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Mark A. Wilner
GORDON TILDEN THOMAS & CORDELL LLP
1001 Fourth Avenue, Suite 4000
Seattle, Washington 98154
Telephone: (206) 467-6477
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
JAMES MERCER,
Plaintiff,
and
THE GOLDMAN SACHS GROUP, INC.
Nominal Plaintiff,
v.
RAJAT K. GUPTA,
Defendant.
NO. 11-CIV-3828 (JSR)
PLAINTIFF’S MEMORANDUM
OF LAW IN OPPOSITION TO
DEFENDANT’S MOTION TO
DISMISS
Mercer v. Gupta Doc. 27
Dockets.Justia.com
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TABLE OF CONTENTS
PRELIMINARY STATEMENT ....................................................................................1
SECTION 16 BACKGROUND .....................................................................................2
A. Section 16(b) Basics .................................................................................2
B. Beneficial Ownership Is Construed Broadly. ....................................2
SUMMARY OF FACTUAL ALLEGATIONS ............................................................3
ARGUMENT AND AUTHORITIES ............................................................................7
A. Standard on Motion to Dismiss ............................................................7
B. An Insider’s Section 16(b) Disgorgement Liability Depends
on Beneficial Ownership, Not His Status as a Tipper. ...................8
C. Plaintiff Sufficiently Alleges Beneficial Ownership. .....................10
1. An Insider May Beneficially Own Shares Held in
Another’s Name Through an “Indirect Pecuniary
Interest.” ......................................................................................10
2. Plaintiff Sufficiently Alleges “Indirect Pecuniary
Interest.” ......................................................................................12
a. Mr. Gupta’s Receipt of Quid Pro Quo Payments ....12
b. Mr. Gupta’s Opportunity to Profit .............................14
c. Mr. Gupta’s Interest in Galleon Portfolio
Securities .........................................................................15
3. Mr. Gupta’s “Gift” of Inside Information Alone Permits
an Inference of Pecuniary Interest. .......................................16
4. Mr. Gupta Is Deemed to Realize the Profits from the
Short-Swing Trades—and Must Disgorge Them—
Because He Was a Beneficial Owner of the Shares
Traded. .........................................................................................17
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D. Mr. Gupta Cannot Avail Himself of the Portfolio Securities
Exemption/Safe Harbor. .......................................................................18
1. The Safe Harbor Is Not Even Potentially Relevant to
the Other Forms of Pecuniary Interest Alleged in the
Complaint. ...................................................................................18
2. Mr. Gupta Must Show He Meets All Requirements of
the Safe Harbor Despite Taking Plaintiff’s Allegations
as True. ........................................................................................19
3. The Complaint Does Not Establish the Absence of
Investment Control, but Rather Alleges it Directly. .........20
E. Plaintiff’s Section 16(b) Suit Is Timely. ............................................23
CONCLUSION ...............................................................................................................24
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TABLE OF AUTHORITIES
Cases
Analytical Surveys, Inc. v. Tonga Partners, L.P.,
No. 06 Civ. 2692 (KMW), 2008 WL 4443828 (S.D.N.Y. Sept. 29, 2008) ...... 17
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ..........................................................................................7
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) ..........................................................................................7
Blau v. Lehman,
368 U.S. 403 (1962) ..........................................................................................9
Bull & Bear U.S. Gov’t Secs. Fund, Inc. v. Karpus Mgmt. Inc.,
No. 98 Civ. 1190 (LMM), 1998 WL 388546 (S.D.N.Y. July 13, 1998) .......... 11
De La Fuente v. DCI Telecomm’ns, Inc.,
259 F. Supp. 2d 250 (S.D.N.Y. 2003) ...............................................................7
Dirks v. Sec. & Exch. Comm’n,
463 U.S. 646 (1983) .................................................................................. 16, 17
Egghead.com, Inc. v. Brookhaven Capital Mgmt. Co., Ltd.,
194 F. Supp. 2d 232 (S.D.N.Y. 2002) ....................................................... 21, 22
Feder v. Frost,
220 F.3d 29 (2d Cir. 2000).............................................................. 3, 11, 17, 23
Foremost-McKesson, Inc. v. Provident Secs. Co.,
423 U.S. 232 (1976) ................................................................................ 2, 9, 10
Gollust v. Mendell,
501 U.S. 115 (1991) ..........................................................................................3
Hinds County, Miss. v. Wachovia Bank N.A.,
700 F. Supp. 2d 378 (S.D.N.Y. 2010) ......................................................... 7, 15
Jammies Int’l, Inc. v. Nowinski,
700 F. Supp. 189 (S.D.N.Y. 1988) ....................................................................3
Kern County Land Co. v. Occidental Petroleum Corp.,
411 U.S. 582 (1973) ..........................................................................................2
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Litzler v. CC Invs., L.D.C.,
362 F.3d 203 (2d Cir. 2004)...................................................................... 23, 24
McKenna v. Wright,
386 F.3d 432 (2d Cir. 2004)................................................................ 19, 20, 21
Morales v. New Valley Corp.,
968 F. Supp. 139 (S.D.N.Y. 1997) ............................................................ 11, 17
Morales v. Quintel Entm’t, Inc.,
249 F.3d 115 (2d Cir. 2001)..............................................................................2
Provident Secs. Co. v. Foremost-McKesson, Inc.,
506 F.2d 601 (9th Cir. 1974), aff’d, 423 U.S. 232 (1976) ................................9
Reliance Elec. Co. v. Emerson Elec. Co.,
404 U.S. 418 (1972) ...................................................................................... 2, 3
Roth v. Jennings,
489 F.3d 499 (2d Cir. 2007)............................................................................ 14
Sec. & Exch. Comm’n v. Blackwell,
477 F. Supp. 2d 891 (S.D. Ohio 2007) ........................................................... 19
Sec. & Exch. Comm’n v. Lee,
720 F. Supp. 2d 305 (S.D.N.Y. 2010) ........................................................... 7, 8
Smolowe v. Delendo Corp.,
136 F.2d 231 (2d Cir. 1943)............................................................................ 18
Starr v. Sony BMG Music Entm’t,
592 F.3d 314 (2d Cir. 2010)..............................................................................7
Strauss v. Am. Holdings, Inc.,
902 F. Supp. 475 (S.D.N.Y. 1995) ...................................................... 20, 21, 22
Strauss v. Kopp Inv. Advisors, Inc.,
No. 98 Civ. 7493 (LMM), 1999 WL 787818 (S.D.N.Y. Sept. 30, 1999) ......... 11
United States v. Rajaratnam,
No. 09 CR 1184 (RJH), 2011 WL 3585075 (S.D.N.Y. Aug. 11, 2011) ........... 16
Statutes and Regulations
15 U.S.C. § 78p(a) [Section 16(a)] ............................................................. Passim
15 U.S.C. § 78p(b) [Section 16(b)] ............................................................. Passim
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17 C.F.R. § 240.12b-2 ......................................................................................... 21
17 C.F.R. § 240.16a-1(a)(1) ................................................................................ 11
17 C.F.R. § 240.16a-1(a)(2) ........................................................................ Passim
Other Authorities
Arnold S. Jacobs,
An Analysis of Section 16 of the Securities Exchange Act of 1934,
32 N.Y.L. Sch. L. Rev. 209 (1987) .............................................................. 8, 10
Peter J. Romeo & Alan L. Dye,
Section 16 Treatise & Reporting Guide (3d ed. 2008) ............................. 10, 17
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PRELIMINARY STATEMENT
Defendant Rajat Gupta’s motion to dismiss should be denied. Mr. Gupta did
not provide confidential inside information about The Goldman Sachs Group, Inc.
