Breakingviews: Gupta's quiet win is loud warning for prosecutors

Rajat Gupta, a former director of Goldman Sachs Group Inc., exits Manhattan Federal Court in New York February 7, 2012.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Reuters Breakingviews) A quiet win for accused insider-trader Rajat Gupta should be a loud warning for prosecutors. Granting the former Goldman Sachs director and McKinsey boss access to U.S. government notes may help him parry charges, but it also puts teeth in rules for sharing evidence. Recent cases like the corruption trial against the late Alaska Senator Ted Stevens show prosecutors too often withhold information helpful to the defense.

It's significant that Judge Jed Rakoff issued Tuesday's ruling. When the slayer of big-bank settlements opens his mouth, Uncle Sam tends to listen. And the judge told prosecutors that their refusal to review Securities and Exchange Commission jottings for potentially exculpatory evidence "makes no sense at all."

It wasn't a complete victory, because Rakoff declined to drop any charges or suppress wiretap evidence that Gupta allegedly leaked boardroom secrets to Galleon Group founder Raj Rajaratnam. The SEC notes may also contain nothing useful to the defense. But the ruling is a welcome example of a judge holding prosecutors' feet to the fire.

The Stevens prosecution was a particularly egregious case of government misconduct. The former senator's 2008 conviction for lying on his financial disclosure statements was set aside after the Justice Department admitted withholding evidence that would have helped Stevens' defense. The charges were dropped, and the judge ordered an investigation.

But there have been plenty of other examples of prosecutors ignoring their disclosure obligations. Most recently, several foreign-bribery cases have been either dismissed or dropped because the government failed to cough up exculpatory evidence. And a report released earlier this month on the Stevens case has prompted calls for reform.

Attorney General Eric Holder recently created a Professional Misconduct Review Unit to investigate errant prosecutors, and on March 15, Alaska Senator Lisa Murkowski introduced a bill that would establish strict rules for when government lawyers have to turn over evidence in federal court cases. Hearings are scheduled for next month.

Those measures may help, but in the first instance, prosecutors will always have to make the judgment about what's worth disclosing. It still takes steely jurists like Rakoff to make sure those judgments hold up under the law.