In March 2011, an individual accused of participating in an insider trading scheme filed a Complaint against the SEC in federal court in New York, arguing, among other things, that the SEC should be enjoined from retroactively applying the provisions of the Dodd-Frank Act in an administrative proceeding against him. On Friday April 1, 2011, the SEC filed a brief requesting that the Court dismiss that complaint for lack of subject matter jurisdiction, arguing, in part, that the retroactivity claim was not "ripe" and the individual had not exhausted his administrative remedies. In short, the Commission argued that the federal court cannot consider this issue until the administrative proceeding is completed and the SEC decides whether or not to impose civil penalties under the Act.
On March 1, 2011, the SEC commenced an Administrative Proceeding against Rajat Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble. In the Matter of Gutpa, Administrative Proceeding File No. 3-14279. The SEC alleged that Mr. Gupta engaged in an insider trading scheme by providing nonpublic material information to Raj Rajaratnam of Galleon Management (whose own criminal insider trading trial commenced in New York in March) between June 2008 and January 2009. In the Administrative Proceeding, the SEC seeks to recover civil penalties from Mr. Gupta under Section 929P of the Dodd-Frank Act, which was not passed until 18 months after the conduct in question.
On March 18, 2011, Mr. Gupta filed a complaint in federal court against the Commission seeking a declaratory judgment and injunctive relief. Gupta v. SEC, 11-cv-1900 (S.D.N.Y.). In his Complaint, Mr. Gupta alleged, by seeking civil penalties through the retroactive application of the Dodd-Frank Act in the Administrative Proceeding (as opposed to in a federal court), the SEC unconstitutionally deprived him to a jury trial in federal court (pointing out that the SEC has filed all of its cases related to Mr. Rajaratnam and Galleon in federal court). He argued that the it was necessary to have the question of whether the Dodd-Frank Act provisions could be applied retroactively decided in federal court.
The SEC has moved to dismiss Mr. Gupta’s complaint, arguing that the Court lacked subject matter jurisdiction. The SEC filed a legal brief on April 1, 2011, arguing, in part, that the "retroactivity claim … will not be ripe unless and until there has been a finding [in the Administrative Proceeding against Mr. Gupta] and a decision that penalties under the provisions added by Dodd-Frank are warranted." The Commission also argued that Mr. Gupta had not exhausted his administrative remedies, stating that the Administrative Proceeding should go forward, and, if the SEC determines that Mr. Gupta violated the securities laws and that civil penalties under the Dodd-Frank Act should be applied, he could seek a review in the Court of Appeals.
Gupta v. SEC has been assigned to the Honorable Jed S. Rakoff in the Southern District of New York. In recent years, the SEC seen Judge Rakoff reject a proposed settlement submitted by the SEC in SEC v. Bank of America and question whether the Court can approve settlements where the parties "neither admit nor deny" the allegations in SEC v. Vitesse Semiconductor Corporation.