What’s The Opposite of Rubber Stamping a Settlement? Meet Judge Kane in SEC v. Van Gilder

Judge John L. Kane of the United States District Court for the District of Colorado is uninterested in oxymoronic gimmicks, that much is clear.  In a fiery April 24, 2014 opinion, Judge Kane rejected settlements between the SEC and two individual defendants in an insider trading case.  Judge Kane evoked—both in style and via explicit citation—Judge Jed Rakoff’s well-known rejection of the proposed settlement in SEC v. Citigroup Global Markets and similarly rejected the proposed settlements because they included numerous “provisions and recitations that [he would] not endorse.”

Judge Kane’s ire was focused on the SEC’s proposed settlement with Michael Van Gilder, the individual who allegedly traded based on inside information in advance of a high-stakes acquisition and tipped friends and family in an email titled “Xmas present.”  The SEC’s proposed settlement with Van Gilder included a permanent injunction prohibiting future violations of Section 10(b) or Rule 10b-5, a $109,265 disgorgement payment (credited in part by a payment already made in a parallel criminal proceeding), and another $109,265 in civil penalties.  The proposal included a number of standard provisions for SEC settlements, including a waiver of the entry of findings of fact and conclusions of law, a waiver of the right to appeal from the entry of final judgment, “a statement that Van Gilder neither admits nor denies the allegations of the Complaint,” and enjoining Van Gilder from future violations of existing statutory law.  Judge Kane decisively rejected each of these in turn. Read More

Internal Investigation Fees Awarded to Goldman Sachs

On Monday, February 25, Goldman Sachs won its bid to force former director Rajat K. Gupta to pay legal fees it incurred while investigating Gupta’s insider trading activities. In October 2012, Gupta was sentenced to two years in prison following his conviction on conspiracy and securities fraud charges. As part of those sentencing proceedings, Judge Jed Rakoff of the Southern District of New York has now ordered Gupta to pay Goldman Sachs $6.2 million, an amount equal to approximately 90 percent of the legal expenses the banking firm sought to recover. See United States v. Gupta, Case No. 11 CR 907 (S.D.N.Y. Feb. 25, 2013).

Background on the Ruling

Goldman Sachs sought its fees under the Mandatory Victim Restitution Act (“MVRA”), which allows some crime victims to recover expenses they incur as a result of a criminal defendant’s wrongful conduct. See 18 U.S.C. §3663A.

Judge Rakoff’s restitution order requires Gupta to pay the legal fees Goldman Sachs incurred conducting an internal investigation; responding to grand jury subpoenas and document requests from the U.S. Attorney’s Office, the Securities and Exchange Commission (“SEC”), and from Gupta himself; collecting and reviewing millions of documents leading to document productions of over 400,000 pages; and providing counsel to represent various of its officers and employees in depositions and at trial. The restitution order also covered fees Goldman Sachs incurred relating to the criminal investigation of Raj Rajaratnam, who was unaffiliated with Goldman Sachs but convicted for his role in the same insider trading scheme. Finally, Judge Rakoff ordered Gupta to pay Goldman Sachs its fees associated with preparing the request for restitution.

Implications of the Ruling

In ordering restitution, Judge Rakoff found that the requested attorney’s fees were “necessary,” were “incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense,” and were incurred by a “victim.” While one may not have thought of Goldman Sachs – the entity from whom Gupta, the tipper, acquired the inside information – as a traditional victim of insider trading, in interpreting that term as anyone who was “directly and proximately harmed” by the offense of conviction, the Court had no difficulty in finding that Goldman was a victim and thus awarding it the attorney’s fees. Read More