Gupta judge expresses "concern" over SEC courts

The Corporate Law Center's DeStefano Lecture speaker Judge Rakoff in Reuters, April 12, 2011

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 (Reuters Legal) - U.S. District Judge Jed Rakoff expressed concern on Monday about new powers vested in the SEC under financial legislation passed last year -- an issue at the heart of a major insider-trading case that is coming before Rakoff's court next week.

Rakoff, of the U.S. District Court in Manhattan, has to decide whether a case brought against Rajat Gupta in an SEC administrative court deprives Gupta of the right to a jury trial. The SEC gained the power to bring more cases in administrative proceedings under the Dodd-Frank law, passed in July.

"One concern I have about Dodd-Frank is that it puts more adjudication into the hands of the SEC and its administrative judges," Rakoff said in a question-and-answer session after he gave a lecture at the Fordham University School of Law on Monday night. Speaking to Reuters Legal afterwards, Rakoff declined to elaborate on his concern, saying the issue may come before him shortly.

The SEC has accused Gupta, a former worldwide director of McKinsey & Co, of passing tips to Galleon Group founder Raj Rajaratnam, who is currently on trial in federal court on insider-trading charges.

'FREE TO SAY WHAT HE DOES AND DOESN'T LIKE'

Richard Painter, a law professor and legal ethicist at the University of Minnesota, said that while judges must not appear biased, there are no bright lines governing what they can say about areas of law they may be deliberating. As long as a judge applies the law as Congress intended, "he's free to say what he does and doesn't like about the law," Painter said.

Rakoff has gained renown in legal circles for criticizing the SEC. In 2009, he rejected the agency's $33 million settlement with Bank of America Corp over bonuses paid to Merrill Lynch & Co executives, saying it was not fair. He later approved a revised $150 million settlement.

Rakoff's comment came at the end of an otherwise academic lecture, entitled "Are Federal Judges Competent? Dilettantes in an Age of Economic Expertise." The talk centered on whether federal judges should oversee courts devoted to subject matter specialties, such as securities or antitrust. During a question-and-answer session, Rakoff opined on how specialty courts, such as courts within government agencies, can force judges to look too narrowly at a body of cases, missing important real-world context.

SEC spokesman John Nester declined to comment on Rakoff's statement, as did Gary Naftalis, a lawyer representing Gupta.

An oral argument on the SEC's motion to dismiss Gupta's lawsuit is scheduled before Rakoff next week.

The case before judge Rakoff is Gupta v. Securities and Exchange Commission, U.S. District Court, Southern District of New York, No. 11-1900.

The SEC's administrative proceeding is In the Matter of Rajat Gupta, Administrative Proceeding File No. 3-14279.

(Reporting by Carlyn Kolker of Reuters Legal; Editing by Eddie Evans)

(This story first appeared on Westlaw News & Insight, www.westlawnews.com)