On February 21, United States District Court Judge Jed S. Rakoff, federal prosecutor Reed Brodsky, and defense attorney Gary Naftalis, came together to discuss the Gupta insider trading case with Columbia Law School students in a seminar called Corporations in the Court:  An Insider Look at Major Corporate Cases, co-taught by Professor John C. Coffee, Jr. and Delaware Supreme Court Justice Jack B. Jacobs.

Judge Rakoff presided over the Gupta case in the United States District Court for the Southern District of New York, Mr. Brodsky prosecuted the case, and Mr. Naftalis defended the main protagonist, former Goldman Sachs director Rajat Gupta.

Mr. Gupta was convicted of insider trading violations last year on account of boardroom secrets he allegedly provided to hedge-fund manager Raj Rajaratnam.  This included a tip to Rajaratnam that Warren Buffett’s business would be injecting $5 billion into Goldman Sachs during the height of the financial crisis.  Gupta was sentenced by Judge Rakoff to two years.  He is currently appealing the conviction in the United States Court of Appeals for the Second Circuit.

Judge Rakoff and Messrs. Naftalis and Brodsky offered a behind-the-scenes look at the case.  They discussed the various stages from pre-indictment, to the SEC’s controversial administrative proceeding, to sentencing, and they also touched upon the contentious topic – now on appeal – of the admission of critical wiretap evidence. Part of the discussion was off the record and this post does not include those portions.

Mr. Brodsky began by discussing some of the reasons that the indictment of Gupta had long been stalled.  “The government,” he explained, “simply can’t do everything at once.”  During the pre-indictment period, Mr. Naftalis wasn’t expecting his client to face criminal charges.  “Gupta lived an exemplary life,” he said.  “He had no economic motivation for tipping, wasn’t wanting for money, and received no financial benefit.  He was different than anyone else charged on the matter, hedge fund traders and the like.”

The SEC’s controversial administrative proceeding against Gupta came as a surprise to Naftalis.  “Administrative proceedings in insider trading cases were rare and all the others went to Federal Court,” he said.  To fight this forum choice, Naftalis had to craft a novel complaint that admittedly had “no precedents.”  Yet, his process was pure common sense:  “We got a bunch of smart people around a table to discuss potential grounds.”  His equal protection argument eventually convinced Judge Rakoff to deny the SEC’s motion to dismiss, which led the case back into federal court.

There, one of Naftalis’ most contentious motions was one to suppress wiretap evidence from being introduced at Gupta’s criminal trial.  The defense was fighting an uphill battle, however, in light of Judge Holwell’s recent wiretap decision in the Rajaratnam case.  Not surprisingly, Judge Rakoff balked at finding Holwell’s conclusions to be in error.

Judge Rakoff’s decision arguably influenced the outcome at trial.  Although the prosecution brought substantive charges based on four tips, the jury convicted only on the two supported by wiretaps.  Brodsky nonetheless exclaimed that “there was sufficient circumstantial evidence to convict Gupta even without the wiretap evidence.”  He said, “approximately 16 seconds after the Goldman board meeting where Gupta learned of the Buffett investment, Gupta’s assistant called Rajaratnum and put Gupta on the call.   Within minutes of that call, two minutes before the close of the market, and prior to the public release of the information, Rajaratnam ordered his trader to buy Goldman Sachs.”

Naftalis and appellate counsel Seth Waxman filed their appellate brief on January 18, 2013.  It alleges that the Court erred in admitting the wiretaps and excluding critical defense evidence.  Based on the current briefing schedule the case will become ripe on April 12, 2013.   It will be an interesting case to follow.