2nd Circuit Upholds Insider Trading Conviction of Ex-Goldman Sachs Director Gupta
The panel's decision represented the latest retreat from the appellate court's holding in 2014's "U.S. v. Newman," which narrowed prosecutors' ability to prove insider trading.
January 07, 2019 at 04:12 PM
5 minute read
The original version of this story was published on New York Law Journal
For the second time in as many months the U.S. Court of Appeals for the Second Circuit has declined to reverse an insider trading secured by federal prosecutors before the circuit court's ruling in United States v. Newman and the sequence of decisions it spawned.
On Monday, the panel, composed of Circuit Judges Amalya Kearse, Richard Wesley and Christopher Droney, denied former Goldman Sachs director Rajat Gupta's second attempt to have his insider trading conviction overturned. The Second Circuit had previously in 2014 denied Gupta's argument that the trial court erred in admitting some evidence, while excluding other evidence offered by the defense ahead of his 2012 conviction. He ultimately served 19 months in prison, and was released in 2016.
The current appeal came after U.S. District Judge Jed Rakoff of the Southern District of New York denied Gupta's motion to vacate his conviction in the wake of the Second Circuit's 2014 decision in Newman, which substantially narrowed the “personal benefit” requirements of an insider trading relationship. Gupta argued before Rakoff that the jury instructions in his case were legally invalid under Newman.
On appeal, the panel reviewed Gupta's challenge based on a cause-and-prejudice standard. It agreed with Rakoff's argument that nothing stopped Gupta from arguing that the jury instructions were faulty on direct appeal from his conviction, since they were made during trial.
The panel observed that its November 2018 decision in Whitman v. United States tracks closely with the dynamics of Gupta's case, as jury instructions were objected to at trial but weren't pursued on appeal. Other insider trading cases pursued the line on appeal before Newman, the panel noted, making the claims in Whitman—and therefore Gupta's case—insufficient to show cause.
Defendants in other insider trading prosecutions were contending that juries should be given narrower definitions of the personal benefit needed to find culpable insider trading,” the panel wrote. “We conclude that [Gupta] presents no viable claim that the personal benefit challenge was unavailable to his counsel on appeal.”
While the panel, having found Gupta failing the cause standard, could arguably have ended its findings there, it proceeded to address the issue of prejudice, and, in doing so, waded directly back in to the circuit's muddied law on insider trading.
The panel first found that Gupta failed to show the personal benefit instructions were so flawed as to deny him due process, noting that the actual language provided to the jury in question spoke of “maintaining a good relationship with a frequent business partner.”
That last clause proved critical for the panel, who argued it squared with requirements under precedent, but not the Second Circuit's most recent double take in United States v. Martoma, which is mentioned briefly later. Instead, the panel opted to return to the insider trading Ur-precedent from the Supreme Court's 1983 decision in Dirks v. SEC.
The Dirks court set out a “varying sets of circumstances…which would warrant a finding of the tipper's illegal purpose,” the panel noted. Despite the fact the specific language required by Newman for a tangible or pecuniary benefit was not present in Gupta's jury instructions, the language was satisfactory under Dirks' seemingly broader “circumstances.”
In fact, the panel's acknowledgment that Dirks highlighting the ability for a quid pro quo relationship despite “the lack of need for proof of the tipper's financial or tangible gain” appeared to potentially undercut a portion of the court's holding in Newman, continuing the erosion that began with the Supreme Court's findings in Salman v. United States and continued through the two versions of the Second Circuit's Martoma decision.
The fact that Newman's requirement for proof of a tipper's pecuniary or other tangible gain has been rejected by the Supreme Court disposes of Gupta's contention that Newman meant the trial court's instruction that proof of pecuniary or tangible benefit was not necessary caused him to be convicted of a crime for 'conduct that is not criminal,'” the panel said, quoting from Gupta's brief on appeal.
A spokesman for the U.S. Attorney's Office for the Southern District of New York, which secured Gupta's original conviction and handled the appeal, declined to comment.
Kramer Levin Naftalis & Frankel name attorney Gary Naftalis handled Gupta's appeal. He did not respond to a request for comment.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllTravis Lenkner Returns to Burford Capital With an Eye on Future Growth Opportunities
Legal Speak's 'Sidebar With Saul' Part V: Strange Days of Trump Trial Culminate in Historic Verdict
1 minute readLegal Speak's 'Sidebar with Saul' Part IV: Deliberations Begin in First Trump Criminal Trial
1 minute readJosh Partington of Snell & Wilmer Is in Fact a Rock Star in the Office (and Out of It)
1 minute readTrending Stories
- 1Gibson Dunn Sued By Crypto Client After Lateral Hire Causes Conflict of Interest
- 2Trump's Solicitor General Expected to 'Flip' Prelogar's Positions at Supreme Court
- 3Pharmacy Lawyers See Promise in NY Regulator's Curbs on PBM Industry
- 4Outgoing USPTO Director Kathi Vidal: ‘We All Want the Country to Be in a Better Place’
- 5Supreme Court Will Review Constitutionality Of FCC's Universal Service Fund
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250