Former McKinsey head Rajat Gupta has never been charged with a crime for passing confidential tips to Galleon founder Raj Rajaratnam. In fact, his naming in only an SEC administrative action left one federal judge using the word “bizarre”.
So what’s going on? After all, the prosecution did play an 18-minute tape to the jury with Gupta and Rajaratnam speaking about insider topics. Well, it seems that the incriminating wiretap may not be incriminating enough.
At the time, Gupta was on the board of Goldman Sachs, and therefore had a duty to protect Goldman’s secrets. However, if the insider trading law is interpreted literally, Gupta may skate for lack of evidence. The July 2008 phone call has Rajaratnam saying to Gupta: "I called you because I am meeting with [Goldman President] Gary Cohn on Thursday." Gupta’s lawyers can argue that the comment proves Gupta didn’t have prior knowledge that Rajaratnam was going to use the tips Gupta had been providing for insider trading.
Legal observers seem to be lining up in Gupta’s corner on this point. "Usually, the fact that the SEC was allowed to proceed with its case means there won't be criminal charges," Dewey Pegno & Kramarsky's Tom Dewey stated. Furthermore, Richard Scheff of Montgomery McCracken Walker & Rhoads told Bloomberg News: "If they were interested in criminally charging him, they would have done it by now."
The Gupta tape does contain a discussion of Goldman possibly acquiring Wachovia Corp. and insurance behemoth American International Group. Gupta’s lawyers have not been shy in continually proclaiming his innocence to anyone who would listen. Unless other evidence surfaces, Gupta may indeed escape prosecution.
UPDATE: Gupta Sues for Jury Trial
In another twist, Rajat Gupta is suing the SEC for a jury trial. He is essentially telling the regulator to "put up or shut up". His suit rests on the fact that the Dodd-Frank legislation that enabled the current SEC administrative procedure was enacted a year after the events under investigation.
Gupta also has stepped down today as chairman of the Indian School of Business, an institution he founded.
UPDATE: Gupta Sues for Jury Trial
In another twist, Rajat Gupta is suing the SEC for a jury trial. He is essentially telling the regulator to "put up or shut up". His suit rests on the fact that the Dodd-Frank legislation that enabled the current SEC administrative procedure was enacted a year after the events under investigation.
Gupta also has stepped down today as chairman of the Indian School of Business, an institution he founded.
© 2011 Hedge Fund Writer LLC