(“Goldman Sachs”) to Raj Rajaratnam without purpose. He did so for pecuniary
gain. The only reasonable inference to be drawn from the facts alleged in Plaintiff’s
Complaint is that Mr. Gupta got paid for providing the information to Mr.
Rajaratnam. Such financial remuneration is the most basic form of pecuniary
interest. It unquestionably establishes Mr. Gupta’s beneficial ownership of the
Goldman Sachs shares Mr. Rajaratnam profitably traded on the short-swing. See
17 C.F.R. § 240.16a-1(a)(2) (defining “beneficial owner” through “direct or indirect
pecuniary interest”). Risking his career and possibly crossing the line into criminal
conduct, Mr. Gupta also used the confidential inside information to ingratiate
himself with Mr. Rajaratnam for the prospect of lucrative business opportunities.
Separately, Mr. Gupta benefitted from his investment in Rajaratnam-related funds
that traded Goldman Sachs securities based on Mr. Gupta’s illegal disclosures.
Each of these forms of pecuniary interest independently establishes Mr. Gupta’s
beneficial ownership of the Goldman Sachs shares at issue. Id.
Mr. Gupta’s secondary arguments for dismissal on the pleadings likewise fail.
The safe harbor exemption—an affirmative defense—does not apply. Mr. Gupta’s
repeated disclosure of inside information about Goldman Sachs establishes
sufficient control over the immediately resulting decisions to trade Goldman Sachs
shares. Even were the exemption available, it would at most remove one of several
independent bases of Mr. Gupta’s beneficial ownership as alleged in the Complaint.
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Finally, Mr. Gupta’s footnoted statute of limitations defense fails under six
decades of federal case law, including binding Second Circuit authority.
SECTION 16 BACKGROUND
A. Section 16(b) Basics
Congress enacted Section 16(b) of the Securities Exchange Act of 1934 “to
curb the evils of insider trading.” Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S.
418, 422 (1972). The statute “imposes a strict prophylactic rule with respect to
[statutory] insider, short-swing trading Foremost-McKesson, Inc. v. Provident Secs.
Co., 423 U.S. 232, 251 (1976). Statutory insiders—officers, directors, and
shareholders with more than a ten percent interest in the issuing company (15
U.S.C. §§ 78p(a), (b))—are “presumed to have access to inside information.”
Foremost-McKesson, 423 U.S. at 243. They must disgorge to the issuer all profits
from short-swing trades (those made within a six-month period) in publicly-traded
issuer securities in which the insider has a “beneficial ownership” interest. 15
U.S.C. § 78p(b); Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582,
595 (1973); Morales v. Quintel Entm’t, Inc., 249 F.3d 115, 121 (2d Cir. 2001). As
discussed below, an insider may beneficially own shares held and traded by another
person. See infra at 10-11.
B. Beneficial Ownership Is Construed Broadly.
Mr. Gupta contends that, because Section 16(b) imposes strict liability, it
“should be construed narrowly.” Mot. 5. This contention is false as a broad
proposition. How Section 16(b) should be construed depends on the specific issue.
Issues such as insider status based on more-than-ten-percent ownership, as well as
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trading within a six-month period, are interpreted narrowly. See, e.g., Reliance
Elec., 404 U.S. at 422-23 (more-than-ten-percent shareholder); Jammies Int’l, Inc. v.
Nowinski, 700 F. Supp. 189, 192 (S.D.N.Y. 1988) (six-month period). However,
issues such as standing and beneficial ownership are interpreted broadly. See, e.g.,
Gollust v. Mendell, 501 U.S. 115, 122-23 (1991) (standing); Feder v. Frost, 220 F.3d
29, 34 (2d. Cir. 2000) (beneficial ownership). The latter, of course, is the main issue
Mr. Gupta raises by his motion. We discuss the courts’ and SEC’s expansive view of
beneficial ownership more fully below. See infra at 10-11.
SUMMARY OF FACTUAL ALLEGATIONS
The factual allegations on which this Section 16(b) case is based are set out
extensively in Plaintiff’s Complaint. Below is a brief summary:
Mr. Gupta was a Goldman Sachs director at all relevant times. Compl. ¶ 3.
He also chaired New Silk Route Partners LLC (“NSR”), an India-focused private
equity investment firm. Id. NSR was co-founded by Mr. Gupta, Mr. Rajaratnam,
and others in 2006. Id. Mr. Gupta and Mr. Rajaratnam have a history that
includes other co-investments and interlocking business collaborations—both before
and after NSR. Id.
Mr. Rajaratnam founded The Galleon Group, a family of hedge funds and
hedge fund management entities, that included fund advisors Galleon Management,
L.P., Galleon International Management, L.L.C., and other Galleon affiliates for
which Mr. Rajaratnam was the managing general partner and member. Id. ¶ 4.
Mr. Gupta was an investor in, and director of, one of Mr. Rajaratnam’s Galleon
funds—a “master fund that invested in numerous Galleon hedge funds.” Id. ¶ 43.
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On three separate occasions between June and October of 2008, Mr. Gupta
provided Mr. Rajaratnam with material, non-public information about Goldman
Sachs that Mr. Gupta learned solely by virtue of his status as a Goldman Sachs
director, with the intention that Mr. Rajaratnam profitably trade on such
information. Id. ¶¶ 15, 22, 28-29, 32, 37. Mr. Rajaratnam immediately conducted
several trades in Goldman Sachs securities on the basis of the information Mr.
Gupta provided to him. Id. ¶¶ 23-24, 26, 30-31, 33, 38. These trades generated
millions of dollars in profits (and millions of dollars in loss avoidance) in various
Rajaratnam and/or Galleon-related funds. Id. ¶¶ 15, 24, 26-27, 35, 40.
