US vs. Rajat Gupta Restitution Memo

7/29/2019 US vs. Rajat Gupta Restitution Memo

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORKX

UNITED STATES OF AMERICA

- v. -

RAJAT K. GUPTA,

Defendant.

::::::::

No. S1 11 Cr. 907 (JSR)

X

NON-PARTY THE GOLDMAN SACHS GROUP, INC.S

MEMORANDUM OF LAW IN SUPPORT OF ITS REQUEST FOR RESTITUTION

SULLIVAN & CROMWELL LLP125 Broad StreetNew York, New York 10004Telephone: (212) 558-4000Facsimile: (212) 558-3588

Attorneys for Non-Party

The Goldman Sachs Group, Inc.

December 21, 2012

Case 1:11-cr-00907-JSR Document 134 Filed 12/21/12 Page 1 of 29


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TABLE OF CONTENTS

INTRODUCTION ..........................................................................................................................1

BACKGROUND ............................................................................................................................2

ARGUMENT ..................................................................................................................................5

I. Goldman Sachs Is Entitled to Legal Fees and Related Costs That Were a Directand Foreseeable Result of Guptas Offense ......................................................................5

II. Goldman Sachs Is Entitled to Reimbursement of Its Legal Fees and Costs .......................8

A. Internal Investigation ............................................................................................. 9

B. SEC Investigation and Proceedings ..................................................................... 10

C. The Prosecution of Rajaratnam ............................................................................ 12

D. Government Requests Related to Acquitted Conduct or UnprovenOvert Acts .......................................................................................................... 14

E. Government Requests Related to Procter & Gamble .......................................... 16

F. Post-Trial Expenses and Restitution .................................................................... 17

G. Other Goldman Sachs Personnel Suspected of Wrongdoing ........................... 18

H. Advancement of Fees to Gupta ............................................................................ 18

III. Goldman Sachs Has Provided Gupta with Sufficient Documentation of Its LegalFees and Costs ...................................................................................................................19

A. Goldman Sachs Has Met Its Statutory Burden ................................................. 19

B. Goldman Sachs Entitlement to Restitution Does Not Require UndulyComplicated Fact Determinations ...................................................................... 22

CONCLUSION .............................................................................................................................25



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TABLE OF AUTHORITIES

Page(s)

CASES

Dolan v. United States,130 S. Ct. 2533 (2010) ..............................................................................................................7

Hughey v. United States,495 U.S. 411 (1990) ................................................................................................................15

Pinkerton v. United States,328 U.S. 640 (1946) ................................................................................................................15

United States v.Amato,540 F.3d 153 (2d Cir. 2008) ............................................................................................passim

United States v.Bahel,662 F.3d 610 (2d Cir. 2011) ........................................................................................20, 22, 24

United States v.Battista,575 F.3d 226 (2d Cir. 2009) ............................................................................................passim

United States v.Boyd,222 F.3d 47 (2d Cir. 2000) ..........................................................................................14, 15, 16

United States v. Cienfuegos,462 F.3d 1160 (9th Cir. 2006) ................................................................................................24

United States v. Cuti,No. 08 Cr. 972 (DAB), 2011 WL 3585988 (S.D.N.Y. July 29, 2011) ...................................23

United States v.Donaghy,570 F. Supp. 2d 411 (E.D.N.Y. 2008) ........................................................................10, 20, 22

United States v. Gupta,No. 11 Cr. 907, 2012 WL 5246919 (S.D.N.Y. Oct. 24, 2012) .................................................4

United States v.Kane,944 F.2d 1406 (7th Cir. 1991) ................................................................................................15

United States v.Papagno,639 F.3d 1093 (D.C. Cir. 2011) ................................................................................................8

United States v. Skowron,839 F. Supp. 2d 740 (S.D.N.Y. 2012) .............................................................................passim



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United States v. Weitzman,No. 09 Cr. 989 (LTS), 2010 WL 3912735 (S.D.N.Y. Sept. 15, 2010) ...................................17

United States v. Williams,612 F.3d 500 (6th Cir. 2010) ..................................................................................................13

United States v.Zangari,677 F.3d 86 (2d Cir. 2012) ......................................................................................................13

STATUTES

18 U.S.C. 3663A ................................................................................................................passim

18 U.S.C. 3664 ...................................................................................................................passim



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The Goldman Sachs Group, Inc. (Goldman Sachs or the Firm) respectfully

submits this memorandum of law in response to defendant Rajat K. Guptas opposition to its

request for restitution.

INTRODUCTION

In convicting Gupta of conspiracy and substantive insider trading violations, the

jury necessarily determined that Gupta breached his duty as a director of Goldman Sachs. As the

Court observed in imposing sentence, [T]he victim here is Goldman Sachs. (Oct. 24, 2012 Tr.

32:89.) As a result of Guptas conduct, Goldman Sachs has incurred nearly $7 million in

external legal fees and costs in conducting an internal investigation, in responding to numerous

government requests in parallel criminal and civil investigations and proceedings, and in

attending to other resulting legal matters. Pursuant to the Mandatory Victims Restitution Act of

1996 (the MVRA), Goldman Sachs now seeks reimbursement of those legal fees and costs that

were a direct and foreseeable result of Guptas offense and are therefore properly recoverable

under the MVRA.

Gupta concedes, as he must, that his offense falls under the ambit of the MVRA,

that Goldman Sachs is the victim of his criminal conduct within the meaning of the statute, and

that Goldman Sachs is therefore legally entitled to restitution. He nevertheless opposes Goldman

Sachs claim on a host of grounds, including that the Firm purportedly seeks reimbursement for

expenses not recoverable under the MVRA, and that the Firm has failed properly to substantiate

its claim. As we explain below, Guptas arguments (i) are premised upon a misapprehension of

the legal standards that govern claims under the MVRA, (ii) are inconsistent with Second Circuit

and Southern District decisions that are directly contrary to his positions, and (iii) rest upon

distortions of the factual record supporting Goldman Sachs claim.



