Rajat Gupta wants district judge to decide SEC case

Former Goldman Sachs Group Inc director Rajat Gupta, accused by the US Securities and Exchange Commission of leaking inside information about the company, seeks to have his SEC dispute heard by a US district judge in New York.

The SEC, in an administrative proceeding filed March 1 in Washington, accuses Gupta of giving information to Galleon Group LLC co-founder Raj Rajaratnam about Berkshire Hathaway Inc’s $5 billion investment in Goldman Sachs. The agency also alleges Gupta told Rajaratnam about the New York-based bank’s quarterly earnings and those of Procter & Gamble Co, where Gupta was also a director. Gupta hasn’t been criminally charged.

Gupta sued the SEC on March 18 in federal court in Manhattan, denying the SEC’s allegations and arguing he was the only one of more than two dozen people tied to the government’s Galleon case to have such an administrative proceeding filed against him. He also argued the SEC’s allegations occurred at least 1 1/2 years before regulators were allowed to bring such an action under the Dodd-Frank Act.

“We have a constitutional issue here,” Gupta’s lawyer, Gary Naftalis, told US District Judge Jed Rakoff, who is presiding over Gupta’s lawsuit.

“This man, of all the Galleon defendants — 27 individuals and eight corporations — he is the only one who’s been singled out by the SEC for an administrative proceeding,” Naftalis said yesterday.

‘BUSINESS OF THE COURTS’
Naftalis argued that under the SEC proceeding, Gupta won’t have access to the evidence collected by the SEC which must be turned over to a defendant during a civil lawsuit. He also told Rakoff that an administrative law judge will first make a finding and that a final determination is made by the SEC. Gupta could appeal only after the SEC makes its finding, Naftalis said.

“The Constitution is the business of the federal courts,” Naftalis said. “What’s the harm here? The fact is that you have to go through an administrative proceeding to vindicate your rights and that’s wrong.”

In such an SEC proceeding, the judge is allowed to consider hearsay, or evidence that may only be indirect or speculative.

Brenda Murray, the SEC’s chief administrative law judge, previously declined to stay the commission’s action and scheduled a July 18 administrative trial for Gupta. Richard Humes, a lawyer for the SEC, yesterday said that federal courts don’t have jurisdiction in the dispute before any findings are made in its administrative action against Gupta.