Mr. Gupta had or shared influence and control over these trades in Goldman
Sachs securities. Id. ¶¶ 27, 35, 40. He knew, and intended, that his disclosure of
material, nonpublic information to Mr. Rajaratnam would immediately trigger the
trades in Goldman Sachs securities set forth in the Complaint. Id. Mr. Gupta had
telephone conversations with Mr. Rajaratnam in which the two discussed Mr.
Rajaratnam’s practice of paying, and continued willingness to pay, significant
amounts of money for material, non-public information that Mr. Rajaratnam could
use to generate enormous profits. Id. ¶¶ 44, 46-47. For example:
On July 29, 2008, Mr. Rajaratnam complained to Mr. Gupta that he
(Rajaratnam) was paying Anil Kumar “a million dollars a year” “[a]fter
taxes, off shore cash” “for doing literally nothing.” Mr. Rajaratnam told
Mr. Gupta that Mr. Kumar is trying to be a “mini-Rajat [Gupta] . . .
[w]ithout bringing anything new to the party . . . .” Mr. Gupta
responded to each of these statements with a matter-of-fact, business-as-
usual “Yes. Yes.” or “Yeah. Yeah.”—despite the facts that (a) Mr.
Rajaratnam was referring to illegal payments of millions of dollars he
had made to Mr. Kumar for disclosing confidential information on
McKinsey & Company (“McKinsey”) clients; (b) Mr. Gupta knew Mr.
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Kumar was a longtime partner at McKinsey; and (c) Mr. Gupta himself
had served as the CEO of McKinsey for almost a decade and had
recently retired as senior partner emeritus. In short, Mr. Gupta did not
flinch during the discussion of Mr. Kumar’s betrayal of McKinsey clients
in return for millions of dollars in payments from Mr. Rajaratnam.
* * *
Mr. Gupta and Mr. Rajaratnam likewise discussed the concept of paying
a “bonus” for valuable inside information—albeit in thinly disguised,
euphemistic terms. Mr. Gupta called Mr. Rajaratnam on July 29, 2008,
at 5:39 p.m. During this call, Mr. Rajaratnam told Mr. Gupta that if Mr.
Kumar “comes and does a big deal and he’s instrumental in
orchestrating a deal and getting it done, right? People might say, hey
here is a bonus, you know?” Mr. Gupta responded, “Yeah.”
Id. ¶¶ 44, 46.
Mr. Gupta provided precisely the type of material, non-public information to
Mr. Rajaratnam for which Mr. Rajaratnam was paying significant amounts of
money. Id. ¶¶ 23, 30-31, 33, 37-38. Mr. Rajaratnam likewise paid Mr. Gupta for
bringing such information “to the party.” Id. ¶¶ 16, 44-48. Mr. Rajaratnam also
gave Mr. Gupta positions in Rajaratnam-controlled Galleon funds, and Mr. Gupta
angled for heightened positions:
Giving equity interests—“participation”—in one or more of the Galleon-
related funds was another manner in which Mr. Rajaratnam
surreptitiously paid for inside information. During their July 29, 2008
telephone conversation, Mr. Rajaratnam related to Mr. Gupta that Mr.
Kumar also wanted to “participate somehow in Galleon International”—
a fund Galleon described as “an opportunistic Asia-focused fund.”
During that same call, Mr. Gupta inquired about participating in Mr.
Rajaratnam’s larger Galleon Group, despite having already been given
an equity position in his Galleon International fund. Mr. Gupta
implored Mr. Rajaratnam “to keep having the dialogue as to . . . how I
can be helpful in Galleon International. By the way not Galleon
International, Galleon Group. I mean you’ve given . . . a position in
Galleon International. That’s good enough.”
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* * *
Mr. Gupta also had an agreement with Mr. Rajaratnam concerning an
interest in the Galleon’s Voyager Funds (“Voyager”) (a/k/a Voyager
Multi-Strategy). As discussed during their July 29, 2008 call:
RAJ RAJARATNAM: So, I’m gonna get George [Lau, Galleon
Group’s Chief Financial Officer] to . . . write
the balances, if you want.
RAJAT GUPTA: Well, what I did is I, you know, uh, as we
agreed, I just did the calculations for the
(UI).
RAJ RAJARATNAM: Yes. (UI) Right. . . . So George will just
certify that and (UI), send you uh . . . . I
mean, I, I’ll you know, I’ll do it on my
Galleon letterhead, (UI).
By letter dated August 4, 2008, written on “Galleon letterhead,” Mr.
Rajaratnam represented “To Whom it May Concern” that Mr. Gupta’s
balance in Voyager was $16,406,974 through June 30, 2008—a mere few
weeks after Mr. Gupta’s inside information on Goldman Sachs’ second
quarter results resulted in a $13.6 million short-swing profit for the
Galleon funds. Mr. Gupta’s balance in Voyager was calculated based on
something other than direct fair market value payments by Mr. Gupta for
fund shares. It is most likely, and is therefore alleged, that at least a
portion of Gupta’s $16,406,974 balance in Voyager was a quid pro quo for
bringing something new “to the party” in the form of inside information on
Goldman Sachs securities that were profitably traded on the short-swing.
Id. ¶¶ 47-48. In short, Mr. Gupta provided material, non-public information about
Goldman Sachs for monetary payments and to ingratiate himself with Mr.
Rajaratnam and gain access to lucrative business opportunities.
In May 2011, a jury unanimously convicted Mr. Rajaratnam on 14 counts of
insider trading. Id. ¶ 4. Mr. Rajaratnam’s criminal conviction was based in part on
his conspiracy with Mr. Gupta to trade Goldman Sachs stock. Id. By the time of
sentencing, Mr. Rajaratnam acknowledged that the Rajaratnam-Gupta conspiracy
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was one of “a cluster of distinct conspiracies” with evidence showing that he and his
co-conspirators (including Mr. Gupta) conspired “as equals in the various
tipper/tippee insider trading schemes found by the jury.” Dkt. 309 at 30 (No. 1:09-
cr-01184-RJH) (emphasis added). He also recognized that the jury most likely
convicted him on Count 1 based on the evidence of the Rajaratnam-Gupta
conspiracy in particular.1 Dkt. 304 at 49 n.14 (No. 1:09-cr-01184-RJH).
ARGUMENT AND AUTHORITIES
A. Standard on Motion to Dismiss
A motion to dismiss is not properly granted where the complaint pleads
enough facts, taken as true, to state a claim for relief that is plausible on its face.
Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 321 (2d Cir. 2010) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “[A] ‘claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.’” Id. (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009)).
