Rajat Gupta, the former Goldman Sachs Group Inc. (GS:US) director, can remain free on $10 million bond while he fights his insider-trading conviction, a federal appeals court ruled.
“It is hereby ordered that the conditions of release imposed by the district court will be continued,” U.S. Circuit Judge Jose Cabranes said at the conclusion of yesterday’s hearing in the U.S. Court of Appeals in New York.
Gupta, 64, who was in court accompanied by his wife, Anita, and their four daughters, challenged a ruling by U.S. U.S. District Judge Jed Rakoff in Manhattan that he surrender to prison on Jan. 8 and begin serving his two-year sentence.
After Cabranes announced his decision, Gupta’s wife burst into tears and his daughters patted their father on the back. The judge issued his ruling after consulting with U.S. District Judge Reena Raggi, who was also on yesterday’s panel.
The ruling was a rare and swift ruling by the appeals court granting a criminal defendant’s request to remain free while they challenged the conviction. Martha Stewart, who served five months in prison for obstructing justice, was permitted to remain free pending her appeal by U.S. District Judge Miriam Cedarbaum. Stewart later decided to serve her prison term before her appeal was heard.
Cabranes said that the appeal would probably be accelerated and that Gupta’s full appeal could be argued in either April or May.
In a separate civil lawsuit, Gupta objected to the U.S. Securities and Exchange Commission's request for a $15 million penalty.
Gupta, according to his filing yesterday in federal court in Manhattan, can't contest civil liability for the insider-trading counts for which he was convicted in the criminal case. Still, a civil penalty wasn't appropriate in the SEC case, Gupta said, because he didn't profit from trades on the information he gave Galleon Group LLC co-founder Raj Rajaratnam.
Gupta was convicted by a jury in June of one count of conspiracy and three counts of securities fraud. He was accused of passing illegal information about New York-based Goldman Sachs to Rajaratnam, his friend and business partner. The jury convicted Gupta of twice passing information about Goldman Sachs to Rajaratnam, once on Sept. 23, 2008, and again on Oct. 23, 2008.
Seth Waxman, a lawyer for Gupta, argued Rakoff wrongly allowed prosecutors to use three recordings of telephone calls of Rajaratnam talking about his sources, calls in which Gupta wasn’t a participant, the defense lawyers said.
Waxman also said yesterday that Rakoff erred when he ruled Gupta couldn’t present testimony from his daughter that he told her on Sept. 20, 2008, that he’d discovered that Rajaratnam had withdrawn money from the fund. Gupta lost $10 million, Waxman said.
“Mr. Gupta was convicted on entirely circumstantial evidence,” Waxman told Cabranes and Raggi. “Mr. Gupta’s principle defense is he would’ve never provided any benefit to Mr. Rajaratnam on those calls because he had come to believe Mr. Gupta had swindled him.”
Raggi asked Waxman if this was relevant evidence because it went to Gupta’s state of mind when the alleged Goldman Sachs tip was passed.
“If Mr. Gupta believed, even if it was not true, but that he believed he was swindled, that’s evidence of state of mind which he wasn’t able to put on?” Raggi asked.
“Yes your honor, exactly,” Waxman said.
Assistant U.S. Attorney Reed Brodsky, who prosecuted Gupta at trial, argued Rakoff hadn’t erred in his rulings and hadn’t abused his discretion when he rejected Gupta’s request to remain free pending appeal.
Brodsky said the government had presented evidence during the trial that Gupta would benefit from any trades made by Rajaratnam in the Galleon International Fund.
He also said Rakoff had correctly permitted prosecutors to play a wiretapped Oct. 4, 2008, call between Rajaratnam and David Lau, a Galleon trader in Asia.
During the telephone call intercepted by agents with the Federal Bureau of Investigation under a court-authorized wiretap, Rajaratnam said, “I heard yesterday from someone who’s on the board of Goldman Sachs that they’re going to lose $2 a share, the market has them making $2.50.”
“I’m going to whack it,” Rajaratnam said.
Rajaratnam is serving an 11-year prison term for insider trading at the Federal Medical Center Devens in Ayers, Massachusetts. When he was sentenced in October 2011, he wasn’t granted a hearing on his request to remain free pending appeal.
During a hearing in October before a panel of three judges that included Cabranes, Rajaratnam also challenged the government’s use of the wiretaps in his case.
Gupta left court yesterday after the hearing and declined to comment on his case. Waxman and Gary Naftalis, a lawyer who defended him at trial, also declined to comment on the hearing.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, also declined to comment on the hearing.
The case is U.S. v. Gupta, 12-4448, U.S. Court of Appeals for the Second Circuit (Manhattan).
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