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Rajat Gupta seeks re-trial over insider trading case

Last updated on: May 22, 2013 09:29 IST

Rajat Gupta seeks re-trial over insider trading case

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Prakash M Swamy in New York

Former Goldman Sachs Group Board of Director Rajat Gupta's attorneys asked the Judge to reverse his insider-trading conviction, saying wiretap evidence used by the prosecution should not have been introduced at trial stage.

Seth Waxman, lawyer for Gupta, told the 2nd US Circuit Court of Appeals in New York on Tuesday that wiretaps played for the jury were inadmissible because they amounted to hearsay evidence.

"Gupta himself was not heard on the wiretaps, which are instead conversations between convicted Galleon Group manager Raj Rajaratnam and other employees at the hedge fund. Those wiretaps should never have been admitted, Waxman told a three-judge panel.

"The prosecution's case rested exclusively on circumstantial evidence, and predominantly on wiretap statements - not of Gupta, but of Raj Rajaratnam, a highly unreliable declarant, speaking with other people with no connection to Gupta," Seth Waxman and Gary Naftalis, Gupta's lawyers said in a brief to the appeals court.

"The court's decidedly asymmetrical interpretation of the rules of evidence left the jury with a distorted picture in which Gupta was accused by the self-serving hearsay of a known fabulist beyond Gupta's powers to cross-examine, but was unable to explain to the jury that he had neither the motive nor the inclination to benefit that person," Waxman said.

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Photographs: Reuters

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Gupta, 64, in October last year, was handed down a two-year prison term by US District Court Judge Jed Rakoff, who also ordered him to pay a $5 million fine.

Waxman and Naftalis argued that the conversation and a second wiretapped call were admitted erroneously under the theory that it furthered the insider-trading conspiracy because prosecutors didn't allege Lau was a member of the Rajaratnam-Gupta conspiracy and instead called it "inadmissible braggadocio".

Gupta, a former head of the consultancy McKinsey & Co, was a board member at Goldman and Procter & Gamble and was sentenced to two years in prison in October for spilling confidential information about Goldman to Rajaratnam, his business associate who is now serving 11 years in prison for insider trading.

Gupta was convicted on one count of conspiracy and three counts of securities fraud in June 2012. The jury acquitted him on another two securities fraud counts.

Gupta's lawyers echoed arguments of Rajaratnam's lawyers that prosecutors improperly won authority to wiretap the fund manager's calls.

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Image: Former Goldman Sachs Group Inc board member Rajat Gupta (R) leaves Manhattan Federal Court with his lawyer, Gary Naftalis, following a guilty verdict in New York June 15, 2012.
Photographs: Lucas Jackson/Reuters

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Prosecutors argued that Gupta's connection with four tips that he illegally provided to Rajaratnam, the jury convicted him of the only two that were supported by wiretaps of the hedge fund manager, according to Gupta's lawyers.

Prosecutors said the conversation showed Gupta tipped Rajaratnam that billionaire Warren Buffett was going to invest $5 billion in the investment bank at the height of the financial crisis.

However, Waxman argued his client had another reason to phone the hedge fund titan as Gupta sought information about joint venture investment fund known as Voyager Capital Partners.

"In a life full of board meetings, he came out of meetings and returned calls," Waxman said.

Judge Jon Newman, one of the judges hearing the case questioned what a jury was supposed to conclude based on the close timing of Gupta's call and Rajaratnam's trading that day. "Are you telling us that's a coincidence?" Newman wondered.

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Image: Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court after his sentencing in New York October 13, 2011.
Photographs: Lucas Jackson/Reuters

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Another call on October 23, 2008 also was questioned by another judge - Rosemary Pooler - who wanted to know whether it was properly admitted as evidence.

The recorded conversation produced was between Raj Rajaratnam and David Lau, a portfolio manager at Singapore-based Galleon International.

Waxman said Lau had never been accused of being a co-conspirator, and Pooler appeared skeptical that the evidence showed the call was made to further the alleged conspiracy, as required for it to be admitted as hearsay evidence. "I didn't see that in the conversation," she said.

Waxman said one of Gupta's daughters, Geetanjali Gupta, was improperly barred at the trial from testifying about details of discord between Gupta and Rajaratnam.

"The defence says she would have told jurors that her father said he was angry at Rajaratnam for allegedly taking money out of a joint investment fund known as Voyager Capital Partners without telling him."

Gupta's lawyers said this conversation occurred three days before one of the tips Gupta is accused of supplying and a month before a second one.

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Image: Rajat Gupta arrives at Manhattan Federal Court in New York May 21, 2012.
Photographs: Eduardo Munoz/Reuters

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The daughter's testimony would have called into question Gupta's motive to tip Rajaratnam, Waxman argued.

However, prosecutors argued in their brief to the appeals court that Gupta's conviction should stand, saying there was ample evidence that Rajaratnam and Gupta were partners in several business ventures and that Gupta would benefit from any trades made by Rajaratnam.

"Gupta was convicted after a fair trial," Assistant US Attorneys Richard Tarlowe, Damian Williams, Edward Diskant and Justin Weddle said in their brief to the appeals court.

"On appeal, however, he identifies a handful of carefully considered evidentiary decisions that the trial judge decided in the government's favour and strings them together in an effort to assert, in effect, that the trial was rigged against him."

They argued the wiretaps were lawfully obtained and said Rakoff had correctly allowed prosecutors to play the secretly recorded calls during the trial because Rajaratnam's statements were statements against his interest and "were an obvious admission that he had committed a serious crime".


Image: Rajat Gupta seen in this courtroom sketch as verdict is read in his insider trading case in Manhattan Federal Court in New.
Photographs: Reuters

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