Rajat K. Gupta: No Luck with Motion to Vacate in Wake of Newman
In United States v. Gupta, 11 Cr. 907, 2015 BL 212998 (S.D.N.Y. July 02, 2015), the United States District Court for the Southern District of New York denied Rajat Gupta’s (“Gupta”) motion to vacate his sentence and the judgment against him, filed pursuant to 28 U.S.C. § 2255 (Motion Attacking Sentence).
A jury convicted Gupta of one count of conspiracy and three counts of substantive securities fraud on June 15, 2012, after which Gupta filed a series of appeals and motions, including a motion to vacate pursuant to 28 U.S.C. § 2255. Gupta’s most recent motion relies on a recent case, United States v. Newman, 773 F.3d 438 (2d Cir., 2014), which held that to convict a remote tippee of securities fraud, there must be proof beyond a reasonable doubt that the tippee knew an insider disclosed confidential information and did so in exchange for personal benefit. Therefore, under Newman, a tipper’s intention to benefit a tippee is sufficient to meet the benefit requirement, unless a remote tippee is involved.
Gupta argued the personal benefit element of the § 10(b) insider trading violation claim against him was not sufficiently proven at trial and further argued that Newman served to bolster his position. Specifically, Gupta argued Newman’s restriction on the scope of evidence that could be used to infer personal benefit opened the door to a defense that had beem futile under previous case law.
A motion under Section 2255 is not a substitute for appeal and will only be successful upon a showing of either actual innocence or good cause for failing to raise the issue and resulting prejudice. Relevant here, cause and prejudice can be shown by demonstrating that raising the issue on direct appeal was futile in light of case law at the time.
The court found two major flaws with Gupta’s arguments. First, the court noted the difference between Newman, which concerned a remote tippee’s liability, and Gupta’s case. In Newman, the plaintiff was the recipient of information provided to an employee by a tipper. Gupta, the court pointed out, was himself the tipper, providing confidential information for the personal benefit of Raj Rajaratnam. Because Gupta was the tipper and not a remote tippee, the court concluded the Newman standard was not relevant to Gupta’s conviction.
The court also held Gupta’s argument moot, even if the standard articulated in Newman applied. While Gupta argued the prosecution did not prove beyond a reasonable doubt that he acted for his own personal gain, the court found it clear, given Gupta’s ownership stake and close ties with Rajaratnam’s hedge fund, that Gupta would benefit from an immediate financial gain by providing the information to Rajaratnam.
Accordingly, the court held Newman, was inapplicable to Gupta’s case. The court further held that if Gupta’s reading of Newman was accurate, his claim lacked merit. The court therefore denied Gupta’s Section 2255 motion in its entirety.
The primary materials for this case may be found on the DU Corporate Governance website.