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The continuing mystery of the Gupta case

Friday I wondered whether the SEC’s hurried decision to administratively charge former Goldman director Gupta with insider trading suggested it was “in league with Justice to patch a gaping hole in its case against R by tainting a key witness.” 

Then I updated with John Carney’s story that Justice actually opposed the SEC over these charges, and they seemed rather to be a power play by the SEC in its struggle for supremacy over Justice.

Now Carney reports that the SEC “pushed ahead with its insider trading case against Rajat Gupta because of his status as a sitting board member on public companies” “which made him a continuing threat to shareholders of those companies.” 

But I wonder:  since Gupta was denying wrongdoing, how did the SEC know he was a danger to shareholders?  Why couldn’t it take a little longer than a weekend to consider Gupta’s reply to the Wells notice? 

Carney’s story hints at an answer: 

When Gupta responded to the Wells Notice in February, his response raised additional red flags with investigators at the SEC. The evidence that Gupta seemed willing to provide was friendly toward Rajaratnam, according to a person familiar with the matter who is not at the SEC. The SEC, which views Rajaratnam a thoroughly bad guy, viewed this as an alarming development, according to a person familiar with the thinking inside the SEC. From their point of view, Gupta was continuing as a co-conspirator with Rajartnam. They were determined to take action quickly.

In other words, apart from all that “guilty until proven innocent” stuff that the SEC apparently doesn’t believe, the real problem seems to be that Gupta — why he was a “thoroughly bad guy” — is that he might help Raj, who the SEC is totally convinced is guilty despite the fact that he’s still on trial.

Maybe I was right in the first place. Stay tuned.

Filed under: corporate crime, insider trading

Full post as published by Truth on the Market on March 14, 2011 (boomark / email).