It was never going to be easy for Rajat K. Gupta, the former managing director of McKinsey & Company and board member of Goldman Sachs, to overturn his criminal conviction for insider trading. But the opinion of the United States Court of Appeals for the Second Circuit was muted, suggesting that the judges did not seem to want to use the case to make a statement about the conduct they expect from businesspeople.
Mr. Gupta managed one of the most remarkable falls from grace in living memory. He was a leader at the bluest of blue chip firms. Now, he’s been convicted of, among other things, passing information about Goldman Sachs to his friends at the Galleon Group hedge fund. His misery has company, as prosecutors achieved 50 other convictions or guilty pleas from those associated with the enterprise.
This week, the appeals court upheld Mr. Gupta’s conviction in its entirety. But there was little in the court’s opinion to suggest that it viewed the case as a chance to send a message to the corporate elite about how business must be done.
Instead, the language is quite routine. The court concluded repeatedly that it disagreed with the arguments Mr. Gupta raised on appeal. It finished the opinion with a quite standard and not particularly stirring statement: that it had “considered all of Gupta’s arguments on this appeal and have found them to be without merit.”
And although the court recounted the conduct that led to Mr. Gupta’s conviction in some detail, it barely turned to words of disapproval to do so.
Perhaps some slight disdain can be gleaned from its discussion of Mr. Gupta’s defense. The court did observe that Mr. Gupta sought to call a number of character witnesses who would “testify that he had ‘integrity’ and thus would not have been inclined to share inside information,” with the quotation marks around integrity in the court’s opinion. But even here, the disapprobation is far from explicit.
Appellate judges generally prefer analytical words to overwrought prose, and scapegoating is not required by our criminal system of justice. But of late there has been some concern raised in the judiciary about the very limited judicial role it has played in policing business conduct, particularly in light of the financial crisis.
Judge Jed Rakoff, who presided over Mr. Gupta’s trial, demanded in another case that the government proffer “cold, hard, solid facts, established either by admissions or by trials” in enforcement proceedings against financial firms. He has called for more prosecutions over the crisis, and expressed a desire to see wrongdoing exposed in court. Other trial judges have also expressed some sympathy for public sanctions expressed through judicial orders.
But powerful and influential appellate judges have indicated less interest in sending this sort of a message. The Court of Appeals for the Second Circuit indicated in another case that it thought that Judge Rakoff had been too insistent on admissions of wrongdoing. And, as the opinion in Mr. Gupta’s appeal suggests, the court seems disinclined to make strong statements about appropriate business conduct when it could do so.
For its part, the Supreme Court has not yet spoken about the financial crisis, and, because of the vagaries of its docket, it may not do so for years, if ever.
One interesting outcome here is that trial judges like Judge Rakoff appear to have had a real influence over the way that federal regulators handle Wall Street. Both the Securities and Exchange Commission and the Justice Department have started insisting, in some cases at least, on explicit and detailed admissions of guilt in court by the businesspeople they prosecute.
It is other judges, such as the judges on the appellate court, who appear to be less insistent on making examples of the cases that come before them.
David Zaring is assistant professor of legal studies at the Wharton School of Business at the University of Pennsylvania.