SEC Drops Administrative Proceeding Against Kramer Levin Client Rajat Gupta

On August 4, 2011, the Securities and Exchange Commission dismissed all administrative proceedings against Kramer Levin Naftalis & Frankel LLP client Rajat Gupta.

On March 1, 2011, the SEC filed an unprecedented civil administrative proceeding seeking civil penalties against Mr. Gupta that accused him of providing inside information to Raj Rajaratnam of Galleon Group -- the first time the SEC had attempted to use new authority under Dodd-Frank against a person not associated with a regulated entity. In response, Kramer Levin, on behalf of Mr. Gupta, promptly filed a lawsuit against the SEC in the U.S. District Court for the Southern District of New York accusing the SEC of depriving Mr. Gupta of equal protection under the law by singling him out for disparate and prejudicial treatment, since the SEC had sued all 28 other Galleon-related defendants in federal court.

In a major decision issued on July 11, 2011, U.S. District Judge Jed S. Rakoff denied the SEC’s motion to dismiss Mr. Gupta’s lawsuit. Judge Rakoff found that the SEC had waived its sovereign immunity against suit, where Mr. Gupta showed that he could not receive meaningful judicial review of his constitutional claims in the administrative proceeding, and that the constitutional claims were "particularly suited to the expertise of the judiciary." The court found that the administrative proceeding was a "seeming exercise in forum-shopping," and that "there is already a well-developed public record of Gupta being treated substantially disparately from 28 essentially identical defendants." Judge Rakoff directed the parties to engage in expedited discovery, so that the claims could be heard within four months. Subsequently, the SEC advised that it would dismiss the administrative proceeding and pursue any claims against Mr. Gupta in federal court, thereby providing the relief sought in the lawsuit.

Mr. Gupta is represented by firm co-chair Gary P. Naftalis, who said that "Mr. Gupta is very pleased that as a result of his lawsuit the SEC has dismissed its administrative proceeding and he will no longer be singled out for disparate treatment . If the SEC should re-file any of the charges against Mr. Gupta, it must do so in federal court, where he will have a right to a jury trial, the right to depose witnesses, the protection of the federal rules of evidence—procedural safeguards not available in an administrative proceeding. Mr. Gupta's lawsuit against the SEC has achieved all of the relief he sought."

The Kramer Levin team assisting Mr. Naftalis consisted of partners Michael S. Oberman, Alan R. Friedman, David S. Frankel and Robin Wilcox, and associates Michael Sternhell, Ashley Miller and Michael Mellin.