Former Corporate Chairman of Consulting Firm and Board of Director Rajat Gupta Found Guilty of Insider Trading in Manhattan Federal Court

June 15, 2012

The Federal Bureau of Investigation (FBI) on June 15, 2012 released the following:

“Gupta Convicted on Four Counts Arising from an Insider Trading Scheme in which He Provided Confidential Information About Goldman Sachs to His Business Partner and Friend, Raj Rajaratnam

Preet Bharara, the United States Attorney for the Southern District announced that Rajat K. Gupta, former corporate chairman of an international consulting firm and a member of the Boards of Directors of The Goldman Sachs Group Inc. (“Goldman Sachs”) and the Procter & Gamble Company (“P&G”), was found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes stemming from his involvement in an insider trading scheme with his business partner and friend, Raj Rajaratnam, the founder and former head of the Galleon Group.

Manhattan U.S. Attorney Preet Bharara stated, “Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away. Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell. Violating clear and sacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual open line into the board room for his benefactor and business partner, Raj Rajaratnam.

“Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence. I thank the members of the jury for their time, attention, and service, and the dedicated career prosecutors from my office who so ably tried this case.”

According to the superseding indictment filed in Manhattan federal court, other court documents, statements made at trial, and court proceedings:

During all relevant times, Gupta and Rajaratnam maintained a close personal and business relationship. Among other things, Gupta described Rajaratnam as a close friend; Gupta invested his money in Galleon funds while he served as chairman of the international consulting firm; Gupta co-owned a fund of funds with Rajaratnam, which invested its money in Galleon funds; Gupta served as chairman of a $1.5 billion private equity firm called NSR in which Rajaratnam invested approximately $50 million and served on the investment committee; and Gupta was given the position of Chairman of Galleon International in 2008 and expected to receive 15 percent of that fund’s performance fees.

From 2007 through January 2009, Gupta repeatedly disclosed material, non-public information (“inside information”) that he acquired in his capacity as a member of the Board of Directors of Goldman Sachs, with the understanding that Rajaratnam would use the inside information to purchase and sell securities. Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs on the basis of the inside information and shared the inside information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. On separate occasions that were proven at trial, Gupta gave Rajaratnam inside information that included highly sensitive and secret information. Illegal tips that were proven at trial include the following:

The September 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on September 23, 2008, within approximately 60 seconds after the conclusion of a Goldman Sachs telephonic board meeting in which the Board approved a $5 billion investment by Berkshire Hathaway, Gupta spoke with Rajaratnam. Immediately following the call, Rajaratnam directed two separate traders to purchase approximately $43 million of Goldman Sachs stock within minutes before the close of trading. During two court-authorized wiretapped conversations the following morning on September 24, 2008 between Rajaratnam and his principal trader and coconspirator, Ian Horowitz, Rajaratnam said that he received a call at 3:58 p.m. the day before telling him “something good’s gonna happen” at Goldman Sachs, that he directed the two traders to buy Goldman shares before the market closed, and that he could not yell this information out on Galleon’s trading floor. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam and co-conspirator Gary Rosenbach earned over $1 million in illegal profits.

The October 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on October 23, 2008, Gupta participated on a Goldman Sachs Board posting call during which he learned that Goldman Sachs was losing money for the quarter, which Goldman Sachs had never done since becoming a public company. Just 23 seconds after that call ended, Gupta called Rajaratnam. Following that call, at the first available opportunity after the stock market reopened, Rajaratnam started to sell his entire holdings in Goldman Sachs stock. Later that day, during a court-authorized wiretapped conversation, Rajaratnam explained to a senior portfolio manager at Galleon International that Rajaratnam had spoken with a member of the Board of Goldman Sachs and learned that Goldman Sachs was losing money during the quarter while Wall Street analysts expected the company to make money. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam was able to avoid losses of several million dollars.

* * *

Gupta, 63, of Westport, Connecticut, was found guilty of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was acquitted on two securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million. Gupta will be sentenced on October 18, 2012.