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Guptas arguments should be rejected, and Goldman Sachs should be awarded full

restitution.

BACKGROUND

On November 10, 2006, Goldman Sachs announced the appointment of Gupta as

a director of the Firm. In his capacity as a director, Gupta regularly received confidential

information about the Firms earnings, contemplated and actual corporate transactions, and other

significant developments prior to Goldman Sachs public announcements of such information.

As a director, Gupta was obligated by both law and the Firms policies to maintain the

confidentiality of information he received in connection with his service as a director. And he

was obligated not to provide such information to others for the purpose of securities trading.

In December 2009, Goldman Sachs first became aware of information suggesting

that Gupta might have provided to Raj Rajaratnam of Galleon Group inside information

entrusted to him as a director of the Firm. The Firm engaged Sullivan & Cromwell LLP to

provide it with legal services and advice relating to Guptas conduct. Over the ensuing three

years, Sullivan & Cromwell assisted the Firm in conducting fact-finding regarding Guptas

conduct, representing the Firm and its directors, officers, and employees in responding to

criminal and regulatory enforcement investigations and the resulting prosecutions of Gupta and

his tippee, Raj Rajaratnam, and providing other legal services that were a direct by-product of

Guptas conduct.

Goldman Sachs faced significant legal demands in connection with these matters.

As a result, Sullivan & Cromwell assisted the Firm with a wide variety of tasks, including:

responding to approximately 27 grand jury subpoenas and document requestsfrom the United States Attorneys Office, as well as numerous other informalrequests for information;



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responding to 13 document requests from the United States Securities andExchange Commission;

responding to six subpoenas from Gupta himself;

responding to three subpoenas from Rajaratnam;

collecting, searching, and reviewing millions of documents, and producing over400,000 pages of material in over 100 separate document productions;

representing 18 representatives of Goldman Sachs in over 30 investigative or pre-trial meetings and interviews with the Government, including substantially all ofits directors, many members of executive management, and various otheremployees;

representing the Firms Chairman and Chief Executive Officer, Lloyd Blankfein,in preparation for and at depositions compelled by Gupta that spanned two days;

representing Mr. Blankfein in connection with preparation for and testimony atthe trials of both Rajaratnam and Gupta, which spanned four days;

representing Goldman Sachs director William George and three current andformer Goldman Sachs employees in preparation for and testimony at Guptastrial; and

providing legal services and advice in connection with Goldman Sachs instantrestitution claim.

The work that Sullivan & Cromwell performed is detailed in 542 pages of billing records that

have been provided to Gupta.

Beyond the expenses of its external counsel, Goldman Sachs was required to

devote substantial internal resources to addressing the many issues raised by Guptas conduct,

including many hours devoted to this matter by the Firms directors, its most senior executives

and other employees, its General Counsel and other senior internal counsel, and information

technology and other administrative personnel. Goldman Sachs does not, however, seek

restitution from Gupta for the very substantial value of these internal resources.

Following Guptas conviction, the Government advised the Court that it was

seeking restitution on behalf of Goldman Sachs under the MVRA. (Oct. 17, 2012 Mem. 1112,



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ECF No. 124.) In his reply memorandum, Gupta asked the Court to deny restitution entirely or,

in the alternative, to allow further proceedings on the issue. (Oct. 22, 2012 Mem. 11, ECF

No. 125.)

The Court sentenced Gupta on October 24, 2012. In imposing sentence, the Court

emphasized that Gupta had committed a very serious crime (Oct. 24, 2012 Tr. 21:23), that

Goldman Sachs was the victim of Guptas crimes, and that [t]he heart of Guptas offenses . . .

[wa]s his egregious breach of trust and fiduciary duty of confidentiality to Goldman Sachs.

United States v. Gupta, No. 11 Cr. 907, 2012 WL 5246919, at *3 (S.D.N.Y. Oct. 24, 2012). The

Court further observed that Gupta well kn[ew] his fiduciary responsibilities to Goldman Sachs

and that his brazen[] disclos[ure] [of] material non-public information to Rajaratnam at the very

time, September and October 2008, when our financial institutions were in immense distress . . .

was the functional equivalent of stabbing Goldman in the back. Id. at *5.

The Court ordered that the determination of restitution be deferred. Gupta, 2012

WL 5246919, at *7. On December 3, 2012, pursuant to the Courts order, Goldman Sachs

produced 542 pages of billing records to Gupta for the purpose of its restitution request.1 On

December 9, 2012, Goldman Sachs also produced to Gupta a list of hourly billing rates for each

timekeeper reflected in the time entries. Gupta never requested any further information from

Goldman Sachs regarding these records.

On December 14, 2012, Gupta submitted his opposition to the Firms request for

restitution. In opposing Goldman Sachs claim, he makes essentially three arguments. First, he

1 Before producing them to Gupta, Goldman Sachs reviewed the time entries and redacted asmall number that reflected work not associated with legal proceedings or investigations relatedto Guptas offense. Goldman Sachs has provided Gupta with the number of partner, associate,and non-legal personnel hours associated with these entries and has subtracted the correspondingamount of fees from the restitution it seeks.



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contends that the Court should adopt a restrictive view of 18 U.S.C. 3663A(b)(4) and award

Goldman Sachs only those fees that directly relate[] to the assistance . . . provided to the

government in its investigation and prosecution of the criminal offense[]. (Gupta Br. 3, ECF

No. 132.) Second, although not contesting Goldman Sachs entitlement in principle to an award

of its legal fees and costs, Gupta asserts that several sub-categories of work reflected in Sullivan

& Cromwells bills do not meet the requirements of his proposed legal standard, including those

related to an internal investigation of Guptas conduct and fees and costs related to a parallel

SEC investigation and civil proceedings. Third, Gupta argues that Goldman Sachs has not

provided sufficient documentation of its legal fees and costs to be entitled to restitution (although

the billing records are comparable to the ones his counsel have presented to Goldman Sachs for

indemnification purposes), and that complicated issues of fact militate against an award of

restitution here. Guptas arguments do not withstand scrutiny.

