Legal News

Ex-Goldman Director Sues SEC Over Action In Insider Case

By Chad Bray

A former Goldman Sachs director, Rajat Gupta, sued the Securities & Exchange Commission on Friday over its choice of venues to air allegations in an insider-trading case.

The backstory goes like this: The SEC brought a civil administration action against Gupta earlier this month, using a provision of the Dodd-Frank Act to pursue civil penalities against him.

The allegation: Gupta, the former head of consulting firm McKinsey & Co., provided improper tips to Galleon Group founder Raj Rajaratnam while Gupta was serving on the boards of Goldman and Procter & Gamble Co. The tips allegedly included a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway at the height of the financial crisis.

In the past, the SEC could only seek penalties in an administrative action if the accused was a so-called regulated person: an employee of a broker-dealer.

In his lawsuit, filed in federal court in Manhattan, Gupta claims he was “unfairly and unconstitutionally” singled out and the action violates his rights to due process.

He claims the SEC chose to bring lawsuits against at least 27 others in federal court in the broader insider-trading probe, rather than administrative actions. In federal court, Gupta would have the right to a jury trial; in an SEC administrative action, he wouldn’t.

A SEC spokesman declined comment Friday.

Full post as published by Law Blog - WSJ.com on March 18, 2011 (boomark / email).