In alleging a plausible claim, there is “nothing improper about utilizing
information contained in an SEC complaint as evidence to support private claims.”
Sec. & Exch. Comm’n v. Lee, 720 F. Supp. 2d 305, 341 (S.D.N.Y. 2010); De La Fuente
v. DCI Telecomm’ns, Inc., 259 F. Supp. 2d 250, 260 (S.D.N.Y. 2003). To the
contrary, “acknowledgement and reliance on the SEC[’s] . . . allegations does not
1 A district court may take judicial notice of and rely on public records, including
allegations in related court pleadings, to deny a defendant’s motion to dismiss.
Hinds County, Miss. v. Wachovia Bank N.A., 700 F. Supp. 2d 378, 395 (S.D.N.Y.
2010). As a practical matter, we filed our Complaint months before Mr. Rajaratnam
submitted his sentencing memoranda to the Court.
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demonstrate that [the complaint] lacks evidentiary support, but rather provides it
with the necessary evidentiary support” to overcome a defendant’s objection on a
motion to dismiss. Lee, 720 F. Supp. 2d at 341.
In a Section 16(b) case, where the defendant has violated his statutory
obligation to report trading details under Section 16(a), the plaintiff simply has no
choice but to rely on SEC pleadings and other publicly-available material, e.g.,
witness testimony in criminal proceedings, when available. Although none provides
the level of specificity contained in a properly-filed Section 16(a) disclosure, they
may (as here) provide ample evidence of insider short-swing trading.
B. An Insider’s Section 16(b) Disgorgement Liability Depends on
Beneficial Ownership, Not His Status as a Tipper.
On the one hand, Mr. Gupta contends that “Section 16(b) does not cover
tipper-tippee claims,” as if tipper-tippee conduct is a per se exemption for the
statutory insider. Mot. 6. On the other hand, Mr. Gupta concedes that a tipping
insider cannot avoid Section 16(b) “simply by having the insider give information to
a nominee who would make short-swing trades at the direction, and for the benefit,
of the insider.” Mot. 7 n.3. Mr. Gupta’s latter point is correct. Although Section
16(b) does not regulate tipping conduct as such, tipping is “actionable under section
16(b) [when] the insider beneficially owns the tippee’s shares.” Arnold S. Jacobs,
An Analysis of Section 16 of the Securities Exchange Act of 1934, 32 N.Y.L. Sch. L.
Rev. 209, 348 (1987) (footnote omitted) (emphasis added). In other words, that Mr.
Gupta may have acted as a tipper (in the parlance of a Rule 10b-5 claim) does not
immunize him from liability he otherwise has under Section 16(b). Section 16(b)’s
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scope “is not affected by whether alternative sanctions might inhibit the abuse of
inside information.” Foremost-McKesson, 423 U.S. at 255.
The legislative history cited by Mr. Gupta is irrelevant. It only shows the
class of persons subject to Section 16 “was not intended to include outsiders”:
As originally drafted subsection (b)(3) of the section provided that profits
received by outsiders from short-swing speculation entered on the basis
of confidential information received from insiders could be recovered by
the issuer. The provision was deleted from the final draft apparently
because the burden of proof required to support a recovery was thought
to be too difficult. Since the original draft of the section contained a
subsection expressly imposing liability on outsiders and a subsection
expressly imposing liability on insiders, the deletion of the subsection
imposing liability on outsiders, without material change in the other
subsection, indicates that Congress ultimately decided to exclude
outsiders from the operation of the statutory presumption.
Provident Secs. Co. v. Foremost-McKesson, Inc., 506 F.2d 601, 612-12 & n.6 (9th Cir.
1974), aff’d, 423 U.S. 232 (1976) (quoting draft legislation in footnote) (footnotes
omitted) (emphasis added). Mr. Gupta (an insider)—not Mr. Rajaratnam (an
outsider)—is the defendant here. As long as Mr. Gupta had the opportunity to
obtain a pecuniary benefit from the Goldman Sachs securities traded by Mr.
Rajaratnam/Galleon, Mr. Gupta is subject to Section 16’s reporting and
disgorgement obligations with respect to those securities.2 See infra at 10-11.
Nor is there any significance here to Congress’ decision not to adopt language
that would have made it “unlawful” for an insider to disclose confidential corporate
2 Mr. Gupta’s citation to Blau v. Lehman, 368 U.S. 403 (1962), adds nothing to the
analysis. Citing the legislative history noted above, the Supreme Court in Blau
merely rejected the view that Section 16(b) disgorgement, as a matter of “policy,”
“should be extended to include all persons [both insiders and outsiders] realizing
‘short swing’ profits who either act on the basis of ‘inside’ information or have the
possibility of ‘inside’ information.” Id. at 411.
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information. An early draft of Section 16(b) had also made an insider’s short-swing
trading itself “unlawful.” Foremost-McKesson, 423 U.S. at 245 (quoting S. 2693, 73d
Cong, 2d Sess. (1934)). However, the provision prohibiting short-swing trading as
“unlawful” was removed in its entirety before the bill was enacted into law:
The redrafted Section 16(b), by not making short-swing trading
unlawful, was intended to permit insiders to effect trades dictated by
personal need or desire, but to guard against speculative trading by
requiring the insider to disgorge any profits realized on short-swing
trades without regard to whether insider information was abused or not.
Peter J. Romeo & Alan L. Dye, Section 16 Treatise & Reporting Guide § 1.02[3][b][ii]
at 35 (3d ed. 2008) (discussing legislative history). Even today, an insider may
trade lawfully on the short-swing. He simply must report such trades and disgorge
resulting profit to the issuer. The trading conduct itself, however, is not “unlawful.”
C. Plaintiff Sufficiently Alleges Beneficial Ownership.
1. An Insider May Beneficially Own Shares Held in Another’s
Name Through an “Indirect Pecuniary Interest.”
Section 16 requires statutory insiders to report short-swing transactions in
issuer securities of which the insider was a “beneficial owner” and disgorge all
profits derived from such transactions. 15 U.S.C. §§ 78p(a), (b). Beneficial
ownership is “central to Section 16.” Romeo & Dye, supra, § 4.00 at 305. Congress
designed the term “beneficial owner” “to expand the class of putative insiders”:
Mr. Thomas Corcoran, the Administration’s spokesman, described
“beneficial owner” as “the broadest term you can have.” The rationale for
an expansive definition of “beneficial owner” and “beneficial ownership”
is to discourage an insider from passing information to the holder of
securities . . . if the insider benefits economically from those securities.
Jacobs, supra, at 225 (footnotes omitted) (emphasis added).
