NEW YORK (Reuters) ? Former Goldman Sachs Group Inc director Rajat Gupta may pursue his lawsuit accusing the U.S. Securities and Exchange Commission of violating his rights by denying him a jury trial in an insider-trading case.
U.S. District Judge Jed Rakoff rejected the SEC motion to dismiss Gupta's case, which stemmed from the agency beginning administrative proceedings against him on March 1.
Gupta, a former chief of consulting firm McKinsey & Co, was accused by the SEC of passing tips to Galleon Group hedge fund founder Raj Rajaratnam about Goldman and Procter & Gamble Co, where Gupta was once also a director.
The tips included alleged details about financial results, and a $5 billion investment in Goldman from Warren Buffett's Berkshire Hathaway Inc at the height of the 2008 financial crisis.
On May 11, a federal jury convicted Rajaratnam of 14 securities fraud and conspiracy charges related to insider trading. Prosecutors named Gupta as an unindicted co-conspirator, but have not charged him criminally.
In his ruling, Rakoff said Gupta may argue that the SEC violated his equal protection rights by singling him out from other defendants it had sued in the Galleon case.
Some protections in federal court, including rights to have a jury trial, obtain some evidence and raise counterclaims, are not available in administrative proceedings.
"We have the unusual case where there is already a well developed public record of Gupta being treated substantially disparately from 28 essentially identical defendants, with not even a hint from the SEC, even in their instant papers, as to why this should be so," Rakoff wrote.
The allegations of unequal treatment, if made properly, "would state a claim even if Gupta were entirely guilty of the charges made against him," Rakoff added.
Gary Naftalis, a lawyer for Gupta, declined to comment on Rakoff's decision. He has previously called the SEC charges "baseless."
SEC spokesman John Nester declined to comment.
SEC'S BAD FAITH ALLEGED
In his March 18 complaint, Gupta alleged that the SEC chose to bring administrative proceedings, authorized under last year's Dodd-Frank financial overhaul, "for the bad faith purpose of shoring up a meritless case by disarming its adversary."
Rakoff said it is unnecessary to decide whether Dodd-Frank should be applied retroactively to Gupta, and that the issue could very likely become moot.
The judge ordered expedited treatment of Gupta's lawsuit, with a hearing on evidence within four months.
Last month, a U.S. administrative law judge delayed Gupta's administrative proceedings, once scheduled for July 18, for six months after federal prosecutors filed motions to intervene.
At Rajaratnam's trial, prosecutors played secretly recorded phone calls to show Gupta's alleged tips.
In one, Rajaratnam and Gupta discussed a Goldman board meeting. In another, Rajaratnam told a Galleon colleague that a Goldman director provided him with details that the bank was on track for a surprise loss in the fourth quarter of 2008.
Rajaratnam is expected to be sentenced in the criminal case on September 27. He also faces SEC civil charges.
The case is Gupta v. SEC, U.S. District Court, Southern District of New York, No. 11-01900.
(Reporting by Jonathan Stempel; Editing by Tim Dobbyn, Lisa Von Ahn and Robert MacMillan)
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