Gupta v. United States, No. 15-2707 (2d Cir. 2019)
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Petitioner appealed the district court's denial of his 28 U.S.C. 2255 motion to vacate his securities fraud convictions in light of United States v. Newman, 773F.3d438 (2dCir. 2014), in which the Second Circuit reversed the insider trading convictions of two tippers. The court affirmed the judgment and held that petitioner presented no viable claim that the personal benefit challenge was unavailable to his counsel on appeal; petitioner failed to show prejudice where the personal benefit instructions he challenged were so flawed as to deny him due process; and petitioner has not demonstrated his actual innocence where the evidence contained ample evidence that petitioner was in a conspiracy to trade on the basis of non public information and that petitioner benefited financially from the trading.
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15 2707(L) Gupta v USA 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term, 2018 5 (Argued: November 16, 2016 Decided: January 11, 2019) Docket Nos. 15 2707(L), 2712(C) 6 7 8 RAJAT K. GUPTA, Petitioner Appellant, 9 10 v. 11 UNITED STATES OF AMERICA, 12 13 Respondent Appellee. 14 Before: KEARSE, WESLEY, and DRONEY, Circuit Judges. 15 Petitioner Rajat K. Gupta, whose 2012 convictions of substantive and 16 conspiracy crimes of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 17 18 U.S.C. § 371, were upheld on appeal in 2014, see United States v. Gupta, 747 F.3d 111 1 (2d Cir. 2014), appeals from a 2015 judgment of the United States District Court for 2 the Southern District of New York, Jed S. Rakoff, Judge, denying Gupta s motion to 3 vacate his convictions pursuant to 28 U.S.C. § 2255 on the ground that the trial court s 4 instructions to the jury as to the personal benefit component of an insider trading 5 offense were legally invalid in light of this Court s 2014 decision in United States v. 6 Newman, 773 F.3d 438 (2d Cir. 2014) ( Newman ). The district court denied the motion, 7 concluding principally that Gupta, who had objected to those instructions at trial, 8 procedurally defaulted his present contention by not pursuing his objection on the 9 direct appeal from his conviction; that he made no showing that would excuse the 10 default; and that, in any event, the jury instructions were consistent with Newman, 11 even as interpreted by Gupta. See United States v. Gupta, 111 F.Supp.3d 557, 561 12 (S.D.N.Y. 2015). On this appeal, Gupta concedes that he procedurally defaulted his 13 challenge to the trial court s personal benefit instruction; but he contends that the 14 default should be excused on the grounds of cause and prejudice, or actual innocence, 15 or inapplicability of the normal default principles in light of the Supreme Court s 16 decision in Montgomery v. Louisiana, 136 S. Ct. 718 (2016). We conclude that his 17 contentions lack merit, and we affirm the denial of his motion for relief from the 18 judgment of conviction. 2 Affirmed. 1 2 3 4 5 GARY P. NAFTALIS, New York, New York (David S. Frankel, Alan R. Friedman, Robin M. Wilcox, Elliot A. Smith, Kramer Levin Naftalis & Frankel, New York, New York, on the brief), for Petitioner Appellant. 6 7 8 9 10 11 DAMIAN WILLIAMS, Assistant United States Attorney, New York, New York (Preet Bharara, United States Attorney for the Southern District of New York, Margaret Garnett, Assistant United States Attorney, New York, New York, on the brief), for Respondent Appellee. 12 Per Curiam*: Petitioner Rajat Gupta, who stands convicted of substantive and 13 14 conspiracy crimes of securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 15 18 U.S.C. § 371, see United States v. Gupta, 747 F.3d 111 (2d Cir. 2014) ( Gupta I ), 16 appeals from a judgment of the United States District Court for the Southern District 17 of New York, Jed S. Rakoff, Judge, which denied Gupta s motion to vacate his 18 convictions pursuant to 28 U.S.C. § 2255 on the ground that the court s instructions 19 to the jury as to the personal benefit component of an insider trading offense were 20 legally invalid in light of this Court s subsequent decision in United States v. Newman, * This decision was originally entered as a summary order on January 7, 2019; the summary order is withdrawn. 