ARGUMENT

I. Goldman Sachs Is Entitled to Legal Fees and Related Costs That Were a Directand Foreseeable Result of Guptas Offense

Guptas primary opposition to Goldman Sachs claim for restitution rests upon his

contention that the MVRA permits restitution only for those fees it can demonstrate were

necessarily incurred in connection with specific requests by the government . . . or were

otherwise required to be done . . . in the investigation and prosecution of the Gupta case.

(Gupta Br. 3.) That artificially rigid standard is not the law, which instead sweeps much more

broadly and permits restitution of those fees and costs that are a direct and foreseeable result of

a defendants offense.

The controlling decision on this issue is United States v.Amato, 540 F.3d 153 (2d

Cir. 2008). There, victim corporation EDS had been awarded restitution for fees incurred by its



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external counsel as a result of a fraudulent scheme by EDS employees to assert bogus claims

against various states relating to escheated property. The restitution award included the fees

incurred by EDS in conducting an internal investigation of its employees fraud (which EDS

later reported to the government), representing EDS at meetings with the government and

assisting it in gathering and producing evidence, and in responding to document requests by the

defendants. Id. at 162. The Second Circuit affirmed the district courts restitution award,

holding:

That this fraud would force [EDS] to expend large sums of moneyon its own internal investigation as well as its participation in the

governments investigation and prosecution of defendantsoffenses is not surprising. There is no doubt that EDSs attorneyfees and auditing costs were a direct and foreseeable result ofdefendants offenses.

Id. Notably, the restitution award included legal fees that unquestionably were not inccured at

the direction of the government, but instead related to counsels work with the EDS clients that

were impacted by the defendants fraud, including engaging forensic accounting firms to

perform the analysis necessary to uncover the extent of this fraud and ensure the clients and

[victim] states were made whole. Id.

In United States v. Skowron, 839 F. Supp. 2d 740 (S.D.N.Y. 2012), Judge Cote

relied onAmato to rule that a victim corporation was entitled to legal fees and related costs not

only arising from its own internal investigation of an employees fraud, but also (in the case of

conspiracy to commit securities fraud) from parallel SEC investigations and civil proceedings.

There, a portfolio manager (Skowron) of a hedge fund owned by Morgan Stanley caused his

fund to trade on inside information. Id. at 745. The SEC began to investigate, and Morgan

Stanley launched its own internal investigation assisted by external counsel. Id. Skowron was

later convicted of conspiracy to commit securities fraud and to obstruct justice. Id. at 742.



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Morgan Stanley then sought restitution for legal fees and related costs incurred for the following:

(a) to interact with the SEC and Department of Justice . . . during their investigations of

Skowron, (b) to conduct its own internal investigation, (c) to pay the le gal fees and costs of

[its] employees . . . in connection with those investigations, and (d) to pay Skowrons defense

costs during the period in which he maintained his innocence. Id. at 74748. Judge Cote found

all of these expenses properly recoverable under the MVRA, deeming them to be a necessary,

direct, and foreseeable result of Skowrons offense of conviction. Id. at 746, 748.

The rulings in Amato and Skowron are consistent with the language and purpose

of the MVRA. The Second Circuit has explained that the goal of restitution is to restore a

victim, to the extent money can do so, to the position he occupied before sustaining injury.

United States v. Battista, 575 F.3d 226, 229 (2d Cir. 2009) (citation omitted). Thus, in the

context of the MVRA, the statutory focus is on the victims loss and upon making victims

whole. Id. (citation and quotation marks omitted). In light of this broad remedial purpose, it is

entirely proper for courts to interpret the words investigation and proceedings in Section

3663A(b)(4) broadly to apply to investigations (either internal or external) and legal proceedings

(including SEC proceedings and post-trial proceedings) that are a direct and foreseeable result

of the defendants offense. See Dolan v. United States, 130 S. Ct. 2533, 2539 (2010) ([T]he

statutes text places primary weight upon, and emphasizes the importance of, imposing

restitution upon those convicted of certain federal crimes.).

DespiteAmato and Skowron, Gupta asserts that only legal fees and costs that are

directly related to the assistance . . . provided to the government in its investigation and

prosecution of the criminal offense[] may be recovered under the MVRA. (Gupta Br. 3.)

Although Gupta characterizes this as the holding ofBattista (see Gupta Br. 15 n.10), the



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decision stands for no such thing. In Battista, the Second Circuit reviewed for abuse of

discretion an award of restitution made to the NBA in a case involving a basketball referee who

had made improper disclosures to bettors. Reasoning that Section 3663A(b)(4) of the MVRA

gives the district courts broad authority to determine which of the victims expenses may be

appropriately included in a restitution order,Battistaheld that the district court did not err in

awarding the NBA attorneys fees incurred as a result of the assistance it provided to the

government in its investigation and prosecution of Battistas criminal offense. 575 F.3d at 232

34 (quotingAmato, 540 F.3d at 160). Thus, contrary to Guptas suggestion, Battista embraced

the broad standard articulated in Amato, rather than retreated from it. Indeed, nowhere in

Battista did the Second Circuit suggest that its ruling represented the outer limits of permissible

restitution under the MVRA.

Gupta also places substantial and repeated reliance on United States v.Papagno,

639 F.3d 1093 (D.C. Cir. 2011), for the proposition that the costs of a victims internal

investigation are not recoverable under the MVRA. (See Gupta Br. 3, 4, 7, 10 n.5, 13, 15.)

