After spending close to $7 million in costs and $35 million in attorneys’ fees to unsuccessfully defend a director on its board accused of insider trading, Goldman Sachs has indicated that it intends to seek restitution of these advances. The new charges arise out of the insider trading conviction of Rajat Gupta for sharing confidential bank financial information with a former friend who founded and operates a hedge fund.
While Gupta is appealing his conviction, Goldman states that it was required to produce more than 400,000 documents to the government and prepare 18 witnesses for testimony in defending its former board member. Under the bank’s bylaws, it hired the law firm of Sullivan & Cromwell to defend the criminal charges against Gupta.
In support of its effort to recover these fees and costs, Goldman quoted the trial judge’s statements to the effect that “Goldman Sachs was the victim of Gupta’s crimes,” and that Gupta’s offenses constituted a breach of trust and duty of confidentiality to the bank. Goldman may be successful in obtaining at least partial relief if past precedence is of any value. In March 2012, Morgan Stanley was awarded more than $10 million of the $45 million it sought representing fees and costs advanced in defending a portfolio manager for a hedge fund that it owned. In that matter, the judge reasoned that restitution was in order since the portfolio manager’s conduct had deprived Morgan Stanley of its employee’s service and valuable time, as well as resulting in damage to its reputation. (“Goldman Seeks $7M Legal Costs from Gupta,” Financial Times, January 4, 2013)