Insider trading: Gupta to stay free on bail pending appeal

India-born former Goldman Sachs director Rajat Gupta can remain free on bail while he challenges his conviction on insider-trading charges, a US court ruled on Wednesday.

Updated: Dec 05, 2012, 10:29 AM IST

New York: India-born former Goldman Sachs director Rajat Gupta won a major reprieve after an appeals court here granted his request to stay out of prison on a USD 10 million-bond while he fights his conviction on insider trading charges.

64-year-old Gupta, who was to begin his two-year prison term on January 8, had filed an appeal in the US Second Circuit Court of Appeals seeking stay of his surrender to prison and to remain free on a 10-million-dollar bond while he challenges his conviction.

A two-judge panel ruled in Gupta's favour at a hearing yesterday, saying "it is hereby ordered that the conditions of release imposed by the district court will be continued.

"Motion is granted," US Circuit Judge Jose Cabranes said in the ruling, allowing Gupta's motion to stay his surrender date and remain free on bond.

The court is expected to hear Gupta's appeal around April next year and it could be a year before his request to overturn his conviction is ruled upon.

The bail conditions imposed by the district court since Gupta's arrest in October last year include the 10 million dollar-bond, surrender of his passports and travel restrictions.

The ruling comes as a major relief for Gupta, who is one of the most high-profile Wall Street executives to be charged with passing confidential boardroom information about Goldman Sachs to his friend and business associate, hedge fund founder Raj Rajaratnam, who prosecutors allege made millions of dollars in profit and avoided huge losses thanks to Gupta's tips.

Gupta was accompanied by his wife Anita and their four daughters at the hearing.

After the decision was announced, Gupta's wife burst into tears.

Judge Cabranes issued his ruling after consulting with US District Judge Reena Raggi, who was also on the panel.

The former McKinsey head was convicted by a jury in June on one count of conspiracy and three counts of securities fraud.

US District judge Jed Rakoff had in October sentenced Gupta to two years in prison and slapped a five million-dollar fine on him.

Gupta and his lawyers Seth Waxman and Gary Naftalis declined to comment on yesterday's ruling.

The office of Manhattan's top federal prosecutor, India-born Preet Bharara, who had brought the insider trading charges against Gupta, also declined to comment on the appeals court's ruling.

In court papers, Gupta's lawyers have argued that the district court, which convicted Gupta, erred in allowing at the trial an October 24, 2008 wiretapped conversation between Rajaratnam and David Lau, a Singapore-based portfolio manager at Galleon, and a September 24 conversation with his trader Ian Horowitz.

In the October call, Rajaratnam told Lau that he "heard yesterday from somebody who is on the board of Goldman Sachs, that they are going to lose two dollars per share."

Gupta's lawyers said there was no evidence that Lau had ever traded in Goldman stock. They also say that Gupta was never a participant in these calls.

The "October 24 wiretap, which contained the only direct suggestion that Rajaratnam had a source on the Goldman board, coloured the jury's analysis of the wiretaps... Which were vague about the source and content of Rajaratnam's information."

Waxman also argued that the court erred by excluding as hearsay critical evidence that Gupta's eldest daughter Geetanjali could have provided at trial regarding Gupta's state of mind and about her father's deteriorating relationship with Rajaratnam.

Waxman said Geetanjali was not permitted to testify on an issue which was "most critical" to the defence that Gupta was "angry" with Rajaratnam for cheating him before he tipped the Sri Lankan in September and October 2008.

Gupta had told his daughter on September 20, 2008, just days before prosecutors say he tipped the hedge fund founder about Goldman, that Rajaratnam had withdrawn money from the Voyager fund.

Gupta said he had lost USD 10 million as a result of Rajaratnam's actions.

"Geetanjali's excluded testimony would have provided the evidentiary support for counsel to argue, and the jury to conclude, that Gupta believed as early as September 2008 that Rajaratnam had stolen from him, which would have raised a reasonable doubt about Gupta's motive and provided an innocent explanation for his phone calls to Rajaratnam ? that Gupta was remonstrating with Rajaratnam and demanding an explanation and a return of his funds," Waxman said in court.

Waxman said "Gupta's principle defence is he would have never provided any benefit to Rajaratnam because he had come to believe Rajaratnam had swindled him. The timing (of their relationship deteriorating) was everything in this case."

The other argument that Gupta's lawyers presented and on which their case for appeal will be based is that the district court erred by excluding wiretap evidence of an alternative Goldman Sachs tipper providing inside information to Rajaratnam.

"The district court barred Gupta from presenting any evidence that another Goldman executive David Loeb, in his frequent communications with Galleon, passed on confidential information, including inside Apple and Intel information," Waxman said.

Assistant US Attorney Reed Brodsky, who had prosecuted Gupta at trial, argued that the district court had not erred in its rulings and was correct in rejecting Gupta's request to remain free pending appeal.

He also said that it had correctly permitted prosecutors to play the wiretaps between Rajaratnam and Lau.

Rajaratnam is serving an 11-year prison term for insider trading at the Federal Medical Center Devens in Ayers, Massachusetts.

The same appeals court that granted Gupta's request had denied Rajaratnam's bid last year to remain free on bail pending appeal.

Prosecutors have also said Gupta should not be allowed to remain out of prison as he is a flight risk due to his strong personal and financial ties to his native country India.

Gupta's lawyers have argued that he does not pose any risk of flight.

"The government's new, perfunctory contention that Gupta poses a flight risk is frivolous (and unsupported by any record citation). Gupta has lived in the United States for more than 40 years; his four daughters, grandchildren, and wife all live here," the lawyers said.