Daring the authorities to file criminal charges against him for insider trading rather than going for a settlement with the U.S. Securities and Exchange Commission looked like a risky legal strategy for Rajat Gupta, but all hopes are not lost yet if law experts are to be believed.
The former McKinsey and Co. managing director, who surrendered to the Federal Bureau of Investigation in New York on Diwali day, had beaten back a civil case filed against him by the SEC in March. That case was dismissed on August 4, more than two weeks before the trial was scheduled to begin.
The dismissal followed a lawsuit filed by Gupta against the SEC, challenging the institution of the civil administrative proceeding. The suit claimed that, by filing a civil case, the agency deprived him of a jury trial and discriminated him as the SEC had sued all others involved in the same case in federal court.
The agency, which indicated while dropping the charges that the dismissal of administrative action did not mean it would not file a criminal charge against the defendant, and Indian American U.S. Attorney Preet Bharara have now granted the Kolkata-born Gupta his wish.
Gupta is now betting on the ability of his legal aides to get him out of the legal quagmire.
Since the lawsuit against the SEC in March, his friend Raj Rajaratnam, the billionaire hedge fund manager Gupta is now accused of conspiring with, was convicted of insider trading, and has been sentenced to an 11-year prison term.
The jury in the Rajaratnam trial heard in great detail the various alleged tips that Gupta had given to the Galleon Group founder and how the latter benefited from it.
Analysts say the indictment of Gupta, who surrendered at an FBI office in Manhattan on Wednesday morning and was subsequently released on a $10 million bail, was not unexpected.
“I am not surprised,” said Robert Heim, a corporate and securities law expert and attorney at Meyers and Heim in New York. “Mr Gupta was previously charged (by the SEC) and his name came up during the Rajaratnam trial.”
Heim, a former SEC official, said the reason it took the authorities several months to file criminal charges against Gupta was that it was concentrating on the Galleon trial. “I think that the prosecution wanted to make sure that charges against Rajaratnam are successful before charging Gupta.”
Perhaps it was its unprecedented success in the Rajaratnam case – the 11-year term the Sri Lanka-born fund manager received was the most given in an insider trading case in the USA – that prompted the prosecution to go after Gupta with even more force.
According to the indictment, Gupta and Rajaratnam “participated in a scheme to defraud by disclosing material, non-public information” related to Goldman Sachs and Procter & Gamble – the two companies on whose boards the Indian American served – “and/or executing securities transactions on the basis of the Inside Information.”
The indictment states the insider trading activities occurred from “at least in or about 2008 through in or about January 2009.” The one count of conspiracy to commit securities fraud and five counts of securities fraud could result in as much as a 105-year prison term.
Heim said, if convicted, Gupta might get a sentence similar to the one Rajaratnam got because he was a high-profile officer and director.
But there are also indications that the case is not a slam dunk.
“I don’t see any overwhelming evidence,” Heim said.In a statement released on Tuesday, the day before his client’s arrest, attorney Gary Naftalis pointed out that Gupta had not received any monetary benefit from the alleged tips, an argument that is likely to be central to his defence if the case goes to trial in early April.
The prosecution, however, states that Gupta “benefited and hoped to benefit from his friendship and business relationships with Rajaratnam in various ways, some of which were financial.”
What might work for Gupta’s advantage in the end is the fact that there are no wire-tapped conversations of him tipping Rajaratnam about the trades detailed in the indictment.
Many of the recorded conversations between Rajaratnam and his employees, which were played at the hedge fund manager’s trial, might not be permissible during this trial.
But aside from a protracted and costly legal battle, the indictment comes at a very inopportune moment for Gupta.
With a giant wave of anti-Wall Street sentiment sweeping across the USA, he risks becoming a recognisable public face of the financial industry’s greed.
(In partnership with Global India Newswire)