- 11 -
Since 1991, SEC rules have provided the pertinent definitions:3
Beneficial owner: “any person who, directly or indirectly,
though any contract, arrangement, understanding, relationship
or otherwise, has or shares a direct or indirect pecuniary
interest in the equity securities.” 17 C.F.R. § 240.16a-1(a)(2)
(emphasis added).
Pecuniary interest: “the opportunity, directly or
indirectly, to profit or share in any profit derived from a
transaction in the subject securities.” 17 C.F.R. § 240.16a-
1(a)(2)(i) (emphasis added).
The SEC lists examples of “indirect pecuniary interest,” which include an insider’s
receipt of a “performance-related fee.” 17 C.F.R. § 240.16a-1(a)(2)(ii)(C). Courts
have deemed that insiders beneficially owned shares held by others in a wide
variety of contexts. Morales v. New Valley Corp., 968 F. Supp. 139, 144 (S.D.N.Y.
1997) (noting that an “insider who is the beneficial owner of another individual’s
securities can be held liable under § 16(b) for that individual’s purchase and sale of
the security within six months”). The SEC’s list is “clearly intended to be
nonexclusive,” and this Court has denied motions to dismiss to permit discovery
into alternative forms of pecuniary interest for this reason. Strauss v. Kopp Inv.
Advisors, Inc., No. 98 Civ. 7493 (LMM), 1999 WL 787818, at *4-5 (S.D.N.Y. Sept. 30,
1999) (quoting Bull & Bear U.S. Gov’t Secs. Fund, Inc. v. Karpus Mgmt. Inc., No. 98
Civ. 1190 (LMM), 1998 WL 388546, at *2 (S.D.N.Y. July 13, 1998)).
3 The SEC, in 1991, established two distinct definitions of “beneficial owner” that
serve two distinct purposes. Feder, 220 F.3d at 33. The first is “[s]olely for
purposes of determining whether a person is a beneficial owner of more than ten
percent of any class of equity securities,” i.e., insider status. 17 C.F.R. § 240.16a-
1(a)(1). That rule is irrelevant to Mr. Gupta’s motion. Mr. Gupta admits he is a
statutory insider. Mot. 9. The second definition—set out in 17 C.F.R. § 240.16a-
1(a)(2) (discussed above)—defines “beneficial owner” for all other purposes.
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2. Plaintiff Sufficiently Alleges “Indirect Pecuniary Interest.”
Plaintiff’s Complaint sets out factual allegations supporting “indirect
pecuniary interest” in three respects: (a) Mr. Rajaratnam’s actual payment of quid
pro quo amounts to Mr. Gupta for his inside information about Goldman Sachs; (b)
the opportunity to profit through various co-investments and interlocking business
collaborations that Mr. Gupta and Mr. Rajaratnam had; and (c) Mr. Gupta’s
interest in Galleon portfolio securities that profited from trades in Goldman Sachs
shares based on Mr. Gupta’s disclosures.
a. Mr. Gupta’s Receipt of Quid Pro Quo Payments
Mr. Rajaratnam’s quid pro quo cash payments and his non-cash payments in
the form of heightened interests in Rajaratnam-controlled funds, and the like, as
described throughout Plaintiff’s Complaint, establish “beneficial ownership” and
“pecuniary interest” under Section 16(b). Plaintiff’s Complaint alleges that “Mr.
Rajaratnam undoubtedly paid Mr. Gupta for the Goldman Sachs inside information
on which these trades were made.” Compl. ¶ 16. This is akin to a “performance
related fee.” 17 C.F.R. § 240.16a-1(a)(2)(ii)(C). It was Mr. Rajaratnam’s “modus
operandi.” Id. ¶ 43. Mr. Gupta knew this was how Mr. Rajaratnam operated. Id. ¶
44. Mr. Gupta knew Mr. Rajaratnam paid massive “bonuses” (i.e., “performance
related fees”) for inside information. Id. ¶ 46.
With this knowledge, Mr. Gupta angled for heightened positions in
Rajaratnam-controlled Galleon funds. Id. ¶ 47. Mr. Gupta, in a wiretapped call,
states that Mr. Rajaratnam had “given [Mr. Gupta] a position in Galleon
International.” Id. The Complaint further alleges that Mr. Rajaratnam paid Mr.
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Gupta for his inside information though heightened interests in the Galleon
Voyager Funds. Id. ¶ 48. These factual allegations, which the Court must presume
are true on this motion, give rise to one only reasonable inference: Mr. Gupta got
paid for providing inside information about Goldman Sachs. Covert, quid pro quo
payments constitute the most basic type of pecuniary interest when an insider
passes information to a third party.
No other explanation makes sense. “Savvy businessmen like Mr. Gupta do
not risk everything for nothing.” Id. ¶ 49. Mr. Gupta knew that providing inside
information to Mr. Rajaratnam violated Goldman Sachs’ ethical/confidentiality
rules and, if made public, would cause harm to his own and Goldman Sachs’
standing in the public’s eyes. Id. He knew his conduct not only created “massive
legal and financial exposure to himself personally, but also serious reputational risk
to himself, Goldman Sachs, and McKinsey.” Id. The only plausible reason he would
risk such negative consequences is because he was reaping commensurate financial
rewards for doing so. Id.
Mr. Gupta erects a straw-man dispute over the meaning of the August 4,
2008 letter summarized in paragraph 48 of Plaintiff’s Complaint. The letter was
written by Mr. Rajaratnam “a mere few weeks after” Mr. Gupta gave inside
information to Mr. Rajaratnam about Goldman Sachs’ second quarter results (which
resulted in approximately $13.6 million in short-swing profits). Id. ¶ 48. The letter
followed a wiretapped call between Mr. Rajaratnam and Mr. Gupta a few days prior
in which the two discussed how Mr. Rajaratnam would “write the balances” “on
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Galleon letterhead” “as we agreed.” Id. The letter, together with the surrounding
factual allegations, provides additional evidence of the quid pro quo “arrangement”
or “understanding” (17 C.F.R. § 240.16a-1(a)(2)) between Mr. Gupta and Mr.
Rajaratnam. If Mr. Gupta simply needed an accurate statement of his account
balance (through whatever date4), he need not have obtained a letter “on Galleon
letterhead” certifying “calculations” “as we agreed.”
Roth v. Jennings, 489 F.3d 499 (2d Cir. 2007), does not help Mr.
Gupta’s motion. In Roth, the plaintiff “concede[d] that the complaint does not
specifically allege that [the defendant] has a pecuniary interest in any of [the
insider’s] profits.” Roth, 489 F.3d at 516. Here, we specifically allege that Mr.
Gupta has a pecuniary interest in Mr. Rajaratnam’s profits because Mr.