Although Gupta omits any mention of it, the Papagno court expressly noted that its holding was

contrary to Second Circuit law. See Papagno, 639F.3d at 1101 (In reaching our conclusion, we

recognize that several other courts of appeals have taken a broader view of the restitution

provision at issue here.) (citing, inter alia, Amato, 540 F.3d 153) (emphasis added). Thus, to

the extent Guptas objections are premised upon Papagnos narrower interpretation of the

MVRA, they must be rejected as inconsistent with controlling Second Circuit precedent.

II. Goldman Sachs Is Entitled to Reimbursement of Its Legal Fees and CostsBased on his erroneous reading of the MVRA, Gupta attempts to avoid payment

for various categories of expenses, claiming that Goldman Sachs is not entitled to recover them



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because they were not incurred during participation in the investigation or prosecution of

Gupta. These include costs incurred in connection with the following eight categories of work:

(a) the Firms internal investigation into Guptas conduct;

(b) the parallel SEC investigation and civil proceedings;

(c) the prosecution of Rajaratnam;

(d) work done in response to government requests related to charges of whichGupta was acquitted;

(e) work done in response to government requests related to trading in Procter& Gamble;

(f) work done after the jury verdict, including work related to this restitution

claim;

(g) work purportedly associated with other Goldman Sachs employeesallegedly suspected of wrongdoing; and

(h) work related to Goldman Sachs advancement of legal fees to Gupta forhis defense.

Guptas attempts fail in light of the MVRAs text and controlling precedent.

A. Internal InvestigationGupta argues that Goldman Sachs is not entitled to recover legal fees and related

costs associated with its internal investigation and fact-finding related to Guptas conduct that

began in December 2009. (Gupta Br. 3, 9, 10 n.5.) As discussed above, however, the Second

Circuit and another court in this District have held that fees and costs associated with a victims

internal investigation are properly recoverable under the MVRA. See Amato, 540 F.3d at 162

63 (affirming award of restitution for fees related to a law firms assistance with companys

internal investigation of the fraud and then reporting the fraud to the government); Skowron,

839 F. Supp. 2d at 748 (ruling that Morgan Stanley was entitled to restitution for the legal fees

and related costs it incurred . . . in launching its own internal investigation in connection with

potential insider trading by an employee).



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But even if the Court were to accept Guptas more restrictive view of Section

3663A(b)(4), Sullivan & Cromwells services in connection with Goldman Sachs internal

investigation did assist the government in matters related to Guptas criminal proceedings.

The Firms investigation of Guptas conduct necessarily assisted the Government in its

investigation by identifying documents and facts relevant to the charges and claims later pursued

by the USAO and the SEC.2

Finally, Gupta errs in suggesting that the Governmentspositions in other cases

with respect to the recoverability of investigation costs preclude restitution here. The

Governments position in United States v.Bahel, 06 Cr. 918 (TPG), is of no significance, since it

preceded the Second Circuits decision in Amato. The position the Government articulated in

United States v. Weitzman, No. 09 Cr. 989 (LTS), that it is unclear that such private

investigative services should be included in restitution is simply too vague to carry much

weight. (Gupta Br. Ex. B. at 3.) In any event, the Government does not oppose Goldman Sachs

claim here.

B. SEC Investigation and ProceedingsGupta argues that Goldman Sachs is not entitled to restitution for legal fees and

costs arising from the parallel SEC investigation and proceedings related to Guptas conduct.

(Gupta Br. 10.) Notably, Judge Cote awarded this same category of fees and costs to Morgan

2 In United States v.Donaghy, 570 F. Supp. 2d 411, 419 (E.D.N.Y. 2008), the court noted that

the cost of the NBAs internal investigation was not compensable because it was not incurred inthe course of assisting the government with its investigation into or prosecution of the offense.The investigation at issue inDonaghy, however, focused on the conduct of numerous employeesother than the defendant (57 NBA referees were interviewed). Id. Moreover, the court foundthat while the NBAs investigation into other employees conduct was not compensable, its costsin investigating the defendants conduct were reimbursable. Id. at 43637. Here, the expensesGoldman Sachs seeks relate only to its investigation of Guptas conduct, not to that of other Firmemployees.



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Stanley in Skowron, which also involved a parallel SEC investigation and civil proceedings

based on the defendants participation in an insider trading conspiracy. Judge Cotes explanation

of why a failure to award legal fees and costs in these circumstances would create an artificial

and unrealistic distinction between SEC civil investigations and criminal prosecutions of

securities fraud applies with equal force here:

Section 3663A(b)(4) permits restitution of a victims expensesrelated to participation in the investigation . . . of the offense. Itis undisputed that the offense of conviction included insidertrading and that the SEC investigation focused on whetherSkowron . . . engaged in insider trading . . . . The criminalprosecution of Skowron for securities fraud rested essentially on

the same conduct as the SECs civil caseexcept that the criminalprosecution also incorporated charges that Skowron had conspiredto obstruct the SEC investigation. In the circumstances, MorganStanleys expenses incurred in connection with the SECinvestigation of the conduct underlying the offense on whichSkowron was convicted may be recovered through a restitutionorder.

839 F. Supp. 2d at 74849 (citation omitted). While Gupta was never alleged to have obstructed

the SECs investigation, that distinction does not undermine the force ofSkowron.

Gupta points to statements by the USAO and the SEC that the civil and criminal

investigations were separate and independent and argues that, on that basis, there should be no

recovery here. (Gupta Br. 1112.) But Gupta points to no authority that limits recovery of legal

fees and related costs incurred in a parallel SEC investigation to situations in which such an

investigation is not separate and independent from the criminal investigation. Indeed, nothing

in Skowron suggests that the decision there was premised on the nature or closeness of the

cooperation between the SEC and the USAO. To the contrary, the critical issue was that the

substantial costs Morgan Stanley incurred in responding to the SEC investigation were a

necessary, direct, and foreseeable result of Skowrons offense of conviction. Id. at 746;seeid.