Rajaratnam was convicted in a jury trial on May 11, 2011 of 14 counts of conspiracy and securities fraud. He was sentenced on October 13, 2011 to 11 years in prison and was ordered to pay forfeiture in the amount of $53,816,434 and a $10 million fine.

Mr. Bharara praised the outstanding efforts of the FBI. He also thanked the SEC for its assistance in the investigation.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Assistant U.S. Attorneys Reed Brodsky and Richard C. Tarlowe are in charge of the prosecution.

– Statement by FBI New York Assistant Director in Charge Janice K. Fedarcyk on Gupta’s conviction”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Detail by Detail, Gupta’s Lawyer Deconstructs Goldman Testimony

June 11, 2012

The New York Times on June 11, 2012 released the following:

“BY AZAM AHMED AND PETER LATTMAN

It had to have been among the least productive weeks of Lloyd C. Blankfein’s six-year tenure as the chief executive of Goldman Sachs.

For the better part of three days this week, Mr. Blankfein testified at the trial of Rajat K. Gupta, the former Goldman director who is facing charges that he leaked the bank’s secret boardroom discussions to the hedge fund manager Raj Rajaratnam from 2007 to 2009.

Though Mr. Blankfein appeared at ease in the courtroom, he had to clear his busy calendar. He could not monitor the volatility in the financial markets. He could not even check his BlackBerry, to which he has acknowledged something of an addiction. In short, he could not do his job.

Instead, Mr. Blankfein, who has spent most of his career in the fast-paced environment of a trading floor, had to sit still on the witness stand and respond to hours of often-monotonous questions. Lawyers on both sides had him discuss Goldman’s inner workings, from the contents of board meetings to his relationship with his lieutenants.

Goldman has played a starring role in the trial of Mr. Gupta, which wrapped up its third week in Federal District Court in Manhattan before Judge Jed S. Rakoff. The prosecution rested its case on Friday, and the defense began to put on its own witnesses.

Late Friday, after the jury had gone home for the weekend, Gary P. Naftalis, a lawyer for Mr. Gupta, said it was “highly likely” that Mr. Gupta would testify in his own defense next week.

Mr. Naftalis spent much of Friday cross-examining Mr. Blankfein to try to show that some of the information Mr. Gupta is accused of leaking was known by the market and thus not “material nonpublic information” under the insider trading laws.

The line between public and private information is critical in the case, and Mr. Naftalis worked hard to try to erase that line. He showed Mr. Blankfein two reports from analysts who followed Goldman during the 2008 financial crisis. The reports, written by analysts at Merrill Lynch and Oppenheimer, raise the prospect of Goldman buying a retail bank. Both reports came after meetings with top Goldman officials.

“GS Bank & Trust?” pondered one report. “Don’t rule it out.”

A rationale for putting the reports before the jury was to minimize damage from the only phone conversation between the two recorded by a Federal Bureau of Investigation wiretap. During that call, in July 2008, Mr. Gupta tells Mr. Rajaratnam that Goldman’s board is considering buying a bank.

A jury convicted Mr. Rajaratnam, who ran the now-defunct Galleon Group hedge fund, of orchestrating an extensive insider trading conspiracy last year.

At times, Mr. Naftalis and Mr. Blankfein often seemed to fight for the jury’s affection. While Mr. Blankfein was being presented with a batch of news pieces about Goldman’s possible purchase of a bank, an article flashed on the overhead screen with a photograph of Mr. Blankfein resting his face on his left hand. This prompted laughter from the jury and spectators.

Mr. Blankfein, seizing the moment, mimicked the pose from the witness stand, leading to more cackling in the courtroom.

Comparing Mr. Blankfein’s pose against the photograph, Mr. Naftalis instructed the chief executive to move his hand “down and a little to the left.”

As he left the courtroom, Mr. Blankfein acknowledged the jury with a nod and a smile.

Before resting their case on Friday, prosecutors played several secretly recorded short voice mail messages left by Mr. Gupta on Mr. Rajaratnam’s cellphone. During one on Oct. 10, 2008, a time of market turmoil during the financial crisis, Mr. Gupta says: “Hey Raj, Rajat here. Just calling to catch up. I know it must be an awful and busy week. I hope you are holding up well. Uh, and I’ll try to give you a call over the weekend just to catch up. All the best to you, talk to you soon. Bye bye.”

