Rajat Gupta, Ex Director at Goldman Sachs Group Inc. (NYSE:GS) has lost his attempt to have wiretap evidence refused as evidence in his upcoming insider trading battle. The decision was made by the US District Court in Manhattan today. The wiretaps are the same as were admitted last year in a separate case which led to the conviction of Raj Rajaratnam, Gupta’s alleged co conspirator. The conviction of the Rajaratnam based on the same evidence must cause worry for Gupta’s lawyers who now face an uphill battle in clearing their client’s name. Rajaratnam is serving an eleven year sentence for his crimes in Massachusetts. Gupta, if convicted, faces a similar prison term.
Judge Jed Rakoff admitted the evidence saying that “insider trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps”. In insider trading cases where wiretaps have been produced as evidence US attorneys have an exceptional conviction rate. In most cases the defendant has tried to fight the inclusion of the evidence in the hope of getting it removed from consideration which would as the Judge outlined make it extremely difficult to secure a conviction. The use of similar wire tap evidence in previous cases after attempts to have it removed has shown the improbability of disallowing its admission by Judges. The only way of convincing a court of the evidence’s illegitimate nature seems to be to prove that law enforcement obtained the information illegally or otherwise improperly.
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Others who have been convicted using such evidence include Winifred Jiau, Zvi Goffer, and the above mentioned Raj Rajaratnam. Each tried to undermine the worth of the wiretap evidence differently and each failed in the task. Rajaratnam testified that under the massive weight of all of the information available to him the phone calls he received did nothing to sway his decision. Goffer tried to convince the jury that his claims to insider information were exaggerated and were in fact lies. The precedent given suggests that such defenses are ineffective in altering the jury’s opinion of what they hear on tape. Mr. Gupta, who now faces the same evidence, must be worried of his prospects as his lawyers begin to formulate their arguments against the wiretap evidence.
Gupta faces criminal charges of insider trading after evidence emerged of his involvement in supplying insider information to Raj Rajaratnam, a senior partner at McKinsey & Company. Gupta was the former head of McKinsey & Co.. The information passed between the two centres on Warren Buffet’s Berkshire Hathaway’s acquisition of $5 Billion of preferred shares in Godman Sachs in 2008 before any announcement was made publicly about the transaction. The charges are the subject of three separate suits, two by the SEC and one by United States prosecutors. The SEC cases include one administrative and one civil case while the United States is bringing a criminal case against Gupta. The criminal trial is set to begin later this year on May 21st.