Argued May 21, 2013
As Amended June 18, 2014.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Appeal from a judgment of the United States District Court for the Southern District of New York, Jed S. Rakoff, Judge, convicting defendant of securities fraud, see 15 U.S.C. § § 78j(b) and 78ff, and conspiracy to commit securities fraud, see 18 U.S.C. § 371, based on insider trading.
RICHARD C. TARLOWE, Assistant United States Attorney, New York, New York (Preet Bharara, United States Attorney for the Southern District of New York, Damian Williams, Edward B. Diskant, Justin S. Weddle, Assistant United States Attorneys, New York, New York, on the brief), for Appellee.
SETH P. WAXMAN, Wilmer Cutler Pickering Hale & Dorr, Washington, D.C. (Paul R.Q. Wolfson, Megan Barbero, Daniel Aguilar, Wilmer Cutler Pickering Hale & Dorr, Washington, D.C.; Gary P. Naftalis, David S. Frankel, Alan R. Friedman, Robin M. Wilcox, Kramer Levin Naftalis & Frankel, New York, New York; Peter G. Neiman, Alan E. Schoenfeld, Wilmer Cutler Pickering Hale & Dorr, New York, New York, on the brief), for Defendant-Appellant.
Before: NEWMAN, KEARSE, and POOLER, Circuit Judges.
KEARSE, Circuit Judge.
Defendant Rajat Gupta (" Gupta" ) appeals from a judgment entered in the United States District Court for the Southern District of New York on November 9, 2012, following a jury trial before Jed S. Rakoff, Judge, convicting him on three counts of securities fraud, in violation of 15 U.S.C. § § 78j(b) and 78ff, and one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371. Gupta was sentenced principally to 24 months' imprisonment, to be followed by a one-year term of supervised release, and was ordered to
pay a fine of $5,000,000. In an amended judgment entered in February 2013, Gupta was also ordered to pay restitution in the amount of $6,218,223.59, an order that is the subject of a separate appeal that has been held in abeyance pending decision of the present appeal. In the present appeal, Gupta challenges his conviction, contending principally that he is entitled to a new trial on the grounds that the trial court erred (1) by admitting statements of a coconspirator, recorded in wiretapped telephone conversations to which Gupta was not a party, and (2) by excluding relevant evidence offered by Gupta. For the reasons that follow, we conclude that Gupta's contentions lack merit, and we affirm the judgment.
At the times pertinent to this prosecution, Gupta was a member of the board of directors of The Goldman Sachs Group, Inc. (" Goldman Sachs" or " Goldman" ), the global financial services firm headquartered in New York. Gupta was also involved in several financial ventures with Raj Rajaratnam (or " Raj" ), founder of The Galleon Group (" Galleon" ), a family of hedge funds that invested billions of dollars for its principals and clients. The present prosecution arose out of a multiyear government investigation of insider trading at Galleon which included court-authorized wiretaps of Rajaratnam's cell phone, see
United States v. Rajaratnam, 719 F.3d 139, 144-45 (2d Cir. 2013). petition for cert. filed, No. 13-1001 (U.S. Feb. 18, 2014).
During its investigation, the government discovered evidence indicating, inter alia, that Rajaratnam was receiving inside information about Goldman Sachs from Gupta and trading on that information. Eventually, Gupta was charged with six counts of securities law violations. Count One of the superseding indictment on which Gupta was tried (the " Indictment" ) alleged, inter alia, that Gupta, Rajaratnam, " and others . . . conspire[d] . . . to commit . . . securities fraud" (Indictment ¶ 30); that " GUPTA disclosed . . . Inside Information" about Goldman Sachs " to Rajaratnam, with the understanding that Rajaratnam would use the Inside Information to purchase and sell securities"
(id. ¶ 12(b)); and that Rajaratnam, knowing the information he received from Gupta was confidential, " shared the Inside Information with other coconspirators at Galleon and caused the execution of transactions in the securities of Goldman Sachs"
(id. ¶ 12(c)). The object of the conspiracy was the " purchase and sale of securities" in order to " receive illegal profits and/or illegally avoid losses" (id. ¶ ¶ 31 and 32(b)) based on " GUPTA['s] disclos[ure of] Inside Information obtained from Goldman Sachs" to Rajaratnam, which information " Rajaratnam shared . . . with other coconspirators at Galleon" (id. ¶ ¶ 32(a) and (d)). Gupta was convicted on the conspiracy count and on three substantive counts of securities fraud (Counts Three, Four, and Five), all relating to trades of Goldman Sachs stock by Rajaratnam based on confidential inside information Rajaratnam received from Gupta in the fall of 2008.
A. Evidence Supporting the Counts of Conviction
All of the government's evidence that Gupta passed confidential information about Goldman Sachs to Rajaratnam, on the basis of which Rajaratnam made purchases or sales of Goldman stock, was circumstantial. Most of the evidence described below was presented through testimony from employees of Galleon or Goldman, wiretapped telephone calls between Rajaratnam and other Galleon employees, records of calls made to or from telephones used by Gupta or Rajaratnam, and
records as to the timing of trades by Galleon in Goldman Sachs stock.
