Rajat Gupta seeks re-hearing of insider trading conviction

India-born former Goldman Sachs director Rajat Gupta has petitioned that a three-judge panel, which upheld his conviction on insider trading charges, should reconsider its decision and the court rehear the case, arguing that "critical evidence" in his favour was excluded at trial.

Gupta filed a 70-page petition with the US Court of Appeals for the Second Circuit yesterday seeking "panel rehearing and rehearing en banc", saying in "rejecting two of his challenges to the exclusion of critical evidence in his case, the panel misapprehended several points" about the insider trading case against him.

"If the panel declines to reconsider its decision, the Court should rehear the case en banc," the petition added.

In a unanimous ruling last month, the panel of the appeals court had rejected Gupta's bid for a new trial and upheld his 2012 conviction and sentence.

After a federal jury found Gupta guilty in 2012 of passing confidential boardroom information to his hedge fund friend Raj Rajaratnam, he was sentenced to two years in prison, ordered to pay USD five million in fine and a separate USD six million in restitution to Goldman Sachs.

Gupta's team of lawyers led by Seth Waxman and Gary Naftalis are seeking re-hearing of the case because they feel the panel was wrong in affirming the district court's decision to exclude testimony by Gupta's eldest daughter Geetanjali.

They further say that the district court did not take into account evidence provided by Gupta that Goldman Sachs vice president David Loeb could have been an "alternative" source of inside information for Rajaratnam, with whom Loeb had shared close relations.

The lawyers say Geetanjali's testimony, that was central to Gupta's defence, was curbed during the trial as she was not allowed to tell the jury that her father believed Rajaratnam had stolen money from him.

Gupta's lawyers argued that he would not have tipped Rajaratnam since he was "furious" with him for cheating him out of millions of dollars through a joint investment fund Voyager.

"The panel should reconsider its decision to affirm the district court's exclusion of testimony by Geetanjali Gupta that her father told her on September 20, 2008—before either of the alleged tips for which he was convicted—that 'he was angry that (Rajaratnam) had taken money out of [their joint] fund without telling him.'

"This testimony was critical to the defense because it established—unlike any other trial evidence—that Gupta believed he had been swindled by Rajaratnam before the alleged tips in September and October," the lawyers said in petition.

"If Rajaratnam stumbled in his management of Voyager such that the fund performed poorly, Gupta might have been upset about the losses, but he might also have been willing to assist Rajaratnam in recovering them.

"If Rajaratnam stole from him, that is another story entirely—the jury could well have concluded, based on that evidence, that Gupta was infuriated about the theft and unwilling to do anything to assist Rajaratnam. The panel overlooked this key distinction," Gupta's lawyers said.

"The court's decision to conduct the questioning itself and its instruction to Geetanjali how to answer its questions meant that, although she was allowed to testify about her father’s demeanor (he was 'visibly upset'), she was never allowed to explain why her father was upset—that he was angry because he believed Rajaratnam had stolen millions of dollars from him," they added.

"If Geetanjali instead had been allowed to testify that Gupta 'was angry that Raj had taken money out of the fund without telling him', the defense would have had powerful evidence that Gupta had no motive to tip Rajaratnam, a man who he believed had effectively stolen millions of dollars from him," they added.

The panel also affirmed the district court's exclusion of evidence by Gupta that there was an "alternative tipper" who was providing confidential information about companies like Goldman Sachs to Rajaratnam.

The panel had reasoned that there was insufficient evidence that the information passed by the alternative tipper was confidential, the lawyers said, adding that "exclusion of this evidence was manifestly harmful."

Gupta had argued on appeal that the district court improperly excluded evidence which showed that Goldman Sachs vice president David Loeb, the firm's relationship manager for Rajaratnam's hedge fund Galleon, was a "plausible alternative source" of the inside information on which Rajaratnam traded.

Evidence of Loeb's position at Goldman, his relationship with Galleon, and his frequent calls to Galleon—including on the days of the tips for which the jury convicted Gupta—was already before the jury.

The additional evidence Gupta sought to admit—that Loeb had repeatedly tipped Rajaratnam with confidential information from public companies—was critical to securing Gupta's constitutional right to 'introduce any legal evidence tending to prove that another person may have committed the crime with which the defendant is charged'.

The lawyers said it was undisputed at trial that Loeb regularly passed confidential information concerning public companies to Rajaratnam.

"That Loeb and Rajaratnam openly discussed company information Loeb described as confidential shed very significant light on the nature of their relationship. The lawyers said there is 'compelling circumstance' that a rehearing of the case by a court is 'warranted'. The district court was wrong in not instructing the jury that character evidence 'may be sufficient in itself to establish reasonable doubt.'"

The lawyers said character evidence in favour of Gupta could have made the difference in this case if the jury had been properly instructed.