Preet Bharara isn’t running for mayor of New York yet. But in other ways he’s increasingly reminding Wall Street of Rudy Giuliani. As U.S. attorney for the Southern District of New York in the 1980s, before his first mayoral run, in 1989, Giuliani engendered fear and more than a little loathing in financial circles. He took insider trading prosecution to new heights, jailing titans of his era like Ivan Boesky and Michael Milken.
Bharara, who was born in India’s Punjab province and grew up in New Jersey, took charge of the Southern District in 2009, in the wake of the global financial meltdown. A year later he served notice that insider dealing was again “rampant,” telling a defense lawyers’ association that “we have no choice but to treat [white-collar defendants] like common criminals.” His office has done just that with a record number of brokers and fund managers, bagging 70-plus insider trading convictions since 2009. As it happens, Bharara’s most celebrated cases have locked up fellow South Asians: Galleon Group boss Raj Rajaratnam and his partner in crime Rajat Gupta, who was a director at Goldman Sachs. (Read more: Wall Street: No Firm Is Above the Law)
Now Bharara, 44, may be nearing his Milken moment. In July a five-year statute of limitations expires on what is thought to be the most likely grounds for prosecuting Steven Cohen, the legendary investor who heads Stamford, Connecticut–based hedge fund SAC Capital Advisors.
Bharara is actually a more dangerous prosecutor than Giuliani was, experts say, though not because he’s more zealous. Rather, President Barack Obama’s administration is far more focused on financial crime than Ronald Reagan’s executive branch was in the greed-is-good 1980s. The Justice Department high command in Washington, the SEC (now run by one of Bharara’s predecessors at the Southern District, Mary Jo White) and above all the FBI have turned up the heat on rogue traders since the crash nearly five years ago.
“What’s driving the insider trading cases is a commitment of FBI resources in this area,” says Daniel Richman, a former Giuliani deputy who now teaches criminal law at Columbia Law School. “After 9/11 there was a massive pullback by the bureau from any nonterrorism cases, but that has changed.”
The feds now wield weapons from the world of common-crime fighting that were never used against financiers in the ’80s, including wiretaps and cooperating witnesses, explains Michael Weinstein, a white-collar defense attorney at New Jersey–based law firm Cole, Schotz, Meisel, Forman & Leonard. Prosecutors are allowed to range beyond “classic” insider trading, in which two individuals exchange privileged information, to “network cases,” in which illegal knowledge percolates up to a trader through a complex web of subordinates and/or outside research providers. A prosecution of SAC’s Cohen would likely hinge on such information flowing upward to the hedge fund boss. “The government is calling that illegal now,” Weinstein says. “A lot of people on Wall Street would just call it good work.”
Most important, the federal judiciary has changed sentencing guidelines since the 1980s, significantly stiffening the punishment for financial crimes. The industry was shocked in 1990 when Milken got ten years in jail (later reduced to two after he started cooperating with other investigations). Such sentences have since become standard for big fish. Galleon’s Rajaratnam set a record in 2011 with an 11-year sentence. That was eclipsed last year by crooked lawyer Matthew Kluger, who earned 12 years for leaking confidential information to counterparties over more than a decade.
The new wave of severity from the bench makes prosecutors’ jobs much easier because defendants are more likely to plead guilty and implicate their colleagues than to roll the dice on a trial. One huge question affecting Cohen’s future is whether two of his deputies under indictment, Mathew Martoma and Michael Steinberg, will maintain their current defiant not-guilty stances rather than turn state’s evidence.
But even if Bharara isn’t the lone crusader for honesty that the media sometimes make him out to be, he’s an effective manager of and point man for white-collar prosecution. “People in the office find him to be an inspiring leader,” says Columbia’s Richman. “He is very good at clarifying what the office is doing and why.” Unlike Giuliani, Bharara hasn’t crossed any perceived lines between playing a public role and grandstanding to build his own career, observers note. “Bharara is very well respected, very well regarded,” even among people who might dread a call from his office, attorney Weinstein says.