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at 749 (The fact that Skowron was arrested and indicted for conduct that was the focus of an

SEC investigation is utterly unsurprising.).

In any event, as this Court has recognized, the SEC and criminal investigations

and proceedings relating to Guptas conduct were closely related and coordinated. (See Mar. 27,

2012 Op. & Order 4, ECF No. 44 (Here, the USAO and the SEC jointly investigated Guptas

alleged ties to the Galleon web of insider trading led by Rajaratnam.) (emphasis added).) When

Goldman Sachs produced information or documents to one agency, it inevitably and often

simultaneously produced the same materials to the other. Representatives of both the SEC and

USAO frequently attended the same meetings and interviews with Goldman Sachs personnel.

Guptas lead trial counsel himself sought to emphasize the close coordination between the

agencies by cross-examining Mr. Blankfein about the USAOs participation in meetings he had

with the SEC to prepare for depositions that took place as part of the SEC civil proceedings.

(See Trial Tr. 264756 (THE COURT: What you are saying is that it was a U.S. attorney

person who prepared him for an SEC deposition? MR. NAFTALIS: Yes.).) And the work that

Sullivan & Cromwell performed in connection with SEC civil proceedingsincluding in

responding to broad discovery demands made by Guptagenerated documents, testimony, and

information used by Gupta in the criminal proceedings.

In light ofSkowron and the foregoing, the expenses incurred by Goldman Sachs

in connection with the SEC investigation and proceedings are properly recoverable under the

MVRA.

C. The Prosecution of RajaratnamGupta argues that Goldman Sachs determin[ation] not to seek restitution from

Rajaratnam for expenses incurred during the investigation and prosecution of Rajaratnam

should preclude it from seeking restitution now, and that, in any event, such fees were not



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necessary expenses incurred during participation in the investigation or prosecution of the

offense for which Gupta was convicted. (Gupta Br. 13.) Gupta is wrong on both counts.

As a preliminary matter, the Rajaratnam proceedings didinvolve the offense for

which Gupta was convicted. In respect of Goldman Sachs, Rajaratnam was charged with the

same crime that was later charged against Gupta: unlawful trading by Galleon Group on the

basis of inside information provided by Gupta regarding Goldman Sachs earnings and the

Berkshire Hathaway transaction. The assistance that Goldman Sachs provided to the USAO and

SEC in the investigations and prosecution of Rajaratnam was a predicate for its later prosecution

of Gupta.

In any event, the MVRA specifically contemplates that a court may impose joint

and several liability among culpable co-defendants. Under Section 3664(h), the Court may find

each defendant liable for payment of the full amount of restitution. 18 U.S.C. 3664(h). By

having been found to have participated in an unlawful conspiracy with Rajaratnam, Gupta is

subject to liability jointly and severally, for all the losses suffered by the victims during the

course ofthe conspiracy, not merely those directly tied to his actions. United States v.Zangari,

677 F.3d 86, 9697 (2d Cir. 2012); see also United States v. Williams, 612 F.3d 500, 513 (6th

Cir. 2010) ([B]y participating in a conspiracy to commit . . . fraud, [defendant] bore the risk of

becoming financially responsible for the entire amount of the conspiracy victims losses.).

The MVRA also grants courts the discretion to apportion liability among the

defendants to reflect the level of contribution to the victims loss and economic circumstances of

each defendant. 18 U.S.C. 3664(h). Although Gupta and Rajaratnam were convicted for

participating in the same conspiracy, they were tried separately, making it impossible for this

Court to apportion liability between the two in this proceeding. While it is not possible to make



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Goldman Sachs whole by apportioning liability between the two co-conspirators, the Court

nonetheless can still do so by exercising its authority under the MVRA to hold Gupta liable for

all of Goldman Sachs expenses. Because the purpose of the MVRA is to restore a victim, to

the extent money can do so, to the position he occupied before sustaining injury, Battista, 575

F.3d at 229, the Court should find Gupta jointly and severally liable for all expenses the Firm

incurred as a result of the Gupta-Rajaratnam conspiracy.

Goldman Sachs decision not to participate in restitution proceedings at the

conclusion of Rajaratnams case has no effect on Guptas liability for restitution. Gupta cites no

legal authority to support his proposition that the Firms determination not to seek restitution

against his co-conspirator somehow limits his obligation to make Goldman Sachs whole.

Goldman Sachs was not required to make a claim of restitution against Rajaratnam. See 18

U.S.C. 3664(g)(1) (No victim shall be required to participate in any phase of a restitution

order.). And the historic availability of recovery from Rajaratnam is not properly considered in

assessing the viability of the present restitution claim. See 18 U.S.C. 3664 (f)(1)(B) (In no

case shall the fact that a victim . . . is entitled to receive compensation with respect to a loss from

. . . any other source be considered in determining the amount of restitution.). Accordingly, that

Goldman Sachs did not seek restitution from Rajaratnam is of no legal moment.

D. Government Requests Related to Acquitted Conduct or Unproven OvertActs

Guptas suggestion that his acquittal on certain counts somehow limits his

obligation to make restitution flies in the face of controlling precedent from the Second Circuit,

which has explicitly held that the MVRA gives courts the power to impos[e] restitution for

damages suffered by victims of counts as to which [defendant] was acquitted. United States v.

Boyd, 222 F.3d 47, 48 (2d Cir. 2000) (emphasis added). Guptas reliance on older cases



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interpreting an earlier version of the MVRA for the proposition that the MVRA only permits

recovery for conduct in the course of conviction is therefore misplaced. (Gupta Br. 1618

(discussingHughey v. United States, 495 U.S. 411 (1990), and United States v.Kane, 944 F.2d

1406 (7th Cir. 1991)).)

