The Gang That Shot Straight Is Disbanding, For a Profit

The high-profile prosecutions of white-collar criminals by the U.S. Attorney’s Office for the Southern District of New York have turned

The high-profile prosecutions of white-collar criminals by the U.S. Attorney’s Office for the Southern District of New York have turned some of the most egregious offenders into household names: Bernie Ebbers, Frank Quattrone, John, Michael and Timothy Rigas.

But in the process, some of the Assistant U.S. Attorneys leading the cases have made names for themselves as well, and are capitalizing on the opportunity to enter the private sector.

Since August, five of the securities fraud unit’s most seasoned prosecutors have left or given notice, including Michael Schachter, one of the two lead lawyers on the Martha Stewart case; David Anders, a key member of the teams that convicted WorldCom’s Mr. Ebbers and Mr. Quattrone, the mustachioed investment banker; and Christopher Clark, who co-prosecuted the Rigas clan.

A high rate of turnover is a fixture of the office, as senior prosecutors with low pay (compared to the private sector, at any rate) on high-profile cases either burn out or make the money move.

And where do they end up? Usually on the other side of the aisle. Right now, many of the white-shoe law firms that defend the white-collar accused are expanding their practices and making tempting offers—in part a result of the apparently bottomless budget that corporate America seems to have to pay lawyers to rifle though e-mails and computer files for preemptive internal investigations. The office also has a new U.S. Attorney, Michael Garcia, as of September, and this changing of the guard typically presents a natural time for prosecutors to move on.

“The market is such that there’s a lot of exciting things that people have been offered in the private sector,” said Mr. Clark, who spent four years in the unit. “There’s a time in your life where you’re like, ‘O.K., I got to get on with the next thing.’”

Yet this particularly concentrated group exodus—white-shoe flight?—carries some symbolic, dramatic weight. It’s the end of an era in which the unit seems to have, in newspaper parlance, owned the story. Their prosecutions have defined the highly scrutinized, under-a-microscope climate that has become Wall Street’s post-Enron reality. For the unit, which numbers about 20 prosecutors, this corporate-crime crackdown brought its members into the news in a way not seen since their predecessors took on the kingpins of the late 1980s, Michael Milken and the Drexel Burnham gang.

THE TITANS OF THE WHITE-COLLAR DEFENSE BAR all earned their stripes at the Southern District: Ms. Stewart’s lawyer, Robert Morvillo, headed the criminal division; and both Davis, Polk & Wardwell eminence Robert Fiske Jr. and Debevoise & Plimpton’s Mary Jo White ran the whole operation. Because of the complex, highly technical work involved, white-collar prosecutors are considered exceptions to the conventional wisdom that prosecutors don’t make good defense lawyers.

But that doesn’t mean it’s always easy. There’s a law-and-order mentality that’s hard to shake. Prosecutors are often idealistic, coursing with the belief that they are incorruptible, that their loyalty is to the truth, to seeing justice served. They can often be righteous: Because they pick their cases instead of their cases picking them, they believe through and through that they are right. They see the defense bar—where loyalty to the client is paramount—as relativistic to the point of unprincipled. It can make the transition rocky.

“You’ve got to wait a little time for the ‘badgectomy’ to heal,” joked Steven Peikin, who left his post as co-chief of the unit in 2004 to join Sullivan & Cromwell’s criminal-defense and investigations group. He just made partner.

When James Comey took office as the U.S. Attorney for the Southern District of New York in 2002, he described an earlier transition, from Assistant U.S. Attorney to corporate defense lawyer, as a “major adjustment.”

“You go from being paid to do the right thing every day, from having the freedom never to make an argument you don’t believe in, to being a defense attorney, where you are duty-bound to make the best argument you can,” he told the New York Law Journal. “I have a tremendous respect for people who do defense work, and it’s not lying, but in a private moment, sometimes, you say, ‘Geez, this is a bunch of baloney.’”

Mr. Peikin argued that it’s easier to make the transition to defense work in the white-collar arena. “I’m not representing any terrorists, I can tell you that,” he said. “It’s seldom black-and-white; there are often degrees or shades of gray.”

Prosecutors at the U.S. Attorney’s office have different versions of the adage about selling out to a fancy law firm, but one version has it that they start looking around when they have a second child, or when their first hits school age. Prosecutors fresh off a clerkship can make about $50,000 a year, but most come in with more experience and earn starting salaries between $60,000 and $80,000. The U.S. Attorney tops out at about $140,000.

Meanwhile, the Assistant U.S. Attorneys jumping ship this fall are landing on some pretty swank dinghies. At the top-tier firms where they’re headed, they’ll expect to make between $700,000 and a million in the first year, experts said. As reported by The Wall Street Journal, Mr. Anders, 36, is joining Wachtell, Lipton, Rosen & Katz, where partners are by far the best-compensated in the country and lunch gets delivered on carts by uniformed “pantry ladies.” Mr. Schachter, 36, is at Willkie, Farr & Gallagher; Mr. Clark, 34, started at LeBoeuf, Lamb, Greene & MacRae last month. Rounding out the group are James Cavoli, 39, who helped craft the case against the executives and vendors of U.S. Foodservice/Royal Ahold (which goes to trial this year) and who started in November at Milbank, Tweed, Hadley & McCloy; and Roberto Finzi, 37, who will shortly be returning to Paul, Weiss, Rifkind, Wharton & Garrison, where he began his career.

