By Joseph Ax
NEW YORK (Reuters) - A day before he is scheduled to begin serving a two-year prison sentence for insider trading, former Goldman Sachs Group Inc director Rajat Gupta asked a federal appeals court to reduce a $13.9 million civil penalty and shorten his lifetime ban from serving as an officer of a public company.
Gupta’s lawyer, Seth Waxman, told the 2nd U.S. Circuit Court of Appeals in New York that the penalty was excessive given that Gupta separately was ordered to pay $6 million in restitution to Goldman Sachs and $5 million in criminal fines.
But David Lisitza, a lawyer for the U.S. Securities and Exchange Commission, said the $13.9 million penalty was appropriate given the brazen nature of Gupta’s actions, even though he did not personally profit.
“This is the insider trading case of our century so far,” he said.
Gupta, 65, was convicted in June 2012 of passing confidential tips he heard at Goldman board meetings to his friend, former hedge fund manager and billionaire Raj Rajaratnam. Rajaratnam, the founder of Galleon Group, is serving an 11-year prison term for insider trading.
Gupta is set to report to federal prison on Tuesday, the same day that Rajaratnam’s younger brother, Rengan, goes on trial in New York on insider trading charges.
A three-judge panel of the 2nd Circuit previously denied Gupta’s appeal of his conviction; he has asked the full circuit to rehear his argument.
Gupta, also the former global managing director of the consulting firm McKinsey & Co, is the highest-ranking corporate official to be convicted in the government’s insider trading probe that has convicted 81 people at trial or through guilty pleas since August 2009.
U.S. District Judge Jed Rakoff in Manhattan federal court oversaw Gupta’s criminal trial as well as a parallel civil case brought by the SEC that led to the $13.9 million fine and the ban.
In sentencing Gupta to prison, Rakoff said he was unlikely to commit similar crimes in the future. But Rakoff nevertheless later imposed the lifetime ban that the SEC sought.
Waxman, a former U.S. solicitor general, argued on Monday that Rakoff had essentially come to opposite conclusions based on the same facts, prompting Circuit Judge Barrington Parker to ask Lisitza how the same judge could make a "180-degree" turn.
Lisitza responded that the risk of recidivism necessary to lock someone “in a cage” was different than that required to "keep him out of the boardroom."
Meanwhile, Gupta was dealt a setback on Monday when the U.S. Supreme Court declined to hear Rajaratnam’s appeal of his own conviction. Both men objected to the government’s use of wiretaps against them.
(Reporting by Joseph Ax; Editing by Noeleen Walder, Bernard Orr)