Bass, Berry & Sims attorney Chris Lazarini analyzed a defendant’s second appeal to vacate an insider trading conviction. On the direct appeal, the individual raised multiple evidentiary issues, but did not challenge the jury instructions. On second appeal, the defendant moved to vacate the conviction on the ground that the jury instructions were legally invalid. The trial court denied the motion because the defendant failed to show cause and prejudice or actual innocence.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

Gupta vs. USA, No. 16-409 (2nd Cir., 1/7/19)

When a criminal defendant fails to raise a claim on direct appeal of his conviction, he may raise it in a subsequent habeas proceeding seeking to vacate his conviction only if he can show cause and prejudice or actual innocence.

In 2012, Rajat Gupta was convicted of engaging in and conspiring to engage in an insider trading scheme with his friend Raj Rajaratnam, founder of the Galleon Group hedge fund. In his direct appeal from the conviction, Gupta raised multiple evidentiary issues, but did not challenge the jury instructions. That appeal was unsuccessful and Gupta subsequently served a two-year prison term. After the Court’s decision in United States v. Newman, 773 F.3d 43 (2nd Cir. 2014) (“Newman”), and while serving his prison term, Gupta moved to vacate his conviction on the ground that the jury instructions were legally invalid. Gupta highlighted the jury instructions saying the government must prove he provided inside information in anticipation of receiving some benefit in return, and that the benefit need not be financial or tangible, but could include maintaining a good relationship with a frequent business partner. Gupta argued Newman, in contrast, held that the benefit must be an exchange, a quid pro quo, in which the tipper receives an objective, consequential gain of a pecuniary or similarly valuable nature or at least the opportunity for such gain. The trial court denied the motion.

On appeal, Gupta conceded he procedurally defaulted on his challenge to the jury instructions by not challenging them in his direct appeal, however, he argued the default should be excused on the grounds of “cause and prejudice,” or “actual innocence.” The Court finds he failed to meet these standards. To show “cause,” a defendant must show that the claim was so novel that its legal basis was not reasonably available to his counsel. The Court finds Gupta cannot meet this standard because his counsel actually objected to the challenged jury instructions at trial. To show “prejudice,” the defendant must show more than just an erroneous or undesirable jury instruction. He must show that the instruction infected the entire trial resulting in a denial of due process. The Court finds Gupta was afforded due process and was not prejudiced because the instructions followed Supreme Court precedent and were correct because a quid pro quo is easily inferred where the benefit is maintaining a good business relationship “with a frequent business partner.” In addition, the Court notes the Newman standard cited by Gupta was later rejected by the Supreme Court in Salman v. United States, 137 S. Ct. 420 (2016). Finally, the Court finds Gupta cannot demonstrate “actual innocence,” stating the government presented ample evidence to permit the jury to find Gupta intended for his friend and business associate to trade on the basis of the confidential information Gupta gave him and Gupta personally benefited in return.