Jed Rakoff has bounced back quite nicely, thank you, from his appellate smackdown in the Securities and Exchange Commission’s collateralized debt obligation case against Citigroup. In the unlikely event you’ve forgotten, earlier this month the 2nd Circuit Court of Appeals stayed the SEC’s case before Rakoff, finding a strong likelihood that the government and Citi would prevail in their argument that the judge overstepped his bounds when he rejected their proposed $285 million settlement. Despite the notably critical language in the three-judge panel’s per curiam ruling in the Citi case, Rakoff, a U.S. Senior District Judge in federal court in Manhattan, seems undaunted in his determination to hold the SEC accountable. On Tuesday, he ruled that the agency must disclose documents used to prepare Goldman CEO Lloyd Blankfein for his deposition in the Rajat Gupta insider trading case.
Rakoff’s 10-page ruling, issued on the same day that he said the government can use wiretap evidence in the parallel Gupta criminal case, rejects the SEC’s argument that work-product privilege protects its preparation of Blankfein. The judge pointed to a 1993 case from the 2nd Circuit, In re Steinhardt Partners, and a 2003 ruling from the same appeals court, In re Grand Jury Subpoenas, in holding that the government waived its privilege claim when it voluntarily shared materials with Blankfein, a third-party witness. Rakoff said that Blankfein doesn’t have a “common interest” with the government in the Gupta case, so disclosures to him amount to “‘deliberate, affirmative, and selective’ use of work product [that] waives the SEC’s ability to now assert the privilege against the defendants.”
Here’s the fascinating backstory. At Blankfein’s deposition on Feb. 24, Gupta’s lawyers at Kramer Levin Naftalis & Frankel asked him standard questions about how he prepared to testify. Blankfein, according to Kramer Levin’s March 1 brief, revealed that on two occasions leading up to the deposition, he met with SEC lawyers, an agent from the Federal Bureau of Investigation, and prosecutors from the Manhattan U.S. Attorney’s office. At those two sessions, he said, prosecutors asked him 75 percent of the prep questions; the SEC asked the other 25 percent of the questions. Blankfein’s own lawyers at Sullivan & Cromwell, according to Kramer Levin, didn’t ask him questions at the two prep sessions with government lawyers. Blankfein also disclosed that government lawyers showed him 10 or 12 documents in advance of his deposition testimony.
The SEC cut off Kramer Levin’s questioning when Gupta’s lawyers tried to follow up with more questions about Blankfein’s preparation, claiming privilege. According to Kramer Levin’s brief, Blankfein’s S&C lawyer, who was also at the deposition, “made plain that the objections were the SEC’s alone and were not being asserted by the witness or Goldman.” Kramer Levin then took the matter to Rakoff, who asked for briefs after a joint phone call on the issue.
In Tuesday’s decision, the judge ruled that Kramer Levin may ask Blankfein follow-up questions about the government-led deposition prep sessions — and that the government must turn over to the defense any documents Blankfein was shown. (Interestingly, Rakoff disregarded one of his own old rulings, Morales v. United States, a 1994 case in which he upheld a privilege claim by prosecutors. The judge said he hadn’t considered Steinhardt when he ruled in Morales.)