Rajaratnam paid for Mr. Gupta’s information—and in other ways discussed below.
b. Mr. Gupta’s Opportunity to Profit
Mr. Gupta had the “opportunity . . . to profit” (17 C.F.R. § 240.16a-1(a)(2)(i))
given his close financial relationship with Mr. Rajaratnam and the Galleon funds.
Compl. ¶ 43. Mr. Gupta and Mr. Rajaratnam have a history of “co-investments and
interlocking business collaborations”:
4 Plaintiff’s complaint does not “misquote” the letter. The letter literally states that
Mr. Gupta had a balance of “$16,406,974 as of December 31, 2007” and that
“[t]hrough June 30, 2008, the Fund was relatively unchanged.” It does not matter
whether the letter says “the Fund was relatively unchanged” or that it purports to
state Mr. Gupta’s balance “as of December 31, 2007.” Mr. Rajaratnam generated
the letter under the suspicious circumstances surrounding the wiretapped call
noted above (Compl. ¶ 48), Mr. Gupta’s disclosure of confidential Goldman Sachs
information (id. ¶ 23), and Mr. Rajaratnam’s immediate short-swing trading of
Goldman Sachs securities thereafter (id.).
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Mr. Gupta was . . . a Founding Partner and Chairman of New Silk
Route Partners LLC (“NSR”). NSR is an India-focused private equity
investment firm that was originally called Taj Capital Partners. NSR
was co-founded by Mr. Gupta, Raj Rajaratnam, and others in 2006.
Mr. Gupta and Mr. Rajaratnam have a history that includes other co-
investments and interlocking business collaborations—both before and
after NSR.
Compl. ¶ 3. Mr. Gupta “stood to benefit from his relationship with Rajaratnam”
because Mr. Gupta “had a variety of business dealings with Rajaratnam. Id. ¶ 43
(quoting SEC Order ¶ 4). Mr. Gupta also “was an investor in, and a director of,
Galleon’s GB Voyager Multi-Strategy Fund SPC, Ltd., a master fund with assets
that were invested in numerous Galleon hedge funds, including those that
traded based on Gupta’s illegal tips.”5 Id. (emphasis in original).
c. Mr. Gupta’s Interest in Galleon Portfolio Securities
Mr. Gupta’s interest in Galleon portfolio securities constitutes a third,
independent form of pecuniary interest. The Galleon master fund in which Mr.
Gupta held an interest invested in “numerous” Galleon hedge funds that profited
from trades in Goldman Sachs that were made based on Mr. Gupta’s disclosures.
Compl. ¶ 43. This is another form of pecuniary interest because it separately
establishes Mr. Gupta’s “opportunity, directly or indirectly, to profit or share in any
5 As the Court is aware, a grand jury indicted Mr. Gupta and the SEC filed a civil
enforcement action against Mr. Gupta months after we filed our Complaint.
Consistent with our allegations, both the criminal indictment and the SEC civil
complaint set out additional details of Mr. Gupta’s and Mr. Rajaratnam’s history of
coordinated business dealings. Dkt. 1 ¶¶ 8a-8d (No. 11 CR 907); Dkt. 1 ¶ 10 (No. 11
CIV 7566). As in our Complaint, the indictment charges that Mr. Gupta divulged
inside information because he “benefitted and hoped to benefit from his . . . business
relationship with Rajaratnam in various ways, some of which were financial.” Dkt.
1 ¶ 25 (No. 11 CR 907). The SEC complaint contains similar factual allegations.
Dkt. 1 ¶ 4 (No. 11 CIV 7566). See also Hinds County, 700 F. Supp. 2d at 395
(relying on related complaint in MDL to deny motion to dismiss).
- 16 -
profit from a transaction in [Goldman Sachs] securities.” 17 C.F.R. § 240.16a-
1(a)(2)(i). In fact, the SEC exempts an insider’s portfolio securities in issuer stock
as a basis for establishing pecuniary interest if the insider can affirmatively meet
the requirements of the exemption. As discussed further below, Mr. Gupta cannot.
See infra at 19-23.
3. Mr. Gupta’s “Gift” of Inside Information Alone Permits an
Inference of Pecuniary Interest.
This Court has already determined that there is “evidence several times over”
of a Rajaratnam-Gupta criminal conspiracy sufficient to sustain a jury verdict:
The government presented evidence that Rajaratnam and Gupta were
friends, partners in a financial outfit called New Silk Route, and
prospective colleagues in a new Galleon fund called Galleon
International; that Gupta and Rajaratnam spoke within minutes of
Goldman Sachs board meetings; and that Rajaratnam made
substantial trades closely following these phone calls. . . . This
evidence was sufficient for the jury to conclude that Rajaratnam
conspired to trade on the basis of inside information regarding
Goldman Sachs. Accordingly, the jury had evidence several times
over to find Rajaratnam guilty beyond a reasonable doubt.
United States v. Rajaratnam, No. 09 CR 1184 (RJH), 2011 WL 3585075, at *6
(S.D.N.Y. Aug. 11, 2011) (emphasis added). A reasonable jury could infer a quid pro
quo payment (i.e., pecuniary benefit) from tips Mr. Gupta provided in this criminal
conspiracy. Mr. Gupta’s motion to dismiss regarding beneficial ownership should be
denied on this basis alone. As Judge Holwell reasoned in Rajaratnam (relying on
United States Supreme Court precedent), an insider’s tips are tantamount to “gifts
sufficient to prove that [the tipper] received a benefit.” Id. at *18 (citing Dirks v.
Sec. & Exch. Comm’n, 463 U.S. 646, 664 (1983)). The “tip and trade resemble
- 17 -
trading by the insider himself followed by a gift of the profits to the recipient.”
Dirks, 463 U.S. at 664.
4. Mr. Gupta Is Deemed to Realize the Profits from the Short-
Swing Trades—and Must Disgorge Them—Because He Was a
Beneficial Owner of the Shares Traded.
Mr. Gupta’s motion incorrectly implies that, under Section 16(b), short-swing
profits can be “realized” only by the direct security holder. Section 16(b) requires
disgorgement of “profits realized by him.” 15 U.S.C. § 78p(b). The “him” refers to
the “statutory insider.” Romeo & Dye, supra, § 12.01[2][a] at 1178 n.22 (citing 15
U.S.C. § 78p(b)). Profits are “realized” by the insider when the insider has a
pecuniary interest in, and thus beneficially owns, the shares traded. Id. at 1178
(citing 17 C.F.R. § 240.16a-1(a)(2), Feder, 220 F.3d at 34); see also 15 U.S.C. § 78p(a)
(stating generally that Section 16 applies only to “equity securities of [the] issuer of
which [the insider] is the beneficial owner”).