The facts ofBoyd, the Second Circuits controlling authority on this question, are

instructive. There, the defendant was convicted on five counts of mail fraud and one count of

wire fraud, but acquitted on ten counts of mail fraud and one count of conspiracy. 222 F.3d at

49. Notwithstanding the defendants acquittals, the district court found that [o]n . . . two counts,

the jury necessarily convicted [defendant] on the theory of co-conspirator liability under

Pinkerton. Id. (citing Pinkerton v. United States, 328 U.S. 640 (1946)). The court found that

because the defendants conviction implicates her as a co-conspirator, she was liable to pay

restitution up to the full amount of the loss caused by the conspiracy as a whole, including

losses from uncharged or acquitted counts. Id. at 48, 51.

Here, Gupta was convicted of conspiracy, in addition to three substantive counts

of securities fraud relating to insider trading of Goldman Sachs shares in September and October

2008. He was acquitted on two substantive counts relating to trading of Goldman Sachs shares

in March 2007 and Procter & Gamble shares in January 2009. The conspiracy count alleged as

overt acts tips or trades made with respect to Goldman Sachs securities in March 2007,

September 2007, June 2008, July 2008, September 2008, and October 2008, as well as tips or

trades with respect to Procter & Gamble securities made in June 2008 and January 2009. Some

of the alleged overt acts form the basis for the substantive counts for which he was convicted,

some cover conduct that formed part of the basis for the substantive counts for which he was

acquitted, and others (including the September 2007 and June 2008 conduct) are unrelated to any



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substantive charge. The relevant inquiry here, as in Boyd, was whether any of Guptas

conviction[s] implicate[] h[im] as a co-conspirator. Id. at 48. Guptas conviction for

conspiracy directly implicates him as a co-conspirator, making him liable to pay restitution even

on uncharged or acquitted counts, regardless of the facts underlying [the] counts of

conviction. Id. at 50, 51.

In any event, as a practical matter, the standard that Gupta proposes is entirely

unworkable. The work that Goldman Sachs external counsel performed that underlies its

restitution claim was largely not directed to any particular count or claim, but instead involved

providing witnesses or categories of documents and information broadly applicable to the

charged conspiracy. Consequently, any effort to allocate Goldman Sachs work to particular

counts of the Indictment or overt acts would be impractical and inconsistent with the broad

remedial purpose of the MVRA. See Battista, 575 F.3d at 232 (MVRA gives the district courts

broad authority to determine which of the victims expenses may be appropriately included in a

restitution order) (citation omitted).

E. Government Requests Related to Procter & GambleGupta argues that he should not be liable for any of the very minimal costs the

Firm incurred for assisting in the Governments investigation and prosecution of his role in

insider trading of Procter & Gamble securities because [t]hese fees were not incurred by

Goldman in its victim capacity, but rather as a third-party witness. (Gupta Br. 15.) As

discussed above, however, Boyd held that any co-conspirator is liable to all victims of a

conspiracy for restitution up to the full amount of the loss caused by the conspiracy as a whole.

222 F.3d at 48 (emphasis added). The conspiracy of which Gupta was convicted encompassed

trading of Procter & Gamble shares (including overt acts in June 2008 that did not form the basis

of any of the substantive counts), in addition to Goldman Sachs shares. As one of the victims of



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the overall conspiracy, Goldman Sachs is entitled to restitution of fees incurred in the course of

assisting the Governments investigation of Guptas conduct with respect to Procter & Gamble,

and not just Goldman Sachs.

F. Post-Trial Expenses and RestitutionGupta argues that Goldman Sachs is not entitled to recover fees and costs incurred

after June 12, 2012, the close of the evidence in the case. (Gupta Br. 15.) However, the

MVRA creates no such artificial boundary. The MVRA provides that the victim may receive

restitution for expenses incurred duringparticipation in the investigation or prosecution of the

offense or attendance atproceedings related to the offense. 18 U.S.C. 3663A(b)(4) (emphasis

added). Nothing in the MVRA suggests that the statute limits recovery to expenses incurred in

connection solely with respect to the trial or the matter prior to a jurys verdict. Indeed,

proceedings related to the offense continue to this day. Post-verdict proceedings, including

work related to seeking restitution and responding to SEC depositions noticed by Gupta, were a

direct and foreseeable result of Guptas offense. To view the statute differently would be

contrary to the statutory focus on the victims loss and upon making victims whole. Battista,

575 F.3d at 229.

Gupta relies on a single, unpublished case, United States v. Weitzman, No. 09 Cr.

989 (LTS), 2010 WL 3912735 (S.D.N.Y. Sept. 15, 2010), in arguing that work associated with

Goldman Sachs restitution claim should not be recoverable. (Gupta Br. 14.) But that decision

observed only that legal fees falling outside the MVRA expense authorization should [not] be

compensable as consequential damages and that certain costs incurred after the sentencing

hearing should not be subject to restitution. Id. at *1. Notably, here the sentencing hearing is

not yet complete because restitution is yet to be decided.



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G. Other Goldman Sachs Personnel Suspected of WrongdoingGupta objects to reimbursement of fees associated with time entries mentioning

various Goldman employees suspected of wrongdoing, primarily David Loeb and Henry King.

(Gupta Br. 15.) As Goldman Sachs has explained to counsel for Gupta, to the extent Sullivan &

Cromwell has assisted in responding to government inquiries concerning employees other than

Gupta, such work was accounted for separately and is not part of the instant claim.

What Gupta omits to note is that he attempted to make issues relating to Messrs.

Loeb and King a centerpiece of his defense. In support of that effort, he issued several SEC and

third-party trial subpoenas to the Firm that contained numerous demands for information with

respect to these employees. The Government also made inquiries concerning these employees,

including in response to demands by Gupta for supposed Brady disclosures. Because these

demands arose from Guptas prosecution, associated expenses were properly allocated to this

matter, as reflected in the bills produced to Gupta. Thus, to the extent Sullivan & Cromwells

time entries mention certain other Goldman Sachs employees, they reflect services rendered in

connection with proceedings against Gupta, and not unrelated inquiries.