Mr. Gupta’s lawyers have said that by October 2008, Mr. Gupta had lost his entire $10 million in a Galleon fund and had a falling-out with Mr. Rajaratnam and thus had no interest in passing along insider tips. The friendly tone of the voice mail message was the prosecution’s effort to debunk that theory. Reed Brodsky, a prosecutor, rested the government’s case after playing the recordings.

For the last 45 minutes of the day, the jury watched the defense’s videotaped deposition of Ajit Jain, a top lieutenant at Berkshire Hathaway and a top contender to succeed Warren E. Buffett, Berkshire’s chief executive.

Mr. Jain, a friend of Mr. Gupta’s, testified about the acrimony that had developed between Mr. Gupta and Mr. Rajaratnam. He said that during a lunch in January 2009 at an Italian restaurant in Stamford, Conn., Mr. Gupta told him about the bad blood.

“He told me that he had $10 million invested and he had been gypped, swindled and cheated by Raj and had lost his $10 million.””

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


As Gupta Insider Trading Trial Begins, Prosecution to Call First Witness

May 22, 2012

WNYC News on May 22, 2012 released the following:

By WNYC Newsroom

“Federal prosecutors are expected to call their first witness in the case against former Goldman Sachs board member Rajat Gupta on Tuesday.

The witness list in the case reads like a who’s who in business, including Warren Buffet and Lloyd Blankfein. But the prosecution is expected to call Gupta’s former secretary, Caryn Eisenberg to the stand first. Other possible witnesses for the prosecution on Tuesday include an FBI agent and a former co-worker of Gupta’s from the consulting firm McKinsey.

Prosecution and defense teams have made their opening arguments in the trial of the prominent NY businessman on Monday.

Government lawyer said they have Gupta’s phone records that show he illegally passed corporate secrets to his friend, Raj Rajaratnam, who ran a hedge fund. Assistant U.S. Attorney Reed Brodsky told jurors in opening statements that Gupta “threw away his duties, threw away his responsibilities and broke the law.”

Brodsky recounted how former billionaire Rajaratnam earned close to $1 million after Gupta told him in a phone call that Goldman had received an offer from Warren Buffett’s Berkshire Hathaway to invest $5 billion in the banking giant in 2008.

“That was trading on secrets coming from someone who actually knew what was happening in the confines of the board room,” Brodsky said. “That’s called insider trading and that’s a serious crime.”

Gupta’s lawyer said the prosecution’s evidence is like a cropped photograph. It doesn’t tell the whole story, it’s circumstantial. He questioned why a rich and successful businessman take this risk.

Defense attorney Gary P. Naftalis told jurors that Gupta “never defrauded anybody. He never cheated anybody.” Naftalis argued the call harms rather than helps the government’s case because no unusual trading occurred around that time, and the men were discussing information already reported by analysts and journalists.

The 63-year-old Gupta was a former Goldman Sachs board member, and also a former board member at Procter & Gamble Co.

Gupta has pleaded not guilty to conspiracy and securities fraud charges that carry a potential for more than 100 years in prison.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Gupta seeks calls thrown out of U.S. insider trial

May 8, 2012

CNBC on May 8, 2012 released the following:

“NEW YORK (Reuters) – Former Goldman Sachs board member Rajat Gupta, the most prominent corporate figure indicted in a U.S. crackdown on insider trading, has asked a judge to throw out more than two dozen phone conversations that the government has sought to present as evidence at his trial.

Gupta’s lawyers argued in court papers filed Monday night that as many as 26 recorded calls had nothing to do with allegations that Gupta gave inside tips to his onetime friend, convicted Galleon Group hedge fund manager Raj Rajaratnam.

Gupta’s trial starts on May 21 in U.S. District Court in Manhattan. A onetime head of McKinsey & Co, he is accused of giving Rajaratnam secrets of Goldman and Procter & Gamble board meetings in 2007 and 2008. In addition to sitting on the Goldman board, Gupta also was a director at P&G.