3 1 773 F.3d 438 (2d Cir. 2014) ( Newman ). The district court denied the motion, 2 concluding principally that Gupta, who had objected to those instructions at trial, 3 procedurally defaulted his present contention by not pursuing his objection on the 4 direct appeal from his conviction; that he made no showing that would excuse the 5 default; and that, in any event, the jury instructions were consistent with Newman, 6 even as interpreted by Gupta. See United States v. Gupta, 111 F.Supp.3d 557, 561 7 (S.D.N.Y. 2015) ( Gupta II ). 8 This Court granted Gupta s application for a certificate of appealability 9 on the issues of (1) whether his conviction should be vacated on the ground that the 10 jury was erroneously instructed, and (2) whether any procedural default of this claim 11 may be excused on the grounds of (a) cause and prejudice or (b) actual innocence. On 12 appeal, Gupta concedes that he procedurally defaulted his challenge to the trial 13 court s personal benefit instruction; but he contends that the default should be 14 excused on the grounds of cause and prejudice, or actual innocence, or inapplicability 15 of the normal default principles in light of the Supreme Court s decision in 16 Montgomery v. Louisiana, 136 S. Ct. 718 (2016). For the reasons that follow, we see no 17 error in the decision of the district court, and we affirm the decision in Gupta II 18 denying Gupta s motion for relief from the judgment of conviction. We assume the 4 1 parties familiarity with the underlying facts, procedural history, and issues for 2 review. 3 Gupta s convictions of engaging in and conspiring to engage in an insider 4 trading scheme were based on evidence that on several occasions Gupta, while 5 serving on boards of directors of various companies, disclosed material nonpublic 6 information about those companies to his friend and business associate Raj 7 Rajaratnam, founder of the Galleon Group ( Galleon ), a family of hedge funds that 8 invested billions of dollars for its principals and clients, see Gupta I, 747 F.3d at 116, 9 121. In his direct appeal from the judgment of conviction, Gupta principally 10 challenged the admission in evidence of certain wiretap evidence and challenged the 11 exclusion of certain evidence he sought to introduce. We rejected all of Gupta s 12 contentions and affirmed the judgment. See id. at 128 40. Gupta did not challenge the 13 sufficiency of the evidence to convict him or any of the instructions to the jury. 14 After Gupta s appeal had been decided, this Court decided Newman, 773 15 F.3d at 438, in which we reversed the insider trading convictions of two tippees. 16 In his present § 2255 motion, Gupta quotes the following parts of the trial 17 court s instructions to the jury at his trial: 5 1 2 3 4 5 First, [the government must prove that] on or about the date alleged, Mr. Gupta engaged in an insider trading scheme, in that, in anticipation of receiving at least some modest benefit in return, he provided to Mr. Rajaratnam the material non public information specified in the count you are considering . . . . 6 . . . . 7 8 9 10 [A]s to the benefit that the defendant anticipated receiving, the benefit does not need to be financial or to be tangible in nature. It could include, for example, maintaining a good relationship with a frequent business partner, or obtaining future financial benefits. 11 (Gupta brief on appeal at 10 (all emphases and alterations in brief).) He contends that 12 13 14 15 16 17 18 19 [t]he instruction thus began by emphasizing, in a formulation plainly invalid following Newman, that the benefit does not need to be financial or to be tangible in nature. By way of example, the district court continued, maintaining a good relationship with Rajaratnam would suffice. The instruction thus permitted, consistent with the government s theory, proof and arguments in the case, a guilty verdict based on the relationship, alone, as the benefit. 20 (Id. at 10 11 (emphasis in original).) Gupta contends that his convictions should be 21 vacated on the ground that Newman, [b]y contrast, . . . held that a personal benefit 22 must take the form of an exchange —a quid pro quo—in which the alleged tipper 23 receives an objective, consequential . . . gain of a pecuniary or similarly valuable 24 nature, or at least the opportunity for such gain. (Id. at 11 (quoting Newman, 773 25 F.3d at 452)). We disagree. 6 1 [A] collateral challenge may not do service for an appeal. United States 2 v. Frady, 456 U.S. 152, 165 (1982). Where a defendant has procedurally defaulted a 3 claim by failing to raise it on direct review, the claim may be raised in habeas only if 4 the defendant can first demonstrate either cause and actual prejudice, Murray v. 5 Carrier, 477 U.S. 478, 485 (1986); Wainwright v. Sykes, 433 U.S. 72, 87 (1977), or that he 6 is actually innocent, Murray, supra, at 496; Smith v. Murray, 477 U.S. 527, 537 (1986). 