H. Advancement of Fees to GuptaGupta argues that Goldman Sachs is not entitled to restitution for work related to

the issue of advancement of his own legal fees. (Gupta Br. 15.) Gupta ignores, however, that in

Skowron Judge Cote awarded Morgan Stanley restitution for legal fees that it advanced both to

the defendant and to other Morgan Stanley employees. 839 F. Supp. 2d at 749. Judge Cote

explained that these fees were necessary because Morgan Stanley was contractually obligated

to indemnify its employees under these circumstances. Id. To the extent that the advancement

of fees is a direct and foreseeable result of a defendants offense, so too is legal work and



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analysis associated with the issue. Therefore, Goldman Sachs should be entitled to

reimbursement of fees related to that work and analysis.

Significantly, Goldman Sachs does not seek as restitution the more than $35

million in legal defense fees and costs that it has advanced to Gupta, as required by the Firms

by-laws, pursuant to his undertaking to repay those fees and costs if it is ultimately determined

that he was not entitled to indemnification. Goldman Sachs intends to recoup those costs upon

any final determination of Guptas lack of entitlement to indemnification, and not as part of this

proceeding.

III.

Goldman Sachs Has Provided Gupta with Sufficient Documentation of Its LegalFees and Costs

A. Goldman Sachs Has Met Its Statutory BurdenGupta complains that Goldman Sachs production of three years of voluminous

billing records . . . with no effort to organize the work in categories is insufficient to support the

Firms restitution claim. (Gupta Br. 45.) But the MVRA does not specify what support a

victim must produce to establish a restitution claim, nor the form that such support should take.

It merely provides that [a]ny dispute . . . shall be resolved by the court by the preponderance of

the evidence, that [t]he burden of demonstrating the amount of the loss sustained by a victim

. . . shall be on the attorney for the Government, and that [t]he burden of demonstrating such

other matters as the court deems appropriate shall be upon the party designated by the court as

justice requires. 18 U.S.C. 3664(e).

District courts have accordingly exercised broad discretion and decided case-by-

case, depending on the facts and circumstances of each situation, what materials a victim should

produce to support a restitution claim. InAmato, the victims provided an affidavit and 228 pages

of invoices and other documents detailing costs, which the court found to be sufficient. 540 F.3d



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at 16263. InDonaghy, the court asked the victim to submit affidavits, time sheets, and charts

itemizing expenses it sought to recover. 570 F. Supp. 2d at 41920. In United States v.Bahel,

662 F.3d 610, 648 (2d Cir. 2011), the court found that outside counsel billing records, submitted

by the victim two days before the courts hearing on restitution, were alone sufficient to support

the victims claim. The pragmatic and flexible approach employed by courts entertaining

restitution requests belies Guptas suggestion that any victim making a restitution claim bears the

burden of organizing supporting documentation in a format most convenient for the defendant.

Here, the Court directed Goldman Sachs counsel to submit its billing records to

Gupta. That is exactly what Goldman Sachs did. These records are amply sufficient to support

the Firms restitution request. The billing records include narratives from 24 separate invoices.

These narratives, which are one to three pages each, summarize in bullet-point form the work

performed over the period of time covered by each invoice. They also include a summary of

hours worked by Sullivan & Cromwell partners, associates, and non-legal personnel. The

narratives conclude with the total fee charged by Sullivan & Cromwell, plus a summary and total

cost of all non-fee disbursements. The billing records also include detailed time entries for all

Sullivan & Cromwell personnel associated with each invoice. The time entries include the name

of each timekeeper, the date of each task, the number of hours worked on each task, and a

description of each task. Notably, these billing records contain substantially more information

than the heavily redacted bills which Gupta has submitted to Goldman Sachs for payment of his

fees under the parties indemnification and advancement arrangement. Goldman Sachs will, of

course, make these billing records available to the Court upon request.

Unlike in Donaghy, these records do not intermingle costs and tasks that are

unrelated or are otherwise not reimbursable. As explained in the cover letter to Guptas counsel



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accompanying the Firms December 3, 2012 production, the Firm has already subtracted any

time entries that were improperly allocated to this matter from its request. And as explained

above, these bills do not reflect any work that may have been done with respect to unrelated

government inquiries into other Goldman Sachs employees.3

These records are voluminous because, as discussed above, the legal demands

placed upon Goldman Sachs as a result of Guptas conduct were substantial. Not only was

Goldman Sachs drawn into investigations of Guptas conduct, but his decision to contest the

charges against him also required the Firm to interview and assist in preparing numerous

potential witnesses for trial testimony (including the six representatives of the Firm who actually

testified at trial), make additional voluminous document productions (including in response to

highly burdensome subpoenas issued by Gupta himself), and incur costs from attending the trial

itself. While it was unquestionably Guptas right to contest the charges against him, his decision

to do so imposed significant costs upon Goldman Sachs which the Firm has the right to recover.

Goldman Sachs respectfully submits that the produced billing records alone are

sufficient for the Court to find by the preponderance of the evidence that it is entitled to the

restitution it seeks. Of course, should the Court require, the Firm will supplement its request

with an affidavit or any additional documentation that the Court would find helpful.

3 The Firm also agrees to subtract from its request any work done in connection with a Section16(b) proceeding against Gupta. All tasks performed by Sullivan & Cromwell with respect tothe Section 16(b) proceeding were assigned to two timekeepers, whose time aggregated a total of$77,375.96 to this matter.



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B. Goldman Sachs Entitlement to Restitution Does Not Require UndulyComplicated Fact Determinations

Despite the detailed records described above, Gupta argues that Goldman Sachs is

nevertheless not entitled to restitution because it is not possible to parse out from the billing

records what is recoverable versus what is not. (Gupta Br. 18.) Guptas argument is meritless.