Gupta, 63, has denied the charges, which include five counts of securities fraud and one count of conspiracy. He says he lost money investing with Rajaratnam and that as many as four other Goldman personnel could have tipped off Galleon. Gupta could face up to 25 years in prison if convicted of securities fraud.

Rajaratnam is serving an 11-year prison term, the longest sentence handed down for insider trading in the United States, after being convicted in the same court a year ago. Much of the evidence against him was gathered in FBI wiretaps, revealing a network of contacts providing inside information.

“It appears that the government seeks to reprise the Rajaratnam trial in order to shore up its weak circumstantial case against Mr. Gupta, resorting to evidence about other companies and other alleged conspiracies,” Gupta’s lawyers said in the court papers.

They said the calls “likely are extremely prejudicial, likely to focus the jury’s attention on matters outside the indictment.”

A spokeswoman for the office of the Manhattan U.S. Attorney declined to comment. The office’s prosecutions of insider trading at hedge funds in recent years have led to dozens of people either pleading guilty or being convicted at trial.

U.S. District Judge Jed Rakoff will rule on which evidence may be heard by the jury.

A pre-trial hearing is scheduled for May 16.

Prosecutors say Gupta gave Rajaratnam advance knowledge of a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway Inc at the height of the 2008 financial crisis, Goldman’s surprise fourth-quarter 2008 loss, and P&G’s quarterly earnings in late January 2009. Gupta was also charged with providing non-public information about Smucker’s acquisition of Folgers from P&G in 2008.

The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-907.

(Reporting By Grant McCool; Editing by Martha Graybow, Dave Zimmerman)

(This story corrects Gupta’s age to 63 in the 4th paragraph)”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


S.E.C. Told to Share Notes in Insider Trading Case

March 28, 2012

The New York Times on March 27, 2012 released the following:

“BY PETER LATTMAN

A federal judge has ordered Securities and Exchange Commission lawyers to turn over their notes to federal prosecutors handling the criminal case against Rajat K. Gupta, a former director of Goldman Sachs.

The ruling was part of a flurry of pretrial orders from Judge Jed S. Rakoff, who is presiding over the case.

Mr. Gupta, who is charged with leaking Goldman’s boardroom secrets to his friend, the convicted hedge fund manager Raj Rajaratnam, is scheduled to go on trial May 21.

Among the more significant orders, Judge Rakoff said federal prosecutors must review the S.E.C.’s notes about 44 interviews of witnesses during its investigation of Mr. Gupta and disclose any exculpatory evidence to the defense. Federal prosecutors in the United States attorney’s office in Manhattan, who jointly conducted the 44 interviews with the S.E.C., argued that they had no obligation to review the S.E.C.’s notes because the two investigations were separate.

Judge Rakoff disagreed with the government’s position.

“That separate government agencies having overlapping jurisdiction will cooperate in the factual investigation of the same alleged misconduct makes perfect sense; but that they can then disclaim such cooperation to avoid their respective discovery obligations makes no sense at all,” Judge Rakoff wrote.

The S.E.C. and the Justice Department have long run parallel investigations, but the line between them can often become blurred. Judge Rakoff noted that there was a constitutional duty for prosecutors to disclose any exculpatory evidence — called Brady material — to the defense, regardless of whether the notes came from the S.E.C.

“To hold that these memoranda were not created as part of a joint factual investigation would make a mockery of the ‘joint investigation’ standard as applied to the defendant’s constitutional right to receive all information the government has available to it that tends to show his innocence,” Judge Rakoff wrote.

In other rulings, Judge Rakoff ordered that Lloyd C. Blankfein, the chief executive of Goldman Sachs, must sit for an additional two hours of depositions to be taken by Mr. Gupta’s lawyers. Mr. Blankfein was deposed for seven hours last month, and is expected to be a witness at Mr. Gupta’s trial.

