Gotham loves a good christening. So when The Journal introduced Preet Bharara as “the new sheriff of Wall Street” on Nov. 22, it was a cinematic day for the second-year U.S. attorney for the Southern District and his wide investigation into insider trading. Three hedge funds connected to the multibillionaire Steven A. Cohen were raided, and others, including Mr. Cohen’s own SAC Capital, were subpoenaed. It was exhilarating.
But even New York’s favorite sheriffs have their problems. “In a word, grandstanding,” the Post said after the raids, next to a picture of an open-mouthed Mr. Bharara. A few days later, the same word captioned another Post photograph of the man, for an article that said “insider trading is largely a victimless crime.”
“There’s a problem if you’re trying to victimize an entire industry,” Rudolph W. Giuliani, the Southern District’s chief for most of the ’80s, told The Observer last Thursday. “And it’s very easy to jump to that conclusion, that he’s victimizing that industry, and if you’re inside that industry, you probably feel that way.”
“Preet Sweep!” was The Journal‘s headline that Thursday, when consultants for one of the so-called expert networks, the groups that provide hedge funds with trading edges, were arrested. “We love–we’re fans of business and of Wall Street,” Boyd Johnson III, Mr. Bharara’s deputy, said in an interview at their headquarters recently. “But we’re called to enforce a series of laws that apply across the entire economy, and across various areas of America. And that’s our job.”
But Mr. Bharara is in a strange place. On the one hand, he’s accused of rampaging against a triviality: “It’s not even clear why it should be banned at all,” CNBC has said about insider trading. “I wouldn’t describe it as victimless; I would describe it as one of the genuinely confusing crimes,” Mr. Giuliani said. “I think there should be some guidelines in prosecuting it; I tried hard to decline prosecuting if it was one-time-only.”
On the other hand, the Southern District has been criticized for leaving alone the fundamental fraud and negligence that nearly ruined the global economy. “What remains to be seen is whether the cases the Southern District brings relating to Wall Street go to the structural problems of the Street, or whether they are merely individual examples of malfeasance,” former governor and attorney general Eliot Spitzer explained on a recent evening, on his way to teach.
“I applaud the activism that seems to be focused on the important issues,” he continued. “Only time will tell whether the individual cases are of a magnitude that will be transformative.”
“I JUST REALLY think that the notion that he and I are not in favor of business?” Mr. Johnson, Mr. Bharara’s deputy, said, incredulous. He had been the Southern District’s public corruption chief, leading the investigation into the prostitution ring that ensnared Mr. Spitzer, before Mr. Bharara deputized him last year.
It was a bright day in downtown New York, and the afternoon sun was swarming the deputy U.S. attorney’s office at the top of One St. Andrews Plaza. The light looked staged: Sun was actually dappling the yellow trimming of his American flag. “‘Dapple’ is a strong word,” said Mr. Johnson. He keeps a baseball bat in his office. “Oh,” he said, “I got that from some agents I worked with from the D.E.A.” It’s by the coat rack, which holds a fedora; he wears it occasionally. “It depends. I haven’t for a while.”
The office’s new communications chief, Ellen Davis, would not make Mr. Bharara available for an interview, but she allowed a reporter to speak with two colleagues, in her presence. Whereas Mr. Bharara is known for an easygoing sense of humor, Mr. Johnson looks like a Dashiell Hammett investigator, only with a newscaster’s jaw. “People who disagree with us about what the laws ought to be, and what the rules ought to be, those are important discussions to have, but we’re not in that business,” he said. “We pursue aggressively.”
If the office was really against Wall Street, he said, it would not have pursued Sergey Aleynikov, who was just found guilty of thieving powerful, high-frequency computer code secrets from Goldman Sachs. “‘Against business!’” said Mr. Johnson.
Like his colleagues, he does not comment on any specific cases. “And not to get into the details of any existing investigation, but any area, or within an organization, there are occasionally going to be bad apples, but that doesn’t mean the whole tree is rotten,” he said. “I mean, America was built by Wall Street.”
He and Mr. Bharara worked at Gibson Dunn together in the ’90s, and applied to the Southern District together. After half a decade there, Mr. Bharara left in 2005 to be Chuck Schumer’s chief counsel and top aide on the Senate Judiciary Committee, where he led the investigation into the Bush administration’s firing of U.S. attorneys. He returned last year, when he was named chief. “He doesn’t think that highly of himself, and he makes that clear to people,” Mr. Johnson said. “He’s happy to be home, and he speaks about that almost every day.”
