March 23, 2023

DealBook: Milken’s Past Invoked in Gupta Sentencing

Michael Milken at a health conference in 2009.Fred Prouser/ReutersMichael Milken, who was a symbol of Wall Street greed in the 1980s, has become a prominent philanthropist.

More than two decades after pleading guilty to securities fraud, the financier Michael Milken still looms large. The demand for junk bonds, a market that he helped create, have touched record levels this year. A number of his disciples, like Leon Black of Apollo Global Management, are among the most powerful players on Wall Street.

And though it was a generation ago that Mr. Milken – who earned a $550 million bonus in 1986 – became a symbol of Wall Street greed, he remains a presence in the world of white-collar crime. Mr. Milken’s continued influence became clear during the sentencing of Rajat K. Gupta.

Last Wednesday in Federal District Court in Manhattan, Mr. Gupta, a former Goldman Sachs director, received a two-year prison term for leaking boardroom secrets about the bank to the hedge fund manager Raj Rajaratnam.

Judge Jed S. Rakoff, the presiding judge in Mr. Gupta’s case, made a surprising reference to Mr. Milken during the hearing. It came after Mr. Gupta’s lawyer, Gary P. Naftalis, made a plea for a lenient sentence. Mr. Naftalis cited the hundreds of letters of support for Mr. Gupta, who in addition to his business accomplishments has played a leading role in fighting global disease. He read a letter from Barry Bloom, the former dean of the Harvard School of Public Health.

“Dr. Bloom stated, ‘To my knowledge, as someone who has worked in global health for 40 years, with the sole exception of Bill Gates, no leader of the private sector or corporate world has invested so much of his time, energy, and personal credit to do so much for the poorest people of the poorest countries than Rajat Gupta,” Mr. Naftalis said.

“I’m glad he didn’t say except for Michael Milken,” Judge Rakoff responded.

The comment by the judge caught the courtroom by surprise. Over the last several decades, Mr. Milken has been a prominent philanthropist. Still, while his family foundation has been a significant contributor to education initiatives and medical research causes, it has not been involved in global public health matters.

“Michael Milken wasn’t there on this issue,” Mr. Naftalis said.

Judge Jed. S. Rakoff of Federal District Court in Manhattan.Fred R. Conrad/The New York TimesJudge Jed. S. Rakoff of Federal District Court in Manhattan.

Later in the hearing, Judge Rakoff referenced his earlier comment about Mr. Milken. The judge rejected the recommendation by Mr. Gupta’s lawyer that his client receive a probationary sentence and perform community service in Rwanda, saying that said this would amount to insufficient punishment because Mr. Gupta had already devoted himself to such activities. He called the Rwanda idea “innovative” but at the same time mocked it, noting that it sounded like a “Peace Corps for insider traders.”

“Moreover, someone who has suffered a reputational loss has a strong motive to do those kinds of things,” Judge Rakoff said. “I somewhat unfairly made a joke at the expense of Mr. Milken previously, but he is a good example of a person who has attempted to recapture his reputation by doing good works.”

Both Judge Rakoff and Mr. Naftalis, the lawyer for Mr. Gupta, have more than just a passing interest in Mr. Milken. Both men have deep connections to the late 1980s insider trading scandal that featured Mr. Milken’s former firm, Drexel Burnham Lambert. As a criminal defense lawyer, Mr. Rakoff represented Martin A. Siegel, a former Kidder Peabody investment banker who admitted to leaking inside information to the financier Ivan Boesky. And Mr. Naftalis represented Kidder Peabody in the case, working closely with Mr. Rakoff.

A spokesman for Mr. Milken, Geoffrey Moore, took umbrage at Judge Rakoff’s comments. He bristled at the idea that Mr. Milken’s philanthropic efforts were solely a function trying to restore his reputation.

In a statement to DealBook, Mr. Moore listed Mr. Milken’s numerous charitable efforts and emphasized that Mr. Milken endowed his family foundation with several hundred million dollars in 1982, long before his legal troubles.

“Mike’s efforts today are no more than a continuation of the same efforts that began long before his reputation was damaged,” Mr. Moore said. “He is far too busy trying to advance medical science to worry about what others think of him.”

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DealBook: S.E.C. Drops Proceeding Against Rajat Gupta

Rajat K. Gupta, a former director of Goldman Sachs.Seokyong Lee/Bloomberg NewsRajat K. Gupta, a former director of Goldman Sachs.

8:26 p.m. | Updated

The Securities and Exchange Commission has dropped its administrative proceeding against Rajat K. Gupta, a former director of Goldman Sachs and Procter Gamble, handing him a victory in his legal battle with the agency.

“The commission has determined that it is in the public interest to dismiss these proceedings,” the S.E.C. said in a two-page order filed late Thursday.

In March, the S.E.C. filed an unusual civil administrative proceeding against Mr. Gupta that accused him of leaking secret board discussions to Raj Rajaratnam, the hedge fund billionaire, now convicted. The proceeding would have been heard by an S.E.C. administrative law judge in Washington.

In response to the administrative action, Mr. Gupta’s lawyers fired back with a lawsuit against the S.E.C. that accused it of denying Mr. Gupta his right to a jury trial and treating him differently than the other Mr. Rajaratnam-related defendants, all of whom the agency sued in federal court.

Last month, the presiding judge in the case, Jed S. Rakoff, issued a ruling that allowed Mr. Gupta’s lawsuit to proceed and criticized the S.E.C. for bringing the administrative proceeding instead of a federal lawsuit.

“Mr. Gupta is very pleased that as a result of his lawsuit, the S.E.C. has dismissed its administrative proceeding and he will no longer be singled out for disparate treatment,” Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement. “As we’ve said previously, the S.E.C.’s allegations are totally baseless and cannot withstand scrutiny.”

Mr. Gupta, who also served as the head of the consulting firm McKinsey Company, has agreed to drop his lawsuit against the S.E.C., according to court papers filed Thursday.

The S.E.C. can still sue Mr. Gupta in federal court before Judge Rakoff. Federal prosecutors, meanwhile, have not brought criminal charges against Mr. Gupta but called him an unindicted co-conspirator of Mr. Rajaratnam.

A spokeswoman for the United States attorney’s office in Manhattan declined to comment. An S.E.C. spokesman said that “the staff is fully committed to the case and will proceed as appropriate.”

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