05.11.11

Wall Street's New Sheriff

Hedge fund billionaire Raj Rajaratnam was convicted of insider trading this morning. Gary Weiss on the man who put him away—and what this means for other Wall Street prosecutions.

It took weeks of deliberation, but a jury has convicted billionaire hedge-fund manager Raj Rajaratnam of fraud and conspiracy, finding him guilty on all 14 counts on Wednesday. The former Galleon Group chief could face 25 years in prison, although he’s expected to appeal the decision. The case, which includes 24 other defendants and drew in Goldman Sachs, captivated Wall Street. Using extensive wire taps, federal agents built their case against Rajaratnam, who had gone from Sri Lankan immigrant to financial rock star, finding evidence that he was using inside information to profit.

The Daily Beast’s Gary Weiss reports on the man who put Rajaratnam away—and what this means for other Wall Street prosecutions.

It was the biggest anticlimax in the history of Wall Street crime. Wednesday morning, a Manhattan jury delivered its verdict in the trial of Raj Rajaratnam, the hedge fund manager at the center of the biggest insider-trading case since the 1980s: guilty on all counts. Rajarathnam, who put up a feeble defense, was a kind of consolation prize for a public eager for the scalps of the perpetrators of the 2008 financial crisis. Instead they have to be satisfied with the Sri Lankan-born hedgie, whose crimes—trading on inside information from firms like Goldman Sachs—were peripheral to the agony in the markets.

His conviction was a notable triumph for the prosecutor, Preet Bharara, U.S. Attorney for the Southern District of New York, who shares the same South Asian background as the man at the defense table—and practically nothing else.

Bharara is defiantly assimilated and multicultural. An intimate recalls that he was married not once but four times: first a Hindu ceremony, then a Sikh ceremony, then a Muslim ceremony, culminating in "the main event"—a Jewish ceremony.

"Believe me, if there's a banker out there who can be prosecuted I don’t think Preet's going to shy away from it.”

Bharara is half Hindu and half Sikh, and his wife was born of a Pakistani father and Israeli mother. No parents were about to see their heritage neglected, and Bharara was only too happy to oblige. Viet Dinh, an old friend who went on to become head of the Office of Legal Policy in George W. Bush's Justice Department, sees the wedding as emblematic of the Obama administration's point man for meting out justice on Wall Street. "At his core,” says Dinh, “Preet is a person who appreciates different points of view."

That may turn out to be Bharara's greatest legacy—and, perhaps, his greatest liability. By all accounts, Bharara is an intense prosecutor who will get his man—if, and that's a big if, he feels that he can get a conviction. In that way, he’s the polar opposite of publicity-hungry Wall Street cops like his predecessor Rudolph Giuliani or former New York State Attorney General Eliot Spitzer. As U.S. attorney, Bharara has carried out a tough campaign against insider trading, culminating in his prosecution of Rajaratnam. But he has not prosecuted any of the major players in the financial crisis, in keeping with a pattern across all federal jurisdictions.

The list of the unindicted—and probably never-to-be indicted—is long. Lehman Brothers escaped unscathed for a scheme to push its liabilities off the balance sheet, not even getting a Securities and Exchange Commission wrist slap. Angelo Mozilo, the Countrywide Financial CEO who was the Christopher Columbus of predatory lending, didn’t get as much as a traffic ticket for the firm's slash-and-burn tactics. To be sure, criminal investigations of securities fraud can take years, and the statute of limitations for pre-2008 misdeeds has some years yet to run. Prosecutions are, theoretically, possible for several years to come.

But they don't seem likely, and at times, it doesn't seem that Bharara is even trying. His defenders, including old friends and courtroom adversaries, say that knock just isn't fair. They describe Bharara as an idealistic prosecutor who puts justice ahead of getting a conviction—an ideal epitomized in the 1920s by Homer S. Cummings, the district attorney of Bridgeport, Connecticut, who in a celebrated case used the powers of his office to exonerate a drifter accused of killing a popular priest. "Believe me, if there's a banker out there who can be prosecuted I don’t think Preet's going to shy away from it," says Bharara's former boss David Hantman, former chief of staff to Sen. Charles Schumer (D-NY). While on Schumer's staff, Bharara spearheaded the investigation of politically inspired firings of U.S. attorneys, which turned out to be the downfall of Attorney General Alberto Gonzalez.

Hantman recalls that Bharara's fairness and impartiality impressed even the most partisan Republicans. He sees a parallel with probes into the big banks. "He won't be pressured, he won't be rushed," says Hantman. Bharara is said to not harbor political ambitions. "I've tried to convince him to have some," says Hantman, "but I think this"—U.S. attorney in Manhattan—"is his ambition. He really likes being a prosecutor." Perhaps. But look what happened to that other cautious, plodding, non-crusading prosecutor, Homer S. Cummings. He became Attorney General of the United States.