ONE FORMER MEMBER OF THE UNIT, Andrew Ceresney, compared the two jobs: “One of the only differences is that you don’t have subpoena power,” said Mr. Ceresney, now a partner at Debevoise & Plimpton. He sighed wistfully. “It’s nice to be the government.”

Being a federal prosecutor, especially in the securities unit, gives young lawyers a taste of power they probably won’t have until they’re senior law-firm partners. Defense counsel come to see them. (“The eagle does not fly,” said Mr. Peikin.) And because their targets tend to have deeper pockets than your average drug trafficker or con artist, they get to spar with the best that money can buy, attracting those who like a challenge and leaving others a little star-struck.

They lack some of the trappings of success, however. They answer their own phones, refill the copy machines on their own time, conduct all of their own legal research. Only supervisors, not “line assistants”—as the Assistant U.S. Attorneys who are “on the line” are known—get BlackBerries.

“The only people left with pagers are drug dealers and AUSA’s,” said one unit member. “How’s that for a joke?”

One likened his time at the office to “practicing law—in a dorm.” The carpets are stained, the chairs in the conference room are mismatched, and whole corridors on the unit’s fifth-floor office are used to store cardboard boxes filled with financial statements. The water fountains have been covered up ever since the General Services Administration tested them and determined that the water wasn’t fit for human consumption.

“It’s the kind of place where, when you walk down the hall, you expect to see a football being thrown,” said one former Assistant U.S. Attorney.

It’s a scrappy operation. Tips can come in the form of leads from F.B.I. or S.E.C. investigators, but investigations often get sparked by articles in The Wall Street Journal or The Times’ business section, which the chiefs read everyday.

The U.S. Attorney’s Office for the Southern District is nicknamed the “Sovereign District”—a play on its magisterial reputation. The Securities and Commodities Fraud Task Force is an institution within this institution. But that wasn’t always the case. Prosecutors pursuing white-collar criminals were basically treated with the respect (or lack thereof) given to civil, not criminal, lawyers. But in the 1980’s, new federal sentencing guidelines created harsher penalties for these crimes. U.S. Attorney Rudolph Giuliani took on these offenders with zeal. Inside-traders got perp-walked and locked up along with drug dealers and mobsters.

The unit became known as a place to burnish one’s résumé, earning nicknames like the “departure lounge,” “waiting room” or “launching pad”—partially because it was the most senior unit and many prosecutors left after working there, but also because a stint there could improve one’s chances of getting in at a corporate firm. In the mid-1990’s, changes were implemented. The unit was opened to more junior prosecutors, and they had to commit to staying two years.

Then the market tanked. According to a theory subscribed to by unit members, when the market went south, people in legitimate companies started cooking the books to cover up the decline in their performance. The accounting fraud started bubbling to the surface.

The situation was dynamic; investigations were proceeding at a breakneck speed. In January 2002, prosecutors began investigating whether Sam Waksal had traded ImClone stock based on insider information. In February, they started looking into looting by the Rigas family at Adelphia Communications Corporation, a cable company; in March, they set their sights on accounting fraud at WorldCom.

The attention had been stepped up. Bernie Ebbers, Scott Sullivan and the Rigases were handcuffed and perp-walked. The securities unit felt like the center of the office. The U.S. Attorney was consulted for strategy on the cases against Mr. Ebbers and Mr. Quattrone. The unit grew.

“It was heady,” recalled Mr. Peikin, who prosecuted Mr. Quattrone along with Mr. Anders. “You were reading about the things that you were doing in the paper.” Sarbanes-Oxley was signed into law that summer. The law seemed to be evolving alongside the prosecutions coming out of the unit.

Since appeals are still outstanding on all four of the unit’s signature cases, it remains to be seen what long-term effect the prosecutions will have. But there’s not a sense that the office was pushing the envelope in terms of new legal precedents, so much as that there were more cases that were more factually complex and higher-profile than in previous years.

This is a trend that isn’t likely to end anytime soon. The office is investigating Senate Majority Leader Bill Frist for insider trading; has indicted more than a dozen New York Stock Exchange “specialists” for fraudulent trading practices; and is going to trial on a securities-fraud case against the former chief operating officer of Impath, a medical diagnostic company, in February.

But while the attrition hasn’t had much of an effect on the size of the unit (some new prosecutors have been added), unit members past and present say the effect is a loss of institutional memory—but that it also expands the opportunities for new lawyers. Is it a good time to be a white-collar criminal? It’s worth noting that in 2002, the unit experienced similar turnover.

“Turnover is a normal part of life in the Southern District U.S. Attorney’s office. The securities unit is fully staffed with some of the most experienced prosecutors in the office,” said Bridget Kelly, a spokeswoman from the office. The Gang That Shot Straight Is Disbanding, For a Profit