‘Fine Rajat $13.9 mn, ban him for life from Boards’
23 March 2014 10:50 PM GMT
The federal regulator has filed a brief in the US Court of Appeals for the Second Circuit, saying the district court acted well within its discretion, by permanently barring Gupta from associating with brokers, dealers, and investment advisors, permanently enjoining him from future violations of the securities laws, and permanently barring him from serving as officer or director of a public company. Sixty-five-year-old Gupta has been granted time till April 7 to file his reply to the SEC brief.
Gupta had in November last year asked the appeals court to overturn the district court’s decision that ordered him to pay the $13.9 million penalty in the civil insider trading case filed against him by the SEC. His lawyers had argued that the district court “abused” its discretion in imposing the statutory maximum civil penalty of $13.9 million,?which is three times the USD 4.6 million in gains made by hedge-fund manager Raj Rajaratnam who traded on tips Gupta allegedly passed on to him. The lawyers said the penalty was excessive in light of Gupta already facing a $5 million fine and two year prison sentence in the criminal insider trading case.
The SEC said the district court was right in ordering that Gupta pay the maximum statutory civil penalty. ‘Contrary to Gupta’s contentions, the district court did consider whether to reduce the civil penalty in light of penalties imposed in the prior criminal case, but exercised its discretion to decline such a reduction.’
SEC’s lawyers argued that ‘specifically, the court found that Gupta had violated the securities laws with a high degree of scienter, that his violations were egregious, repeated, and resulted, in effect, in millions of dollars of losses to those who traded their stock without the benefit of Gupta’s inside information, and that Gupta’s current financial condition does not counsel against the imposition of a civil penalty of the level that the SEC seeks’.
‘The district court considered Gupta’s argu[ment] that a treble penalty is inappropriate in light of the criminal penalties already imposed but concluded that imposition of an additional civil penalty is called for 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 stays well-placed to repeat his misconduct in future.
‘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 had in November last year asked the appeals court to overturn the district court’s decision that ordered him to pay the $13.9 million penalty in the civil insider trading case filed against him by the SEC. His lawyers had argued that the district court “abused” its discretion in imposing the statutory maximum civil penalty of $13.9 million,?which is three times the USD 4.6 million in gains made by hedge-fund manager Raj Rajaratnam who traded on tips Gupta allegedly passed on to him. The lawyers said the penalty was excessive in light of Gupta already facing a $5 million fine and two year prison sentence in the criminal insider trading case.
The SEC said the district court was right in ordering that Gupta pay the maximum statutory civil penalty. ‘Contrary to Gupta’s contentions, the district court did consider whether to reduce the civil penalty in light of penalties imposed in the prior criminal case, but exercised its discretion to decline such a reduction.’
SEC’s lawyers argued that ‘specifically, the court found that Gupta had violated the securities laws with a high degree of scienter, that his violations were egregious, repeated, and resulted, in effect, in millions of dollars of losses to those who traded their stock without the benefit of Gupta’s inside information, and that Gupta’s current financial condition does not counsel against the imposition of a civil penalty of the level that the SEC seeks’.
‘The district court considered Gupta’s argu[ment] that a treble penalty is inappropriate in light of the criminal penalties already imposed but concluded that imposition of an additional civil penalty is called for 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 stays well-placed to repeat his misconduct in future.
‘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.
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