This week, two defendants in one of the largest insider trading cases in history returned to court.
Raj Rajaratnam, a 1983 MBA recipient, presented his appeal to the Second U.S. Circuit Court of Appeals yesterday, calling into question the validity of the wiretap evidence used in his conviction.
In October 2011, he was sentenced to 11 years in prison in the first insider trading case involving the use of wiretap evidence.
On Wednesday, Rajaratnam’s friend Rajat Gupta — one of 23 defendants in the case — was sentenced to two years in prison and fined $5 million.
In Rajaratnam’s hearing, his lawyer argued that the government mishandled its application to use wiretaps, which provided key evidence in his conviction.
“The defense is seeking to suppress the wiretaps,” said Anita Raghavan, a 1986 College graduate and former Daily Pennsylvanian news editor. Raghavan, who is writing a book on the case, attended both Gupta’s sentencing and Rajaratnam’s hearing.
Rajaratnam’s lawyer, Patricia Millet, maintained that the government failed to disclose key components of the ongoing investigation in the application.
Millett pointed out, for example, that the government did not disclose an ongoing year-and-a-half investigation led by the Securities and Exchange Commission in the same case.
Outside parties have also criticized the government’s wiretap use in “amicus curiae” briefs, including one authored by eight former federal judges.
The briefs argue that the wiretap investigation violated Fourth Amendment rights and a law restricting electronic surveillance to law enforcement purposes in narrow circumstances.
The law requires the government to disclose everything on the ongoing investigation when applying to use wiretaps.
“The government must make a full and complete statement of the investigation,” Raghavan said.
She added, however, that the appeals court judges did not appear convinced by the argument.
“I was struck by the fact the judges did not seem to challenge the government very strenuously,” she said. “I think the hurdle has always been quite high for Rajaratnam to get these wiretaps suppressed.”
On Wednesday, Gupta, a former member of the board of governors for Wharton’s Lauder Institute, received his sentencing.
He had been charged with providing Rajaratnam with nonpublic information on incoming investments in Goldman Sachs while he was director of the company.
Many other defendants in the case have received little to no prison time. Rajaratnam’s former classmates, 1983 MBA recipients Rajiv Goel and Anil Kumar, have both received probation sentences due to their heavy collaboration with the government.
Many believe Gupta’s illegal actions were uncharacteristic. The judge’s decision commended his charity work at length and pointed out that Gupta never benefited from the insider trading scheme.
“There was no direct financial benefit that Rajat Gupta received from giving insider tips to Raj Rajaratnam,” Raghavan said.
“This appears to be aberrant behavior,” said Court Golumbic, an adjunct professor at the Law School and former Assistant U.S. attorney in the U.S. Attorney’s Office for the Southern District of New York, where Gupta was sentenced.
Golumbic added that the sentence was fair as it reflected “the seriousness of the crime” as well as Gupta’s forthrightness precluding the insider trading.
The judge’s decision contrasted Gupta with “Rajaratnam, a clever cultivator of persons with information.”