Courts routinely award legal fees as restitution under the MVRA, even though

proof typically resides in a law firms bills. SeeSkowron, 839 F. Supp. 2d at 74849; Amato,

540 F.3d at 16263; Battista, 575 F.3d at 229, 234; Bahel, 662 F.3d at 648. In Donaghy,

moreover, the court found that issues presented by a law firms billsincluding vaguenessdid

not prevent the court from awarding restitution of legal fees because the amount must only be

established by the preponderance of the evidence and, in any event, where a precise number

cannot be calculated, [the court] may award a reasonable estimate to the victim in accord with

the goal of the restitution statutes which is to make the crime victim whole. 570 F. Supp. 2d at

430.

Here, there are no complex issues of fact related to the cause or amount of

Goldman Sachs losses. As discussed above, Goldman Sachs has produced to Gupta billing

records that provide every detail Gupta could need to ascertain the nature of Sullivan &

Cromwells work on this matter. Gupta has not presented any evidence that the information

contained in these records is inaccurate. Moreover, Goldman Sachs records are sufficiently

clear that Gupta could identify and itemize specific categories of work and time entries that he

believes are not properly recoverable and bring them to the Courts attention. To the extent

Gupta does not understand the work associated with particular time entries, Goldman Sachs is

prepared to provide additional information. Aside from requesting billing rateswhich

Goldman Sachs promptly providedGupta has not asked any questions about these records.



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Gupta nonetheless asks the Court to deny restitution here based on a single,

unpublished case in which a court found that complex issues of fact weighed against an award

of restitution, United States v. Cuti, No. 08 Cr. 972 (DAB), 2011 WL 3585988 (S.D.N.Y. July

29, 2011). There, the court denied restitution where there was a pending employment-related

arbitration between the victim and the defendant and, in the courts estimation, there was a risk

that unrelated arbitration costs could be intermingled in the defendants law firm bills. Id. at *7.

Since the same expenses were recoverable in the arbitration, the court ruled that the time,

expense and resources required to sift through the bills would not be justified. Id. Here, in

contrast, there is no other pending proceeding in which Goldman Sachs is able to recover the

same fees and costs it seeks here. The bills provided by Goldman Sachs clearly depict the nature

of the services performed by Sullivan & Cromwell and pertain only to work performed in

connection with investigations and legal proceedings arising from Guptas conduct. The bills do

not intermingle unrelated work performed for other matters. Therefore, Cuti is inapposite, and

the burden ofdetermining Goldman Sachs legal fees and costs does not outweigh the benefit

here.

In any event, to the extent that Gupta asks the Court to consider other means

available for Goldman Sachs to recover the fees and costs it seeks here, the plain language of the

MVRA forecloses his argument. The MVRA provides that [i]n no case shall the fact that a

victim has received or is entitled to receive compensation with respect to a loss from insurance

or any other sourcebe considered in determining the amount of restitution. 18 U.S.C.

3664(f)(1)(B) (emphasis added);see Skowron, 839 F. Supp. 2d at 749 ([T]he fact that Morgan

Stanley may also have recourse through state law to recoup the legal fees it advanced to Skowron

based on Skowrons deception cannot forestall operation of the MVRAs mandatory restitution



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provisions.); see also United States v. Cienfuegos, 462 F.3d 1160, 1168 (9th Cir. 2006)

([U]nder the MVRA the availability of a civil suit can no longer be considered by the district

court in deciding the amount of restitution.). Therefore, even if Goldman Sachs had

alternative remedies or means to recover its legal fees and costs, the Court may not consider

them here.

Finally, Gupta asserts that the Court should reduce any award of restitution by the

approximate $900,000 value of the unexercised options and restricted stock units (RSUs),

which were terminated in July 2012, following Guptas conviction.4 (Gupta Br. 20.) It is well

settled that a portion of an individuals salary can be subject to forfeiture where, as here, an

employer pays for honest services but receives something less. Bahel, 662 F.3d at 649.

Because Goldman Sachs has revoked from Gupta a substantial portion of the compensation he

was entitled to receive as a director, it does not seek in restitution any additional portion of his

compensation.

Nevertheless, Gupta is not entitled to a credit or off-set for the termination-date

value of the unexercised options and RSUs. While Goldman Sachs shareholders may have

received some theoretical benefit from that termination in the form of reduced future dilution,

that benefit is, at best, de minimis. In no way could Goldman Sachs fairly be said to have

received $900,000 in recompense, given that Gupta had not yet exercised the options at the time

of termination, and Goldman Sachs had not delivered to him any shares underlying the restricted

stock units. And the approximate $900,000 value as of the date of termination is not necessarily

4 Following his conviction in this case, the Goldman Sachs Board of Directors terminatedGuptas rights to previous grants of restricted stock units and options. None of the options hadbeen exercised by the time of the termination, and Gupta did not receive delivery of anyGoldman Sachs shares underlying the restricted stock units. The approximate $900,000 value isan assessed value as of the date of termination.



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an appropriate measure given the then-existing restrictions on the securities and RSUs.

Consequently, affording Gupta such a credit or off-set would leave Goldman Sachs less than

whole. In any event, the value of the revoked compensation does not satisfy the requirements for

a reduction set forth in the MVRA. See 18 U.S.C. 3664(j)(1) (amount of restitution shall be

reduced by any amount later recovered as compensatory damages for the same loss by the victim

in . . . civil proceedings) (emphasis added).

CONCLUSION

The Court should award Goldman Sachs $6,909,137.32 in restitution for legal

fees and related costs that were a direct and foreseeable result of Guptas offense.

Respectfully submitted,

Dated: December 21, 2012New York, New York

/s/ Steven R. Peikin

Steven R. PeikinAdam K. MagidDennis D. KittSULLIVAN & CROMWELL LLP125 Broad StreetNew York, New York 10004Telephone: (212) 558-4000Facsimile: (212) 558-3588

Attorneys for Non-Party

The Goldman Sachs Group, Inc.


US vs. Rajat Gupta Restitution Memo

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