The decision of the Securities and Exchange Commission (SEC) to bring an insider trading action against Rajat Gupta, the former McKinsey managing director, in an administrative proceeding instead of in federal court is drawing questions from pundits – as well as apparently from Judge Jed S. Rakoff, of the Southern District of New York, who is expected to decide whether such an administrative action is allowed. Judge Rakoff will determine where the SEC's action needs to take place because Gupta has sued the agency claiming he is constitutionally entitled to a jury trial and should receive the more robust procedural and evidentiary rights provided by federal courts. Gupta's supporters argue that letting the SEC pursue its action in its own administrative courts provides the agency with a "home-court advantage." The new financial reform legislation, specifically section 929P(a) of the Dodd-Frank Act, gives the SEC new authority to bring securities law enforcement actions against entities it does not regulate directly in federal or administrative court. In bringing an administrative action against Gupta, the SEC is using this new authority for the first time. Judge Rakoff recently told an audience at Fordham Law School in New York city that he was concerned about moving SEC adjudications from federal to administrative courts. He reportedly argued that specialized courts focus on one area of law at the expense of the larger context. Rakoff's comments may carry extra weight not only because he will rule on Mr. Gupta's case but because he has experience deciding financial regulatory cases.
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