Since his confirmation last August, Mr. Bharara has not been shy about going after Wall Street’s rule breakers. “Today, tomorrow, next week, the week after,” he said three months later, when charging the Galleon hedge fund billionaire Raj Rajaratnam and five others with a gargantuan insider-trading scheme, “privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?”
HE WAS SPEAKING literally. “Some have asked, ‘Why use court-authorized wiretaps in insider-trading cases?’” he told defense attorneys at a speech this October to the New York City Bar Association. “It does not take a rocket scientist to understand that it would be helpful to have the actual recording of the communication.” He has a good ear for adjectives: He called insider trading unfair, unlawful, rampant and offensive. “We will use every aggressive and innovative method available,” he said.
“It’s as much about telling the world, ‘We’re doing something,’ as making the individual case,” said the bar’s president, Samuel W. Seymour, who worked for the Southern District from 1988 to 1991, and is now a partner at Sullivan and Cromwell, the white-shoe firm that’s long worked with Goldman Sachs. “It’s making people stop and think. That’s clearly his real goal. That’s why he made the speech, right?”
Like his colleagues, Rich Zabel, the criminal division chief in Mr. Bharara’s office, said that the Southern District’s only target is wrongdoing. “No one’s ‘going after’ Wall Street,” he said.
Nevertheless, the hedge fund world tends to consider it annoyingly overzealous to say their misdeeds are rampant. “If cases are brought that are inappropriate, then that would be a fair criticism,” said David Anders, who left the Southern District at the end of 2005 and is now a white-collar defense attorney at Wachtell, Lipton, Rosen & Katz.
His Southern District colleagues would point out that there have been 14 guilty pleas so far in the Galleon case, although that investigation began before Mr. Bharara rejoined the office. “Let’s see,” Mr. Anders said, “what the results are.”
Despite the recent raids and arrests, no power players, let alone someone like Mr. Cohen, the multibillionaire, have been charged. But just before the raids, the news of a historic insider-trading attack was leaked to The Journal. “No one hates leaks more than Preet and myself,” Mr. Johnson said. “Leaks are things that compromise our ongoing investigations; they jeopardize people’s security. They’re all bad for us. Not only do we resent the leaks, when appropriate we investigate and, when possible, prosecute.”
Others aren’t thrilled by them, either, and Southern District alumni like Debevoise & Plimpton’s Mary Jo White, the chief of the office until early 2002, have overheard criticism. “Sometimes it’s an inappropriate reaction,” she said, “and sometimes it isn’t.”
“He’s very aware of the power of this office,” Mr. Johnson said, speaking slowly and with care. “And,” he said, pausing, “he uses a tremendous amount of judgment,” pausing again, “in exercising that power. He exercises a tremendous amount of restraint,” pausing again, “in wielding that power, but he’s prepared to do it, and to use it aggressively when appropriate.”
THE BIGGER FISH are another problem. “Where Are the Financial Crisis Prosecutions?” said the headline of a recent Jesse Eisinger piece in ProPublica, which was run by The Times as “The Feds Stage a Sideshow, While the Big Tent Sits Empty.” The Times itself lodged a similar complaint the day earlier. “We shouldn’t be swayed by the winds out there that are looking for scalps in a particular area–or are looking for us to walk away from some other area,” Mr. Johnson said.
“Inevitably, he will not satisfy those who are out for blood,” said Viet Dinh, an assistant attorney general in George W. Bush’s administration and a longtime friend of Mr. Bharara’s.
“A lot of the stuff at the heart of the economic meltdown isn’t necessarily criminal conduct,” said Mr. Giuliani. If there was bad behavior in high finance, history will reflect that: “It is going to turn out to be, ‘Boy, they turned out to do something stupid, wrong and irresponsible, but it’s not a crime.’” Besides, he argued, Washington was more responsible than Wall Street for encouraging the real estate bubble. Hedge funds, he said, “didn’t have much to do with any of this.”
Either way, Mr. Bharara’s office has other targets to worry about, too. Among other things, there have been hefty public corruption cases against giants like Hiram Monserrate, Vinnie Leibell and Bernie Kerik; indictments this year against Gambino crime family members and the drug kingpin Christopher Coke; huge Madoff settlements; and omnipresent terrorism investigations.
“This is the dream job for him,” Mr. Johnson said. “His ambitions are not for Preet Bharara. His ambitions are for the Southern District of New York as a whole. And I think that’s a powerful thing.”
“He is restoring the Southern District,” Mr. Spitzer said, “to a point of visual primacy in the prosecutorial world. And, for that, he is to be complimented.”