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The SEC brought civil insider trading charges against Rajat Gupta in an administrative proceeding.  In so doing, the SEC used newly granted authority under the Dodd-Frank Act to seek civil penalties in an insider trading case.  Mr. Guta has now sued the SEC, claiming the provisions of the Dodd-Frank Act cannot be applied retroactively.  According to Mr. Guta’s complaint:  “Against the history of Galleon-related actions for civil penalties already brought in this Court, there is no benign and non-discriminatory explanation for the Commission’s applying Dodd-Frank retroactively against Mr. Gupta, or more generally for filing the action against him administratively, rather than in federal court, as it has invariably done with similarly situated defendants. To the contrary, the only plausible inference is that the Commission is proceeding how and where it is against Mr. Gupta for the bad faith purpose of shoring up a meritless case by disarming its adversary.”

The complaint also attempts to infer misconduct by the SEC:  “Counsel for Mr. Gupta emailed to the Staff of the Enforcement Division a 35-page Wells submission on behalf of Mr. Gutpa at approximately 10:45 p.m. on Friday, February 25, 2011. Hard copies of the submission were, with the Staffs permission, not delivered until the morning of Monday, February 28, 2011. Yet by that Monday afternoon, the Staff had purportedly received authorization from the Commission to proceed against Mr. Gupta—even though there is no public record of the Commission meeting to consider thoroughly the submission Mr. Gupta was invited to, and did, submit. As a result, Mr. Gupta was deprived of the chance to have his submission scrutinized in a deliberate fashion by its intended audience—the five Commissioners.”

See this case for factors the court may consider on whether the Dodd-Frank Act can be applied retroactively.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.


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