On March 26, 2012, Judge Jed Rakoff issued an Opinion and Order in the two related cases against Rajat Gupta, granting in part a Motion to Compel and ordering the SEC to turn over to the U.S. Attorney’s Office materials relating to 44 witnesses (who were interviewed by the SEC and prosecutors jointly during the investigations of Mr. Gupta). He further ordered the prosecutors to review those memoranda and promptly turn over to the defense any material under Brady v. Maryland, 373 U.S. 83 (1963) (material exculpatory evidence to the defense – including evidence that could allow the defense to impeach the credibility of a prosecution witness). The ruling identifies another possible method (albeit a limited one) for a party seeking discovery from the SEC’s investigative file).

On March 1, 2011, the SEC commenced an Administrative Proceeding against Mr. Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble, alleging that he engaged in an insider trading scheme by providing nonpublic material information to Raj Rajaratnam of Galleon Management. In the Matter of Gupta, Administrative Proceeding File No. 3-14279. On March 18, 2011, Mr. Gupta responded by filing a complaint in federal court against the Commission seeking a declaratory judgment and injunctive relief, arguing that, by filing the Administrative Proceeding, the SEC was unconstitutionally depriving him to a jury trial in federal court (where he would be able to take discovery).

After Judge Rakoff denied the SEC’s Motion to Dismiss based on subject matter jurisdiction grounds in July 2011 (as discussed here), the parties reached an Agreement in early August 2011 that: the SEC would dismiss the Administrative Proceeding against Mr. Gupta (although not on the merits); the parties would stipulate to the dismissal of the Gupta v. SEC lawsuit; and the parties agreed that any future action against Mr. Gupta based on the same allegations in the Administrative Proceeding would be brought before Judge Rakoff in federal court (as discussed here).

On October 26, 2011, both the SEC and the U.S. Attorney’s Office for the Southern District of New York filed charges against Mr. Gupta (described here). Mr. Gupta, who hoped to be able to use a civil proceeding in federal court to take discovery regarding the charges against him, faced a new challenge. The prosecutors (as they do in most situations when parallel cases have been filed), requested to stay the civil case while the criminal charges are pending, thereby restricting the defendant to those discovery tools under the criminal rules (which are considerably stricter than the civil rules). In the two Gupta cases, Judge Rakoff largely granted to Motion to Stay on November 30, 2011 (but decided to allow some limited depositions in the civil case).

The attorneys for Mr. Gupta continued to raise discovery issues. During the factual investigation that preceded the two actions Assistant U.S. Attorneys from the Southern District of New York and an attorney from the SEC conducted joint interviews of 44 witnesses. Mr. Gupta’s attorneys filed motions in both the civil and criminal cases to seek materials regarding those interviews.

• First, in a motion made in the criminal case, the attorneys for Mr. Gupta argued that the prosecutors have an obligation under Brady to review the SEC’s memoranda and notes and turn over any exculpatory evidence. In response, the prosecutors argued that they have no obligation under Brady to review the SEC’s materials. The SEC offered to review its notes and materials to determine if had any material that had to be produced under Brady (and the prosecutors joined in that offer).

• Second, in a motion in the civil action Mr. Gupta argued that he is entitled to production of SEC’s memoranda and notes under Federal Rules of Civil Procedure 26(b) as "matter relevant to the subject matter involved in the action." The SEC argued, among other things, that its memoranda and notes were entitled to attorney work product protection under the rules.

Judge Rakoff began his March 27, 2012 Opinion and Order in his usual sharply worded manner, (as he has done in other cases, notably the Citigroup case) questioning the policy to not produce such material:

That separate government agencies having overlapping jurisdiction will cooperate in the factual investigation of the same alleged misconduct makes perfect sense but that they can then disclaim such cooperation to avoid their respective discovery obligations makes no sense at all.

Judge Rakoff noted that, under Brady, a prosecutor "has a duty to learn of any favorable evidence known to the others acting on the government’s behalf in the case." He pointed out that the argument that the Government does not have a duty to review the material under Brady because the SEC is in actual possession of the documents is "hypertechnical and unrealistic." He also rejected the SEC’s offer to conduct the Brady review because only the prosecutor is in a position to evaluate the documents to determine if any Brady material exists.

Judge Rakoff also rejected the argument that, while the Commission and the and the prosecutors were conducting parallel investigations, they were not truly a "joint" investigation as that term in used in case law:

But whether parallel investigations are also "joint" investigations must be evaluated in light of the disclosures being requested, and when it comes to Brady disclosures, the relevant context is one of fact gathering, not charging determinations or otherwise. For Brady purposes, it is enough that the agencies are engaged in joint fact-gathering, even if they are making separate investigatory or charging decisions, because the purpose of Brady is to apprise the defendant of exculpatory evidence obtained during the fact-gathering that might not otherwise be available to the defendant.

While the language in the case law is not always consistent with this distinction, joint fact-gathering is part of what is often referred to as "joint investigation," triggering a Brady obligation, even if it is not a "joint prosecution." Factors that the Government here emphasizes, such as the independence of the two agencies’ "charging decisions" and trial strategy, may show that this is not a "joint prosecution," but they have no bearing on joint collection of exculpatory information that Brady compels the prosecutor to disclose.

Judge Rakoff noted that not all of the documents the SEC prepared and gathered had to be reviewed (and potentially produced), "[b]ut where the Government and another agency decide to investigate the facts of a case together – such as in these 44 witness interviews – the Government has an obligation to review the documents" under Brady.

Judge Rakoff rejected the Government’s argument that prosecutors had already reviewed their own notes from the 44 witness interviews under Brady and that it was unlikely that the SEC’s material would contain any additional Brady material: "The SEC Attorney may have chosen to emphasize other parts of the witness interviews in his memoranda that did not make it into the FBI agent’s notes, or that the Government attorneys present simply forgot, and those may qualify as Brady material." 

With respect to the motion in the civil case, Judge Rakoff found that Mr. Gupta could not meet the burden of showing a "substantial need" for the SEC’s documents sufficient to overcome the attorney work product doctrine (except for the Brady material in the SEC’s notes and memoranda).

Although the SEC is usually successful in protecting information sought by opposing parties regarding its investigations (such as the case previously discussed here), there have been recent instances (such as the Cuban case discussed here), where the Courts have ordered the SEC to produce material from its investigation.  Judge Rakoff’s opinion adds another situation where it may be possible to obtain discovery regarding a Commission investigation.

The criminal case against Mr. Gupta is now scheduled to begin on May 21, 2012, while the civil case is presently set for October 1, 2012.