Tuesday will not go down as one of Rajat Gupta’s best days.
First off, the former McKinsey & Co. chief and Goldman Sachs Group Inc. director reported to a federal prison in New England to begin serving a two-year sentence for his role in the insider trading ring headed up by Galleon Group hedge fund founder Raj Rajaratnam. Rajaratnam is already serving his own 11-year-term in a different section of the same complex in Ayers, Mass.
Meanwhile, the U.S. Court of Appeals for the Second Circuit denied Gupta’s request to overturn a nearly $14 million civil penalty levied by the U.S. Securities and Exchange Commission in a related civil case. Tuesday’s ruling also leaves standing an injunction barring Gupta from serving as an officer or director of a public company.
Gupta’s appellate lawyer, Seth Waxman of Wilmer Cutler Pickering Hale and Dorr, had argued that the judge overseeing the government’s insider trading case, Manhattan U.S. District Judge Jed Rakoff, erred when trebling the civil penalty to the statutory maximum. Waxman asserted that the steep fine ignored the deterrent effect of a $5 million fine and $6.2 million restitution order already handed down in Gupta’s criminal trial.
Waxman also argued that the injunction contradicted statements Rakoff made during sentencing, when the judge indicated that Gupta was “unlikely to repeat his transgressions.”
Just one day after oral argument, a Second Circuit panel nixed Gupta’s arguments Tuesday in a six-page summary order. The panel concluded that Rakoff hadn’t abused his discretion when trebling Gupta’s civil penalty or issuing the injunction.
The ruling continues the government’s winning streak in insider trading appeals. The government previously won a ruling upholding Gupta’s criminal conviction in March. Gupta’s lawyers—he was represented at trial by Gary Naftalis of Kramer Levin Naftalis & Frankel—have asked the Second Circuit to review the decision in the criminal case en banc.
The U.S. Supreme Court on Monday declined to take up Rajaratnam’s appeal of his criminal conviction, letting the government’s biggest insider trading win stand. Rajaratnam’s brother, Rengan Rajaratnam, heads to trial this week in his own insider trading case.
We reached out to Waxman to ask about plans for continued appeals but didn’t immediately hear back.