Where, as here, the pecuniary interest is “indirect”—i.e., the shares were not
in Mr. Gupta’s name—the profits are attributed to Mr. Gupta through his beneficial
ownership in the shares. Romeo & Dye, supra, § 12.01[2][c] at 1181 (“Profits can be
realized indirectly under Section 16(b) even where an insider does not personally
receive any proceeds from a transaction.”). Stated differently, “[o]nce an insider is
determined to be the beneficial owner of a security directly owned by another
individual, any purchase and sale of that security with six months . . . by the direct
owner[] can be attributed to the insider for the purposes of § 16(b) liability.”
Morales, 968 F. Supp. at 144; see also Analytical Surveys, Inc. v. Tonga Partners,
L.P., No. 06 Civ. 2692 (KMW), 2008 WL 4443828, at *12 (S.D.N.Y. Sept. 29, 2008)
- 18 -
(insider who beneficially owns shares traded on the short-swing is “jointly and
severally liable” to disgorge the profits from such trading) (quotation omitted).
Mr. Gupta conflates the profits to be disgorged under Section 16(b) with the
quid pro quo Mr. Gupta received that establishes his beneficial ownership interest
in the shares Mr. Rajaratnam traded. For example, Mr. Gupta argues that he
received merely “intangible benefits through enhanced business dealings with Mr.
Rajaratnam, but these alleged benefits are not cognizable under § 16(b).” Mot. 12.
Those quid pro quo “benefits” are one form of Mr. Gupta’s pecuniary interest. See
supra at 12-15. They establish beneficial ownership. Id. They are not the “profits”
subject to disgorgement under Section 16(b). The disgorgeable profits are the
amounts calculated from the short-swing trading of shares beneficially owned by
Mr. Gupta pursuant to the “lowest price in, highest price out—within six months”
method mandated by Smolowe v. Delendo Corp., 136 F.2d 231, 239 (2d Cir. 1943).
We do not dispute that “profit” to be disgorged must be “reducible to monetary
value.” Mot. 8. The short-swing profits realized from purchases and sales of
Goldman Sachs securities will easily meet this test.
D. Mr. Gupta Cannot Avail Himself of the Portfolio Securities
Exemption/Safe Harbor.
1. The Safe Harbor Is Not Even Potentially Relevant to the Other
Forms of Pecuniary Interest Alleged in the Complaint.
SEC Rule 16a-1(a)(2)(iii) provides a limited safe harbor/exemption from
Section 16(b) liability “to protect officers of issuers who happen[] also to be minor
shareholders in other entities that own the issuer’s securities in its portfolios.” Sec.
- 19 -
& Exch. Comm’n v. Blackwell, 477 F. Supp. 2d 891, 909 (S.D. Ohio 2007). Under
the safe harbor:
A shareholder shall not be deemed to have a pecuniary interest in the
portfolio securities held by a corporation or similar entity in which the
person owns securities if the shareholder is not a controlling
shareholder of the entity and does not have or share investment
control over the entity’s portfolio.
17 C.F.R. § 240.16a-1(a)(2)(iii). The exemption therefore has potential relevance on
a motion to dismiss only when a Section 16(b) plaintiff exclusively relies on the
insider’s ownership of portfolio securities to establish pecuniary interest.
Here, as noted above, Mr. Gupta’s ownership interest in the Galleon portfolio
securities that held Goldman Sachs stock is but one of several pecuniary interests
Plaintiff alleges to establish beneficial ownership. Plaintiff also alleges Mr. Gupta
received quid pro quo financial remuneration (in various ways) from Mr.
Rajaratnam, as well as the prospect of lucrative business opportunities with Mr.
Rajaratnam. See supra at 12-15. In short, even if the safe harbor were triggered, it
would remove only one of several bases for beneficial ownership from the calculus,
allowing Plaintiff’s Complaint to survive.
2. Mr. Gupta Must Show He Meets All Requirements of the Safe
Harbor Despite Taking Plaintiff’s Allegations as True.
Mr. Gupta cannot prevail under the safe harbor in any event. As Mr. Gupta
acknowledges, the safe harbor is an affirmative defense that is enforced on a Fed. R.
Civ. P. 12(b)(6) motion “so long as the defense appears on the face of the
complaint.” Mot. 12 (emphasis added); see also McKenna v. Wright, 386 F.3d 432,
436 (2d Cir. 2004). Mr. Gupta must show that he meets all requirements of the safe
- 20 -
harbor exemption despite taking the allegations in the Complaint as true.
McKenna, 386 F.3d at 436.
3. The Complaint Does Not Establish the Absence of Investment
Control, but Rather Alleges it Directly.
A defendant seeking to avail himself of the safe harbor must meet a two-
prong test. Strauss v. Am. Holdings, Inc., 902 F. Supp. 475, 481 (S.D.N.Y. 1995).
First, he must show he is “not a controlling shareholder of the entity.” Second, he
must show he “does not have or share investment control over the entity’s portfolio.”
17 C.F.R. § 240.16a-1(a)(2)(iii); Strauss, 902 F. Supp. at 481.
Mr. Gupta has addressed only one of the safe harbor’s prongs—the
“controlling shareholder” prong. Mot. 13. He argues that “controlling shareholder”
refers only to a shareholder with the “power to exercise control over the corporation
by virtue of his or her securities holdings,” and under that definition, the Complaint
does not allege he was a controlling shareholder in the Galleon funds. Id. Mr.
Gupta is correct. However, his next contention—that because he is not a controlling
shareholder in the Galleon funds, he “plainly” did not have or share control over
their portfolios—is a conclusory leap that fails to recognize that the two prongs
quoted above are distinct. See 17 C.F.R. § 240.16a-1(a)(2)(iii); Strauss, 902 F. Supp.
at 481.
Mr. Gupta asserts without support that “the Complaint does not—and could
not—allege [he] had or shared investment control over the Galleon Tech funds’
holdings.” Mot. 13. As an initial matter, Plaintiff is not required to plead
investment control to avoid application of the safe harbor at this stage; rather, it is
- 21 -
sufficient that the allegations do not show there was no investment control.
McKenna, 386 F.3d at 436. However, even were that the test, Plaintiff has met it.
“Control” is not defined for the purposes of SEC Rule 16a-1. Egghead.com, Inc. v.
