEC practice of pursuing insider-trading cases in federal court. Of the more than two dozen individuals the SEC has sued in the broader probe of Rajaratnam and his former friends and associates of Galleon, all have been pursued in federal court. The government's criminal case against Rajaratnam is scheduled to begin in New York on Tuesday.

SEC spokesman John Nester declined to comment.

The specter of more insider-trading cases showing up in administrative proceedings rankles some securities defense lawyers, who say the difficulties in seeking broad discovery could hinder their ability to pursue a vigorous defense.

Insider-trading cases are often proven by circumstantial evidence, so the ability to take depositions and present your case to a jury are particularly important, said Stephen Crimmins, a partner at defense firm K&L Gates LLP.

Defense lawyers are bracing themselves for an increase in administrative cases if the SEC enforcement division uses its new powers to bring more people into the agency court.

I'm not sure it will be restricted to insider-trading cases, said Neil Lang, a partner at Sutherland Asbill & Brennan. They could bring them for normal financial fraud cases, too.

(Reporting by Carlyn Kolker of Reuters Legal; Editing by Eddie Evans)