Rajat Gupta should pay $13.9 mn penalty and banned for life, says US SEC

Mar 22 2014, 20:16 IST
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Rajat Gupta has also been convicted in a parallel criminal insider trading case brought against him by federal prosecutor Preet Bharara. Rajat Gupta has also been convicted in a parallel criminal insider trading case brought against him by federal prosecutor Preet Bharara.
SummaryFormer Goldman Sachs director Rajat Gupta has been granted time till April 7 to file his reply to SEC brief.

here in order to effectuate Congress’s purpose of making insider trading a money-losing proposition, both for Gupta and for those who would consider it," the SEC said.

The SEC said imposing the maximum civil penalty is justified as it will ensure a "meaningful deterrent" effect given Gupta's wealth, and the aggravating facts that his tipping arose from his role in the securities industry and resulted in substantial investor losses."

The district court recognised that given Gupta's "rise to the pinnacle of his profession" as head of global consulting firm McKinsey and his "nearly unparalleled level of access to upper echelons of corporate executives" throughout the world "creates the risk that, notwithstanding his fall from grace, he remains well-placed to repeat his misconduct in the future.

"Enjoining Gupta from further securities law violations was a permissible exercise of discretion given Gupta’s securities fraud conviction. Barring Gupta from serving as an officer or director was also reasonable because Gupta's tipping of inside information he obtained as a director was an egregious abuse of trust that demonstrates his lack of fitness to serve in that capacity.

"And enjoining Gupta from associating with brokers, dealers, or investment advisors is appropriate because Gupta’s conviction arose out of his association with Goldman Sachs, the holding company of a constellation of broker-dealers and investment advisors," the SEC said, adding that the judgment of the district court should be affirmed.

Gupta's lawyers have argued that instead of protecting the investing public, the injunctions imposed on him by the district court "serve only to punish and stigmatize Gupta."

He has been convicted in a parallel criminal insider trading case brought against him by India-born federal prosecutor Preet Bharara. He was sentenced to two years in prison but has appealed against his conviction and is awaiting the decision of the appeals court while on bail.

The district court concluded that when Gupta tipped inside information obtained from his "privileged access to information" as a director, he was "guilty of an egregious breach of trust...This conclusion supports the district court’s discretion to order injunctive relief because there is a reasonable expectation of future violation where the defendant’s prior violations were egregious," the SEC said.

The district court found that, even over a year after his conviction on multiple counts of insider trading, Gupta failed to recognise that his conduct was "improper".

Gupta's repeated argument that he himself made no money from any

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