DealBook: S.E.C. Delays Rajat Gupta’s Trial for Six Months

Alessandro Della Bella/Keystone, via Associated PressRajat K. Gupta.

8:17 p.m. | Updated

The curious case of Rajat K. Gupta just got curiouser.

Mr. Gupta, the former Goldman Sachs director and onetime head of McKinsey Company, was scheduled to stand trial on July 18 on civil charges that he had leaked corporate secrets to Raj Rajaratnam, the billionaire hedge fund manager convicted of insider trading last month.

But the trial has been delayed for at least six months, according to two people familiar with the case who would discuss it only on the condition of anonymity.

The lengthy postponement in the case, brought by the Securities and Exchange Commission, raises questions about the fate of Mr. Gupta, the most prominent business executive ensnared by the government’s insider-trading crackdown.

The United States attorney’s office in Manhattan, which has been investigating Mr. Gupta’s role in the case for at least three years, named Mr. Gupta a co-conspirator of Mr. Rajaratnam’s but has not charged him criminally.

Just a week before Mr. Rajaratnam’s trial began, the S.E.C. brought an unusual civil administrative proceeding against Mr. Gupta, accusing him of tipping Mr. Rajaratnam about confidential results at Goldman and Procter Gamble, where he also served as a director. Among the tips was news that Berkshire Hathaway, run by Warren E. Buffett, had agreed to invest $5 billion in Goldman at the peak of the financial crisis, the S.E.C. said.

Gary P. Naftalis, a lawyer for Mr. Gupta, has called the S.E.C.’s case “totally baseless.”

Mr. Gupta played a starring role at Mr. Rajaratnam’s trial. Although he did not take the witness stand, the jury heard Mr. Gupta’s name throughout the testimony. They listened to a wiretap in which Mr. Gupta told Mr. Rajaratnam about secret Goldman board discussions. They also heard a recording of Mr. Rajaratnam telling a colleague that a Goldman director had leaked the bank’s earnings to him.

It is unclear why federal prosecutors have not charged Mr. Gupta, but the government appears to have a weaker criminal case against him than it did against some of Mr. Rajaratnam’s other co-conspirators.

Certain evidentiary rules could prohibit prosecutors from using two incriminating wiretaps on which Mr. Rajaratnam told colleagues about tips he had received about Goldman. Without those tapes, the government would be forced to rely on more circumstantial evidence at trial — like phone bills and trading records — to establish Mr. Gupta’s guilt.

In the S.E.C.’s civil proceeding, which is tried not before a jury but an S.E.C. administrative law judge in Washington, the agency has a lower burden of proof than federal prosecutors would have in a criminal case. The S.E.C. also would not be subject to the rules of evidence that in a criminal trial could make the case against Mr. Gupta more difficult.

Lawyers for Mr. Gupta have sued the S.E.C. to get his case moved to federal court, contending that the agency violated his right to jury trial by bringing the administrative proceeding. That lawsuit, which is before Judge Jed S. Rakoff in Federal District Court in Manhattan, is not the reason for the suspension of Mr. Gupta’s S.E.C. trial, according to people familiar with the case.

So what is the cause for the long delay? No one will say. Mr. Naftalis, Mr. Gupta’s lawyer, declined to comment, as did spokesmen for the S.E.C. and the United States attorney’s office.

Behind-the-scenes dickering between the Justice Department and the S.E.C. could be behind the postponement, legal experts say. The United States attorney’s office in Manhattan had tried unsuccessfully to get the S.E.C. to delay bringing its civil action against Mr. Gupta until the conclusion of Mr. Rajaratnam’s trial, according to court filings. Now, if federal prosecutors are still weighing charges against Mr. Gupta, they could again be asking the S.E.C. to hold off.

“The timing of civil and criminal proceedings is never preordained, but typically a matter of negotiations between the S.E.C. and federal prosecutors,” said Eli J. Richardson, a white-collar defense lawyer at Bass, Berry Sims and a former prosecutor. “The substantial delay in Gupta’s trial without public explanation suggests that’s what’s likely going on here.”

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