1. Galleon Trades of Goldman Sachs Stock on September 23, 2008
At 3:15 p.m. on September 23, 2008, Goldman Sachs held a special meeting of its board of directors. The purpose of the meeting was to approve an investment of $5 billion in Goldman by Warren Buffett. The imminent investment was highly confidential, as it was likely to have " a meaningful impact" on Goldman's stock price. (Trial Transcript (" Tr." ) 1590.) It was to be announced to the public after the 4 p.m. close of trading on the New York Stock Exchange.
Gupta, a former managing director of the consulting firm McKinsey & Company (" McKinsey" ), participated in the Goldman Sachs board meeting via telephone from a conference room at McKinsey's New York office. Telephone records indicated that Gupta was on the Goldman Sachs conference call from 3:13 p.m. until 3:53 p.m.
At approximately 3:54 p.m., Gupta's assistant, Renee Gomes, dialed Rajaratnam's direct line; the McKinsey conference room telephone from which Gupta had participated in the Goldman Sachs board meeting was then connected to the call to Rajaratnam's line. The connection between Rajaratnam's line and the telephone Gupta used lasted approximately 30 to 35 seconds.
Caryn Eisenberg, Rajaratnam's assistant in 2008-2009, testified that on September 23, 2008, she answered a call on his direct line at about 10 minutes before the 4:00 p.m. market close. As a general rule Eisenberg was not to put calls through to Rajaratnam near the end of the trading day, but she put the caller on hold, located Rajaratnam, and put the call through. Although at the time of trial Eisenberg no longer remembered the name of the man who was on the line, she testified that she put this call through because his name was on the short list of persons whose calls Rajaratnam would accept near the end of the trading day; she recognized his voice as that of a frequent caller; and the man said it was " urgent" that he " speak to Raj." (Tr. 238-39.)
Rajaratnam took the call in his office and was on the telephone only briefly. Eisenberg testified that Rajaratnam thereafter summoned Galleon cofounder Gary Rosenbach into his office and the two had a closed-door conversation. Rosenbach then " went back to his desk," picked up his telephone, " and started saying buy Goldman Sachs." (id. at 254.)
Galleon trader Ananth Muniyappa testified that at approximately 3:56 p.m. on September 23, Rajaratnam, as he was hanging up his telephone, instructed Muniyappa, who was at his own desk nearby, to purchase 100,000 shares of Goldman Sachs stock. When Muniyappa determined that he would probably be unable to buy as many as 100,000 shares before the market's close (he managed to buy only a total of 67,200 shares), he quickly informed Rajaratnam, who promptly instructed Rosenbach to buy Goldman stock.
Rosenbach proceeded to buy 200,000 shares of the stock, 150,000 for Rajaratnam's portfolio--which specialized in technology stocks--and 50,000 for Rosenbach's own portfolio. Rosenbach also bought 1.5 million shares (1,000,000 for Rajaratnam's portfolio and 500,000 for his own) of a financial-sector index fund made up of stocks of several institutions, including Goldman. Each of these trades was made in the final " three to four minutes" of the trading day (Tr. 401), i.e., between approximately 3:56 p.m. and 4:00 p.m. In all, the Goldman Sachs stock purchased by Muniyappa and Rosenbach at the behest of
Rajaratnam in the final minutes of the trading day on September 23--excluding the shares of the index fund--cost more than $33 million.
Warren Buffett's $5 billion investment in Goldman Sachs was announced at approximately 6:00 p.m. on September 23. The next morning, Goldman's stock price rose to a high nearly 7% above its September 23 closing price. A government witness testified that the profits on the above Galleon purchases of Goldman stock at the end of the trading day on September 23 exceeded $1 million.
Eisenberg testified that after Rajaratnam took the urgent call near the close of trading on September 23 he was smiling more than usual. (See Tr. 259.) But not everyone at Galleon was happy. Leon Shaulov was a Galleon trader and portfolio manager. Muniyappa did not buy any Goldman Sachs stock for Shaulov on September 23. Muniyappa testified that that evening, shortly after Goldman announced the Warren Buffett investment, Shaulov sent Rosenbach an email saying, " Thanks for the heads up, by the way. I'm short 170 million in financials. Not one word from anyone. Thank you very much. All I get is sick dilution. Zero help. Zero." (id. at 441-42; see also id. at 439 (a " short" position is one speculating that the market price will go down).)
On the morning of September 24, 2008, before the stock markets opened, Rajaratnam placed two calls from his cell phone (which was wiretapped) to Ian Horowitz, his principal trader. In the first call, at 7:09 a.m., Rajaratnam began to tell Horowitz about the events of the previous afternoon:
RAJ RAJARATNAM: . . . . So, big drama yesterday, but I have to ....
IAN HOROWITZ: Yeah, I, I, I heard.
RAJ RAJARATNAM: Hum.
IAN HOROWITZ: I heard a little, um, you mean the last three minutes of the day?
RAJ RAJARATNAM: No, I got a call at 3:58, right?
IAN HOROWITZ: Yeah.
RAJ RAJARATNAM: Saying something good might happen to Goldman. Right?
