When Rajat Gupta was finally arrested on insider trading charges in late October, David Zaring at the excellent Conglomerate blog, asked, “What took the SEC so long?” A commenter then added, “Isn’t it what took the DOJ so long?” The commenter makes a good point. After all, Galleon Group chief Raj Rajaratnam had been arrested over two years before, and discussion about Gupta’s fate had swirled since then.
But I think the delay in the criminal case against Gupta is explainable if one assumes two things are true: First, that a criminal prosecutor would much rather go to trial in a case like this with incriminating taped conversations than without. It makes sense; proving a case beyond a reasonable doubt is no easy trick. Insider trading cases can be very hard to prove, and one can imagine that the prosecutors in the Southern District of New York would want to have the best evidence possible before walking onto that big stage.
The second key assumption is that prosecutors made a final run at trying to get Rajaratnam to flip on Gupta just before Rajaratnam was sentenced. It’s hard to know if this is true, but Rajaratnam did recently submit to a wide-ranging interview with Newsweek magazine in which he revealed that prosecutors had asked again for his cooperation against Gupta. He wouldn’t do it. As Rajaratnam explained:
“Anil Kumar’s son worked at Galleon one summer. I used to vacation with Rajiv Goel’s family. Their families knew my family. You don’t think this is going to haunt these guys? They wanted me to plea-bargain. They want to get Rajat. I am not going to do what people did to me. Rajat has four daughters.”
So the U.S. Attorney’s Office and the SEC then went with what they had: a strong case, but not one bolstered by the taped conversations that were so critical to the Rajaratnam trial. But it seems that the delay basically came down to the available evidence, and what prosecutors hoped they could develop before trial.