7 Bousley v. United States, 523 U.S. 614, 622 (1998). In order to demonstrate cause, a 8 defendant must show some objective factor external to the defense, Murray v. 9 Carrier, 477 U.S. 478, 488 (1986), such that the claim was so novel that its legal basis 10 [was] not reasonably available to counsel, Reed v. Ross, 468 U.S. 1, 16 (1984). Novelty, 11 or futility, however, cannot constitute cause if it means simply that a claim was 12 unacceptable to that particular court at that particular time. Bousley, 523 U.S. at 623 13 (internal quotation marks omitted). [T]he question is not whether subsequent legal 14 developments have made counsel s task easier, but whether at the time of the default 15 the claim was available at all. United States v. Thorn, 659 F.3d 227, 233 (2d Cir. 2011) 16 (quoting Smith v. Murray, 477 U.S. 527, 537 (1986)). [T]he mere fact that counsel 17 failed to recognize the factual or legal basis for a claim, or failed to raise the claim despite 18 recognizing it, does not constitute cause for a procedural default. Murray v. Carrier, 7 1 477 U.S. at 486 (emphasis added). 2 Further, in order to meet the cause and prejudice standard, the prejudice 3 that must be shown is not merely whether the instruction is undesirable, erroneous, 4 or even universally condemned, but rather whether the ailing instruction by itself 5 so infected the entire trial that the resulting conviction violates due process, Frady, 6 456 U.S. at 169 (quoting Henderson v. Kibbe, 431 U.S. 145, 154 (1977)); see Frady, 456 U.S. 7 at 166 ( The burden of demonstrating that an erroneous instruction was so prejudicial 8 that it will support a collateral attack on the constitutional validity of a state court s 9 judgment is even greater than the showing required to establish plain error on direct 10 appeal. (internal quotation marks and emphasis omitted)). And in order to 11 demonstrate his actual innocence, a defendant must prove his factual innocence, not 12 mere legal insufficiency, and demonstrate that, in light of all the evidence, it is 13 more likely than not that no reasonable juror would have convicted him. Bousley, 14 523 U.S. at 623 (quoting Schlup v. Delo, 513 U.S. 298, 327 28 (1995)). Gupta has made 15 none of the requisite showings. 8 1 No Cause 2 As to cause, we recently noted in Whitman v. United States, No. 15 2686, 3 2018 WL 5828118 (2d Cir. Nov. 7, 2018) (summary order) ( Whitman )—another 4 insider trading case in which the direct appeal was decided shortly before our 5 decision in Newman—that the defendant had objected at trial to the court s personal 6 benefit instruction but did not pursue that objection on appeal. We noted that the 7 same objection had been pressed by defendants in other cases prior to our decision 8 in Newman. We concluded that Whitman did not show cause for his failure to 9 challenge the personal benefit instructions on appeal: If other counsel were able to 10 raise the argument, including Whitman s own former attorney, we cannot say the 11 same argument was unavailable to his appellate counsel. Whitman, 2018 WL 5828118 12 at *2. 13 Although Whitman was decided by nonprecedential summary order, the 14 fact that we [d]eny[] summary orders precedential effect does not mean that the 15 court considers itself free to rule differently in similar cases, Order dated June 26, 16 2007, adopting 2d Cir. Local R. 32.1.1, and we see no basis for any different outcome 17 here. Defendants in other insider trading prosecutions were contending that juries 18 should be given narrower definitions of the personal benefit needed to find culpable 9 1 insider trading. Gupta at his trial objected to the instructions he challenges now. We 2 conclude that he presents no viable claim that the personal benefit challenge was 3 unavailable to his counsel on appeal. 4 No Prejudice 5 Nor has Gupta shown prejudice—i.e., that the personal benefit 6 instructions he challenges were so flawed as to deny him due process. First of all, we 7 assess the targeted portion of the district court s instructions in context. As [the 8 Supreme Court] ha[s] often emphasized: [A] single instruction to a jury may not be 9 judged in artificial isolation, but must be viewed in the context of the overall charge. 10 Frady, 456 U.S. at 169 (quoting Cupp v. Naughten, 414 U.S. 141, 146 47 (1973)). 