The dispute over Mr. Blankfein’s testimony arose when, during the February deposition, Mr. Gupta’s lawyer asked Mr. Blankfein whom he had met with to prepare for the deposition. He responded that he had met with both federal prosecutors, S.E.C. lawyers and an F.B.I. agent. When Mr. Gupta’s lawyer asked Mr. Blankfein what the government asked at these meetings, the S.E.C. objected, citing work product protections.

Judge Rakoff ruled that Mr. Blankfein must answer these questions.

“By asking Blankfein what topics he recalls were discussed, what questions he was asked and what documents he was shown, defendants seek to discover how the preparation sessions affected Blankfein’s testimony, and do not demonstrate a mere naked attempt to obtain the S.E.C.’s and the U.S.A.O.’s legal opinions and strategy,” the judge wrote.

Judge Rakoff also issued several rulings that went against Mr. Gupta. He denied his lawyers’ motion to suppress the use of wiretaps at trial and to dismiss three of the counts in the government’s complaint that were claimed to be either vague or duplicative.

On the wiretap issue, Judge Rakoff said: “The simple truth is that, in both this and numerous other cases, insider trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps.””

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Court Overturns Conviction of Ex-Goldman Programmer

February 17, 2012

The New York Times on February 17, 2012 released the following:

“BY PETER LATTMAN

A federal appeals court reversed the conviction late Thursday of Sergey Aleynikov, a former Goldman Sachs programmer found guilty of stealing proprietary code from the bank’s high-frequency trading platform.

The United States Court of Appeals for the Second Circuit overturned the conviction and ordered the trial court to enter a judgment of acquittal. A judgment of acquittal generally bars the government from retrying a defendant.

The reversal was without explanation; it said an opinion would follow “in due course.”

The appeals court ruling came just hours after a three-judge panel heard oral arguments on Mr. Aleynikov’s appeal. Mr. Aleynikov, who was convicted in December 2010, is serving an eight-year sentence at a federal prison in Fort Dix, N.J.

“We are pleased and gratified that the court of appeals has roundly rejected the government’s attempt to rewrite the federal criminal laws,” said Kevin Marino, Mr. Aleynikov’s lawyer. “Mr. Aleynikov spent a year in prison and suffered many other losses as a result of these unjust charges, but he never lost faith in his ability to win an acquittal. This is a wonderful day in his life.”

Ellen Davis, a spokeswoman for the United States attorney’s office in Manhattan, declined to comment.

The reversal deals a major blow to the Justice Department, which has made the prosecution of high-tech crime and intellectual property theft a top priority. This case tested the boundaries of the Economic Espionage Act, a 15-year-old law that makes it a crime to steal trade secrets. Federal prosecutors held up the arrest of Mr. Aleynikov as an example of the government’s crackdown on employees who steal valuable and proprietary information from their employers.

The decision is also a loss for Goldman Sachs, which reported Mr. Aleynikov to federal authorities after it accused him of stealing computer code. The bank had portrayed itself as the victim of a brazen crime.

A crucial issue in the appeal — and a main focus of Thursday’s oral argument — was whether Mr. Aleynikov’s actions constituted a crime under the statutory language of the Economic Espionage Act. The debate centered on whether Goldman’s high frequency trading system was a “product produced for interstate commerce” within the meaning of the law.

Lawyers for Mr. Aleynikov argued that the bank’s trading platform was built for internal use and never placed in the stream of commerce. The government countered that the high-frequency trading system, which Goldman used to trade in markets around the globe, was clearly produced for interstate and foreign commerce.

Mr. Aleynikov’s arrest in 2009 drew attention to a new and lucrative corner of Wall Street. High-frequency trading uses complex computer algorithms to make rapid trades that exploit tiny price discrepancies. The trading became a substantial source of revenue at banks and hedge funds, and these companies vigilantly guard the code underpinning their trading strategies.

Armed with a degree in computer programming, Mr. Aleynikov came to the United States from Russia in 1990. His services were in demand at Goldman, which paid him $400,000 a year to write code for its high-frequency trading business, making him one of the bank’s highest-paid programmers.

He was lured away from Goldman by Teza Technologies, a new firm run by an executive from the Citadel Investment Group, a giant Chicago hedge fund. Teza offered to pay about triple what he made at Goldman.

