A former Goldman Sachs board member accused the Securities and Exchange Commission on Friday of unfairly spoiling his reputation by accusing him of passing along inside information without ever bringing the accusations in federal court.
A lawyer for Rajat Gupta responded to the civil charges by suing the SEC in federal court in Manhattan, saying the agency's March 1 action deprived Gupta of the Constitutional protections he would have received if the SEC accused him in court.
Attorney Gary Naftalis said in the court papers that Gupta denies all allegations of wrongdoing and "stands ready to mount a defense against each and every one of the commission's charges."
He added that the SEC had launched a "flawed case premised in large part on unreliable evidence being used in an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged."
The SEC accused Gupta of passing secrets he learned from the Goldman board to Raj Rajaratnam, a former billionaire hedge fund founder who is currently on trial in an insider trading case in federal court in Manhattan. Rajaratnam has insisted he only made trades based on publicly known information. A prosecutor said at the trial that Rajaratnam saved millions of dollars when he sold all of his Goldman stock after Gupta told him that the company was going to announce its first quarterly loss in 2008 since going public.
In Gupta's lawsuit, Naftalis said the SEC's case rests on its record of phone calls between Gupta and Rajaratnam and subsequent trades made by Rajaratnam "without direct evidence of the content of those calls, and without consideration of the entire course of dealing between the two men."
Outside of federal court, Gupta will be forced to defend himself in an accelerated manner and without depositions and other discovery materials "essential to a defense against insider trading charges," Naftalis wrote.
The SEC did not immediately return a telephone message seeking comment.
The SEC charges against Gupta will be heard by an administrative law judge at the SEC, where he could face civil fines or be ordered to pay restitution. He also could be barred from serving on a public company.
Gupta, 62, of Westport, Conn., resigned from the Goldman board last May and from the board of Procter & Gamble after the SEC charges were announced. One of India's most influential immigrants, Gupta was a guest at President Barack Obama's first state dinner.