IAN HOROWITZ: So it is what it is. Everything's, everyone's fine, I saw it cross the board....
RAJ RAJARATNAM: No I saw, I, so, I told Ananth [Muniyappa] to buy some, he was fucking around, he can't, you know. So I went to Gary [Rosenbach] and said just buy me, right?
IAN HOROWITZ: Mm hmm.
RAJ RAJARATNAM: Because you were not there. It happens all the fucking time, you know you're there every day of the year, right? . . . .
(Government Exhibit (" GX" ) 21-T (" First Rajaratnam-Horowitz Call" ), at 1-2 (emphases added).)
Rajaratnam called Horowitz again at 7:56 a.m. After asking how much Goldman Sachs stock Galleon currently owned, Rajaratnam continued his report on the previous afternoon's events:
RAJ RAJARATNAM: Okay, yeah, let me tell you what happened, honestly, right?
IAN HOROWITZ: Yeah, no, I looked at our price, I looked at our price, and I looked at what happened.
RAJ RAJARATNAM: Yeah.
IAN HOROWITZ: Someone had this before us, someone, whatever went on, something happened, someone, they ...
RAJ RAJARATNAM: I got a call, right, saying something good's gonna happen.
IAN HOROWITZ: We'll talk about, how 'bout this, we'll talk when you come in.
RAJ RAJARATNAM: Okay.
IAN HOROWITZ: We'll talk when you come in, okay?
RAJ RAJARATNAM: But I didn't do anything, you were not there, I asked Ananth to buy some.
IAN HOROWITZ: You did nothing.
RAJ RAJARATNAM: Then I went to Gary ... and ...
IAN HOROWITZ: You did nothing wrong.
RAJ RAJARATNAM: Yeah at 3:58, I can't, I can't yell out in the fucking halls.
IAN HOROWITZ: No. You did nothing wrong, we'll talk about it when you come in, nothing's wrong.
RAJ RAJARATNAM: It is, I guess, Leon [Shaulov] was very upset. You know, fuck him, look, I've kept my mouth shut when he gave me WaMu, right?
IAN HOROWITZ: Get, get upset about what? You got nothing, this is at 3:58.
RAJ RAJARATNAM: Yeah, if it was, one o'clock, I always am good with him, I always call him in, I tell him everything, you know? AMD, IBM, everything, right?
IAN HOROWITZ: He's not in, so I'm, he hasn't said anything. Listen, if something comes in, I'll let you know.
(GX 22-T (" Second Rajaratnam-Horowitz Call" ), at 2-3 (emphases added).)
2. Galleon Trades of Goldman Sachs Stock on October 24, 2008
On October 23, 2008, more than halfway through the fourth quarter of Goldman Sachs's fiscal year, Goldman's chairman convened an unofficial board meeting by conference call to bring the directors up-to-date on company events. At that time, Wall Street analysts were projecting that Goldman--which, since becoming a public company, had never reported a quarterly loss--would continue to report profits. In the conference call, which began at 4:15 p.m., Goldman's management informed the board that the company's fourth-quarter result would be a loss.
Records were introduced to show that Gupta, on a telephone in his home office, participated in the Goldman Sachs conference call for approximately 33 minutes and disconnected at 4:49 p.m. At 4:50 p.m., a call was placed from the telephone of Gupta's assistant Renee Gomes to the direct office line of Rajaratnam; Gupta's home office line was conferenced in to that call, and Gomes's line was disconnected. Gupta's home office telephone was connected to Rajaratnam's direct line for some 12 1/2 minutes, until 5:03 p.m.
The next morning, October 24, 2008, in three transactions, Rajaratnam sold a total of 150,000 shares of Goldman Sachs stock. The first 50,000 shares were sold at 9:31 a.m., one minute after the stock market opened--the first opportunity to trade in Goldman shares since the board meeting the previous day. Another 50,000 shares were sold at 10:09 a.m.; and the final 50,000 shares were sold at 10:37 a.m. Goldman Sachs's fourth-quarter losses were not announced to the public until December 16. Based on the decline in Goldman's stock price after that announcement, the government introduced calculations showing that Rajaratnam, by selling his shares on October 24, avoided a loss of more than $3.8 million.
At 12:12 p.m. on October 24, Rajaratnam returned a call to David Lau, a Singapore-based portfolio manager for Galleon International, one of Galleon's hedge funds. Lau had sought to reach Rajaratnam for general investment advice. Galleon International
invested in non-U.S. securities primarily (see Tr. 1467), but not exclusively (see id. at 2415); and it had in the past owned stock in Goldman (see GX 90). The conversation began with Rajaratnam advising that, as a general matter, it would be safer to invest in United States companies than in emerging market countries:
RAJ RAJARATNAM: Hey David, you called?
DAVID LAU: Yeah, just to give me, give me a, find the pulse because we are quite shocked overseas and uh long bonds, I mean quite shocked in relative for the VAR ... because VAR broke out, blew out and our positions are the same so I just want to find out what you guys are thinking.
RAJ RAJARATNAM: Yeah, I mean, I think, ah we think that the U.S. is um relatively ...