During his last final days at Goldman, Mr. Aleynikov uploaded source code to a server in Germany that allowed him to do an end run around the company’s security systems. He was arrested shortly thereafter.

At trial, Mr. Marino, the lawyer for Mr. Aleynikov, acknowledge that his client breached Goldman’s confidentiality agreements, but insisted that he did not commit a crime.

Federal prosecutors portrayed Mr. Aleynikov as a thief who stole Goldman’s closely guarded code to help his new employer. After a two-week trial, the jury deliberated for just three hours before reaching a unanimous guilty verdict.

The ruling is the second time in as many months that the Federal Appeals Court in Manhattan has overturned a conviction secured by the United States attorney for the Southern District of New York. In January, the appeals court reversed the conviction of Joseph P. Collins, a former outside lawyer to Refco, the collapsed brokerage firm, citing judicial error.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Gupta Faces New Charges in Insider Trading Case

February 1, 2012

The New York Times on January 31, 2012 released the following:

“BY PETER LATTMAN

Federal prosecutors expanded their case against Rajat K. Gupta on Tuesday, filing a new indictment that broadens what they claim was an insider trading conspiracy between the former director of Goldman Sachs and Raj Rajaratnam.

In a new charge, the government contends that Mr. Gupta called in to a Goldman board meeting in March 2007 from Mr. Rajaratnam’s offices at the Galleon Group hedge fund. Minutes after the call, he leaked secret information about the bank to Mr. Rajaratnam, the government says.

Gary P. Naftalis, a lawyer for Mr. Gupta, denied the new accusations, saying, “As we have stated from the onset, the government’s allegations are totally baseless.”

Last October, the government charged Mr. Gupta with leaking to Mr. Rajaratnam boardroom secrets about Goldman and Procter & Gamble, where he also served as a director. It was a stunning blow to Mr. Gupta, who as the former global head of the consulting firm McKinsey & Company was one of the world’s most respected businessmen.

His trial is set for April 9 before Judge Jed S. Rakoff in Federal District Court in Manhattan. Mr. Rajaratnam, who was convicted by a jury last May of leading a huge insider trading ring, is serving an 11-year prison term.

The new charges seem to counter one of Mr. Gupta’s main lines of defense. At pretrial hearings, Mr. Gupta’s lawyers have said that the relationship between Mr. Gupta and Mr. Rajaratnam, once close friends and business associates, had soured by 2008, which is when the government said that Mr. Gupta leaked corporate secrets to Mr. Rajaratnam. The lawyers attribute the falling out to a $10 million loss on an investment with Mr. Rajaratnam.

By stretching the conspiracy back to 2007, when the markets were still soaring and Galleon’s investments were performing well, the government appears to be countering the defense that Mr. Rajaratnam had fallen out of Mr. Gupta’s good graces.

In addition, the accusation that Mr. Gupta participated in a Goldman board call from Galleon’s offices suggests a coziness between the two men that Mr. Gupta’s lawyers have sought to debunk.

The additional charges against Mr. Gupta involve both Goldman and Procter & Gamble.

In one new count, prosecutors assert that Mr. Gupta, then a Goldman director, participated in a telephone meeting of the board’s audit committee in March 2007 from Galleon. Mr. Gupta heard a preview of Goldman’s earnings, which were strong and set for release the next morning, the government contends. About 25 minutes after the call, Galleon bought at least $70 million worth of Goldman shares, allowing the fund to profit when the bank’s shares rose the next morning.

In the other added charge, the government asserts that Mr. Gupta called Mr. Rajaratnam from Switzerland after participating in a Procter & Gamble board call and leaked information about the company’s coming earnings release.

Separately, Richard J. Holwell, the federal judge who presided over the trial of Mr. Rajaratnam, is retiring from the bench, according to two people with direct knowledge of the matter who requested anonymity because they were unauthorized to discuss it.

The timing of Judge Holwell’s retirement is unclear, but he is expected to return to private practice. He was a partner at the law firm White & Case before becoming a judge in 2003.

Judge Holwell did not respond to a request for comment.”

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.