Brookhaven Capital Mgmt. Co., Ltd., 194 F. Supp. 2d 232, 243 (S.D.N.Y. 2002). The
Court may, however, be guided by other sections of the SEC Rules implementing
the 1934 Act. Id. SEC Rule 12b-2, which governs disclosure obligations, defines
“control” as “‘the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise.’” Id. at 243 (citing 17
C.F.R. § 240.12b-2). “Investment control,” then, is the direct or indirect power to
direct or cause the direction of the management and policies of a person’s (or fund’s)
investments. Id. A person may have or share “investment control” by virtue of his
position in the company. Strauss, 902 F. Supp. at 481 (holding allegation that
defendant was president and CEO “were sufficient to permit the inference that he
had investment control over portfolio”) (denying motion to dismiss).
Contrary to Mr. Gupta’s assertion, the Complaint makes direct allegations of
investment control, and identifies numerous communications and transactions that
give rise to the plausible inference that Mr. Gupta shared control over Mr.
Rajaratnam’s—and therefore the funds’—investment decisions. First, the
Complaint alleges that Mr. Gupta “was an investor in, and a director of, Galleon’s
GB Voyager Multi-Strategy Fund SPC, Ltd., a master fund with assets that
were invested in numerous Galleon hedge funds.” Compl. ¶ 43 (emphasis
- 22 -
added). This allegation alone is sufficient to permit the inference of investment
control under Strauss—it alleges that Mr. Gupta held a high-level position in a
master fund that by definition afforded him influence over its portfolio, and those of
subsidiary funds. See 902 F. Supp. at 491. Second, the Complaint alleges three
times that “Mr. Gupta had or shared influence and control over the Galleon
Tech funds’ short-swing trading in these Goldman Sachs securities, because Mr.
Gupta knew, and intended, that his disclosure of his material, nonpublic
information to Mr. Rajaratnam would trigger the short-swing trading activity
described above.” Compl. ¶¶ 27, 35, 40 (emphasis added).
Finally, the Complaint alleges numerous transactions in Galleon fund shares
tied to specific communications between Mr. Gupta and Mr. Rajaratnam, which
together permit the inference that Mr. Gupta’s words immediately resulted in Mr.
Rajaratnam’s actions. Compl. ¶¶ 23-24, 26, 30-31, 33, 35, 37-38. For example, on
September 23, 2008, Mr. Gupta learned of Berkshire Hathaway’s planned $5 billion
investment in Goldman Sachs during a special board meeting. Id. ¶ 33. The
meeting ended at 3:53 p.m. Id. Over the next five minutes—just before the
markets closed—Mr. Gupta called Mr. Rajaratnam, and Mr. Rajaratnam placed
purchase orders for $52 million of Goldman shares. Id. “Big drama,” as Mr.
Rajaratnam bragged the next day: “got a call at 3:58 . . . [s]aying something good
might happen to Goldman.” Id. In other words, the Complaint plainly alleges Mr.
Gupta “direct[ed] or cause[ed] the direction of the management and policies of a
person,” within the definition of “control” adopted by Egghead.com. 194 F. Supp. 2d
- 23 -
at 243. Where, as here, a plaintiff alleges facts that would support finding a
defendant had control, defendant’s claim to the contrary “is clearly not a matter to
be determined on a [Rule] 12(b)(6) motion.” Feder, 220 F.3d at 35.
E. Plaintiff’s Section 16(b) Suit Is Timely.
In a footnote, Mr. Gupta requests dismissal on grounds that Section 16(b)’s
statute of limitation has run. Mot. 2 n.1. He acknowledges, however, that the
Second Circuit has already rejected his argument. Id. (citing Litzler v. CC Invs.,
L.D.C., 362 F.3d 203, 207 (2d Cir. 2004)). In fact, federal courts—for over six
decades—have already rejected his argument. See Compl. ¶ 13 (listing cases).
These courts consistently toll Section 16(b)’s two-year time limit when the targeted
insider, like Mr. Gupta, has not filed a Section 16(a) disclosure. Id. Although the
Supreme Court is reviewing the issue in Credit Suisse v. Simmonds, No. 10-1261,
the theory advanced by the Credit Suisse petitioners—that the time limit is not
subject to any tolling—is the most extreme position offered by any party or amicus
in the proceedings. The SEC has filed an amicus brief opposing it. The petitioners
themselves argue for a Litzler-tolling variant as a back-up alternative.
The claim against Mr. Gupta is timely under the Credit Suisse petitioners’
alternative approach and the approaches advanced by all other litigants and amici.
The likelihood the Supreme Court would overturn decades of federal case law, take
a position contrary to the SEC, and hold the time limit cannot be tolled when the
insider fails to comply with Section 16(a), is remote at best. As the Second Circuit
has held: “to allow an offending investor to escape responsibility under Section
- 24 -
16(b) by violating the provisions of Section 16(a) would manifestly frustrate the
purpose of Congress.” Litzler, 362 F.3d at 207.
CONCLUSION
The Court should deny Mr. Gupta’s motion.
Dated: Seattle, Washington
December 7, 2011.
GORDON TILDEN THOMAS & CORDELL LLP
By: s/Mark Wilner
Jeffrey I. Tilden
Mark A. Wilner
Haley K. Krug
David M. Simmonds
1001 Fourth Avenue, Suite 4000
Seattle, Washington 98154
Telephone: (206) 467-6477
Facsimile: (206) 467-6292
Email: [email protected]
KELLER ROHRBACK L.L.P.
By: s/David Preminger
David S. Preminger
770 Broadway, 2nd Floor
New York, New York 10003
Telephone: (646) 495-6198
Facsimile: (646) 495-6197
Email: [email protected]
William C. Smart
Ian S. Birk
1201 Third Avenue, Suite 3200
Seattle, Washington 98101
Telephone: (206) 623-1900
Facsimile: (206) 623-3384
Email: [email protected]
Attorneys for Plaintiff
- 25 -
CERTIFICATE OF SERVICE
I hereby certify that on December 7, 2011, I electronically filed the foregoing with
the Clerk of the Court using the CM/ECF system, which will send notification of
such filing to the following counsel of record:
Counsel for Defendant Gupta:
Gary P. Naftalis
Michael Oberman
Alan Friedman
Kramer Levin Nagtalis & Frankel LLP
1177 Avenue of the Americas
New York, NY 10036-274
Tel: (212) 715-9100
Fax: (212) 715-8000
Email: [email protected]
Email: [email protected]
Email: [email protected]
We also are providing via email a copy of the foregoing to counsel for The Goldman
Sachs Group, Inc. and the Securities and Exchange Commission, as follows:
Penny Shane
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Tel: (212) 558-4837
E-fax: (212) 291-9141
Email: [email protected]
Valerie Ann Szczepanik
Securities and Exchange Commission
Three World Financial Center
New York, NY 10281
(212) 336-0175
Email: [email protected]
s/Mark Wilner
Mark Wilner