11 Although Gupta argues that it was error for the trial judge to indicate that it would 12 suffice to establish a personal benefit if Gupta s purpose had been simply 13 maintaining a good relationship (Gupta brief on appeal at 10 (quoting Tr. 3371)), 14 the court s actual relationship language (included in Gupta s quote but omitted from 15 his argument) was maintaining a good relationship with a frequent business partner 16 (Tr. 3371 (emphasis added)). 10 1 Second, the trial court s reference to a good relationship with a frequent 2 business partner was consistent with the Supreme Court s discussion in Dirks v. SEC, 3 463 U.S. 646 (1983), as to what may properly be considered a tipper s anticipated 4 personal benefit sufficient to warrant his conviction of insider trading. In Dirks, 5 noting that a purpose of the securities laws was to eliminate use of inside 6 information for personal advantage, id. at 662 (internal quotation marks omitted), the 7 Court stated that the test for whether that purpose has been contravened is whether 8 the insider receives a direct or indirect personal benefit from the disclosure, such as 9 a pecuniary gain or a reputational benefit that will translate into future earnings. Id. 10 at 663. The Court also stated that an inference of such a benefit may be warranted by 11 the circumstance of a relationship between the insider and the recipient that suggests 12 a quid pro quo from the latter, or an intention to benefit the particular recipient. Id. 13 at 664. Where the recipient of the tip is the tipper s frequent business partner, the 14 tipper s anticipation of a quid pro quo is easily inferable. 15 Third, the Dirks Court s use of the above disjunctives (i.e., such as a 16 pecuniary gain or a reputational benefit that will translate into future earnings, id. 17 at 663, and a quid pro quo from the [recipient] or an intention to benefit the particular 18 recipient, id. at 664)—especially prefaced by such as —suggests varying sets of 11 1 circumstances each of which would warrant a finding of the tipper s illegal purpose. 2 Thus, while Gupta argues that the instruction at his trial was invalid under Newman 3 for stating that the benefit does not need to be financial or to be tangible (Gupta 4 brief on appeal at 10), that instruction was warranted by Dirks. Indeed, the lack of 5 need for proof of the tipper s financial or tangible gain was highlighted as well by the 6 Dirks Court s illustration that 7 8 9 10 11 [t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient. 12 463 U.S. at 664; see also United States v. Martoma, 894 F.3d 64, 75 (2d Cir. 2018) ( The 13 tipper s intention to benefit the tippee proves a breach of fiduciary duty because it 14 demonstrates that the tipper improperly used inside information for personal ends 15 and thus lacked a legitimate corporate purpose. ). 16 Finally, the trial court s instruction that the benefit to Gupta need not 17 have been financial or tangible, although contrary to the formulation given in 18 Newman, could not have constituted prejudice to Gupta because it was correct. The 19 Newman formulation was expressly rejected by the Supreme Court in Salman v. United 20 States, 137 S. Ct. 420 (2016), as that Court noted that 12 1 2 3 4 [t]o the extent the Second Circuit held that the tipper must also receive something of a pecuniary or similarly valuable nature in exchange for a gift to family or friends, Newman, 773 F.3d, at 452, . . . this requirement is inconsistent with Dirks. 5 137 S. Ct. at 428. Thus, in the wake of Salman, we have stated that it is settled law 6 that personal benefits may be indirect and intangible and need not be pecuniary at 7 all. United States v. Martoma, 894 F.3d at 75. 8 The fact that Newman s requirement for proof of a tipper s pecuniary or 9 other tangible gain has been rejected by the Supreme Court disposes of Gupta s 10 contention—invoking Montgomery v. Louisiana, 136 S. Ct. 718, a case that involved 11 principles of retroactivity and that did not address issues of cause and 12 prejudice—that Newman meant the trial court s instruction that proof of pecuniary or 13 tangible benefit was not necessary caused him to be convicted of a crime for conduct 14 that is not criminal (Gupta brief on appeal at 22). 