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NEW YORK (Reuters) - Former Goldman Sachs Group Inc board member Rajat Gupta can remain free on bail while he appeals his insider-trading conviction, an appeals court ruled on Tuesday.
Gupta had been scheduled to surrender January 8 to start a two-year prison sentence. But after hearing arguments from Gupta's lawyer and prosecutors, a two-judge panel of the 2nd U.S. Circuit Court of Appeals in New York granted Gupta's request to stay out of prison.
Gupta, 64, was convicted in June of leaking Goldman boardroom secrets to Raj Rajaratnam, the Galleon Group hedge-fund manager at the center of a U.S. government crackdown on insider trading over the past four years. Gupta, also a former head of management consultancy McKinsey & Co, has been free on $10 million bail.
The former Goldman director attended the hearing with his family. After the hearing, he hugged his lawyer, Seth Waxman, and patted him on the back.
Waxman declined to comment on the appeals court's ruling. A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment.
The U.S. Justice Department had argued that Gupta should not be able to delay going to prison while he awaits the outcome of his appeal, which is expected to be heard by the 2nd Circuit as early as April.
At Tuesday's hearing, Waxman argued that Gupta's appeal would raise substantial questions that likely would result in his conviction being reversed.
The government hadn't proved its case, which relied on "classically inadmissible" or "entirely circumstantial" evidence, Waxman said. "It totally failed in that regard."
Waxman said the trial judge, Jed Rakoff, erred in admitting an October 24, 2008 wiretapped conversation between Rajaratnam and David Lau, a Singapore-based portfolio manager at Galleon.
On the call, Rajaratnam told Lau that he "heard yesterday from somebody who's on the board of Goldman Sachs, that they are gonna lose $2 per share." But Waxman said there was no evidence Lau traded on the tip, and the call had been focused on the general discussions of the global financial crisis.
Reed Brodsky, the prosecutor who argued before the 2nd Circuit, countered that the wiretaps show that Rajaratnam had provided information to Lau so he could also benefit from it.
"The government's evidence showed this was in furtherance of the conspiracy," he said.
The 2nd Circuit had earlier denied Rajaratnam's similar bid to remain free on bail pending his appeal, which was argued October 25. The fund manager is serving an 11-year prison sentence.
Gupta is facing a related civil proceeding brought by the U.S. Securities and Exchange Commission. In a court filing late Tuesday, his lawyers argued that he should not pay any civil penalty in connection with the SEC's claims. The SEC has asked the court to impose the maximum allowable penalty of $15.3 million.
The case is USA v. Rajat Gupta, 2nd U.S. Circuit Court of Appeals, No 12-4448.
Editing by Martha Graybow, Andrew Hay, Tim Dobbyn and Michael Urquhart