Wall Street’s New Eliot Ness

nyopreetfinal Wall Streets New Eliot NessGotham 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?”