15 No Innocence 16 Lastly, as to the claim of actual innocence, Gupta has not demonstrate[d] 17 that, in light of all the evidence, it is more likely than not that no reasonable juror 18 would have convicted him, Bousley, 523 U.S. at 623 (quoting Schlup v. Delo, 513 U.S. 13 1 at 327 28 (emphasis ours)), of insider trading. As a matter of background, the record 2 as a whole, viewed in the light most favorable to the government, contained ample 3 evidence that Gupta and Rajaratnam were business associates. Gupta had invested 4 several million dollars in Galleon funds. In 2005, Gupta and Rajaratnam invested in 5 another investment fund capitalized with $50 million; Gupta originally contributed 6 $5 million; he later doubled his investment with $5 million loaned to him by 7 Rajaratnam. In early 2008, Gupta was made chairman of Galleon International, 8 which, as of April 2008, managed assets totaling some $1.1 billion and could earn 9 performance fees; Gupta was given a 15 percent ownership stake in that fund. Gupta 10 also regularly worked on Galleon s behalf in seeking potential investors; he had a 11 keycard allowing him access to Galleon s New York offices. See Gupta I, 747 F.3d at 12 116 21. Gupta described Rajaratnam as a very close friend. Rajaratnam s address 13 book noted Gupta as a good friend; and Gupta was one of five persons whose call 14 Rajaratnam s secretary was authorized to put through if he called near the end of the 15 trading day. See id. at 121. 16 The jury was instructed that in order to convict Gupta on any given 17 count, it must find, inter alia, that Gupta anticipated that Mr. Rajaratnam or others 18 at Galleon would trade on the basis of th[e non public] information provided by 14 1 Gupta, that they then did so by buying or selling the shares specified in the count on 2 the basis of the inside information, and that Gupta, in return for providing this 3 information, anticipated receiving some personal benefit. (Tr. 3371.) There was 4 ample evidence to permit the jury to find that Gupta intended Rajaratnam to trade on 5 the basis of the confidential information Gupta passed to him and that Gupta 6 personally benefitted in one of the ways envisioned in Dirks. 7 For example, on September 23, 2008, Gupta, a member of the board of 8 directors of The Goldman Sachs Group, Inc. ( Goldman Sachs or Goldman ), 9 participated in a Goldman board meeting via telephone and learned that Warren 10 Buffett was about to invest $5 billion in Goldman, which would be publicly 11 announced at 6 p.m. that day. At 3:54 p.m.—one minute after the end of that board 12 meeting telephone call—Gupta called Rajaratnam, telling Rajaratnam s secretary that 13 the call was urgent. Gupta and Rajaratnam spoke briefly, and Rajaratnam then 14 immediately began having his people at Galleon buy Goldman shares. Between 3:56 15 p.m. and the 4:00 p.m. close of the market, they bought Goldman shares costing a 16 total of more than $33 million. The next morning, the price of the stock rose some 17 seven percent. See Gupta I, 747 F.3d at 117 19. The timing of Gupta s call to 18 Rajaratnam immediately after the end of his board call, and his statement at 3:54 p.m 15 1 that he needed to speak to Rajaratnam urgently, plainly allowed the inference that 2 Gupta intended Rajaratnam to buy, and profit on, Goldman shares in advance of the 3 Buffett $5 billion announcement at 6 p.m. 4 Similarly, on October 23, 2008, Gupta learned in a Goldman Sachs board 5 of directors conference call that Goldman would report in December a quarterly 6 financial loss. The loss would be its first in its history as a public company, and 7 market analysts were predicting another profitable quarter. One minute after the end 8 of that board conference call, Gupta called Rajaratnam. The next morning, one 9 minute after the stock market opened, Rajaratnam began selling Goldman shares. In 10 little over an hour, Rajaratnam sold enough shares to avoid a loss of more than 11 $3.8 million. 12 International—which had in the past invested in Goldman stock, and in which Gupta 13 had a 15 percent ownership stake—that on the previous day Rajaratnam had received 14 confidential information from a Goldman board member, negative news that would 15 not be reported publicly until December. Rajaratnam said he himself would make 16 short sales of Goldman stock. See Gupta I, 747 F.3d at 118 21. On this evidence and 17 the record as a whole, the jury could rationally have found that Gupta anticipated 18 that Rajaratnam would engage in trading of Goldman shares that would benefit Rajaratnam also advised a portfolio manager of Galleon 16 1 Gupta financially. 2 Conclusion 3 We have considered all of Gupta s arguments on this appeal and have 4 found them to be without merit. The judgment of the district court is affirmed. 17
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