By Robert Fusfeld 

In March 2011 the SEC initiated administrative proceedings against former Goldman Sachs board member Rajat Gupta. He was charged in that case with insider trading. To say that the case is a high-profile one is clearly an understatement. The trial was scheduled to start July 18, 2011. 

On June 20, 2011 Chief SEC Administrative Law Judge Brenda P. Murray issued an order in which she deferred "to the parties" and without explanation stayed the case for six months. Although the order does not set out the parameters of the stay presumably this means that there will be no further exchange of documents or other pretrial activities by the parties. 

This is a very significant development. According to press reports Gupta has challenged the ability of the SEC to bring this case administratively, arguing that he is entitled to a jury trial and hence the administrative jurisdiction of the SEC over his conduct. 

There are two likely explanations for this startling development. It could be that the parties are discussing settlement. The other potential alternative is that the criminal authorities are in the process of evaluating whether or not to bring criminal charges against Gupta or someone else in a case where Gupta would be a witness. It would tell the parties to the SEC proceeding that it intended to reach a decision within six months. 

My speculation is that the second alternative is most likely. 

This is because SEC administrative law judges typically only stay trials if the Division of Enforcement represents that a settlement has been reached that it will recommend that the Commission approve. However, if a settlement has made it that far through the process it ordinarily will not take six months for the Commission itself to formally review it. The Commission is capable of acting promptly in its consideration of the settlement of a high-profile case such as this. 

In my experience, it is routine for SEC administrative law judges to stay proceedings when requested to do so by the Department of Justice. In such cases the stays are open-ended and not limited in time as was the case with Judge Murray's Gupta order. However, if the DOJ is merely considering its options it will not formally request a stay of the administrative proceedings. It very well might ask that the parties request a stay while it decides on what course to take. If the DOJ does indeed bring criminal charges against Gupta, or against someone else where Gupta would be a witness, it will not want discovery or trial proceedings to go forward in the administrative case. 

While there is no way of knowing what is going on behind the scenes, we do know from Judge Murray's order that something is up. Hopefully we will know in the next six months. 

(Robert Fusfeld is on the faculty of the Institute for Public Policy Studies at the University of Denver where he teaches graduate and undergraduate courses. From 1975 until his retirement in 2006 he was an SEC enforcement attorney and managed the SEC's Denver office trial unit for 15 years. He publishes a blog commenting on SEC administrative proceeding decisions at www.secteaparty.blogspot.com).