Financial Statements and Settlement Negotiations of Cooperating Witnesses in SEC Action Not Discoverable by Defendants


[authors: Emily Stern, Dean N. Razavi]

The U.S. District Court for the Southern District of New York last week denied defendants Rajat Gupta and Raj Rajaratnam’s motion to compel documents concerning settlement negotiations between the Securities and Exchange Commission and various cooperating witnesses. The defendants argued that settlement negotiations were relevant to prove that the cooperators had an incentive to lie. Financial statements provided by the cooperators to the SEC, which demonstrated the cooperators’ ability to pay any fines or penalties imposed by the SEC, would also speak to bias. The court rejected the motion, relying heavily on the SEC’s willingness to produce the settlement agreements themselves. These agreements, rather than the negotiations surrounding them, were sufficient for the defendants to argue that the cooperating witnesses were biased; the cooperators had not made any “Wells” submissions or any other statements that would include fact admissions, and negotiations were more likely to reflect lawyer arguing and “puffery” rather than substantive evidence related to bias. Further, the court held that the financial statements would only be made available to the defendants if they were able to make a threshold showing that the witness lied to the SEC to procure a better deal.

Securities and Exchange Commission v. Gupta, No. 11 Civ. 7566 (JSR) (S.D.N.Y. May 1, 2012).


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