A REPORTER AT LARGE

A DIRTY BUSINESS
New York Citys top prosecutor takes on Wall Street crime.
by George PackerJUNE 27, 2011

In the Galleon case, both the prosecutor, Preet Bharara, and the defendant, Raj Rajaratnam, were immigrants from the subcontinent.

In the fall of 2003, Anil Kumar, a senior executive with the consulting firm McKinsey, and Raj Rajaratnam, the head of a multibillion-dollar hedge fund called Galleon, attended a charity event in Manhattan. They had known each other since the early eighties, when, as recent immigrants, they were classmates at the Wharton School of Business, in Philadelphia. Their friendship, intermittent over the years, was based on self-interest rather than on intimacy. Kumar, born in Chennai, formerly Madras, India, was fastidious and morose, travelling at least thirty thousand miles a month for work, and seldom socializing. Rajaratnam, a Tamil from Colombo, Sri Lanka, was fleshy and dark-skinned, with a charming gap-toothed smile and a sports fans appetite for competition and conquest. Kumar was not among the group whom Rajaratnam took on his private plane to the Super Bowl every year for a weekend of partying. Im a consultant at heart, Kumar liked to say. Im a rogue, Rajaratnam once said. Kumar had the more precise diction and was better educated, but Rajaratnam was one of the worlds new billionaires and therefore a luminary among businessmen from the subcontinent. In an earlier generation of immigrant financiers, Kumar would have been the German Jew, Rajaratnam the Russian. Kumar might have felt some disdain for Rajaratnam, but Rajaratnams fortune made him irresistible. McKinsey executives, in an attempt to cash in on the explosive growth of hedge funds, had recently sent Rajaratnam several e-mails proposing that Galleon hire the company to provide expert advice. Rajaratnam had ignored them. Leaving the charity event, Kumar expressed annoyance about the unanswered e-mails, he later recalled.

Rajaratnam pulled him aside. Id much rather have you as a consultant than McKinsey, he explained. And I am willing to pay you half a million dollars a year. Kumar replied that McKinsey forbade outside consulting, but Rajaratnam persisted, appealing to Kumars pride: You work very, very hard, you travel a lot, you are underpaid. People have made fortunes while you were away in India, and you deserve more. He noted that Kumar, who provided strategic advice to Silicon Valley technology companiesone of Rajaratnams investing specialtiespossessed knowledge that was worth a lot of money. Kumar had only to keep a list of ideas, and to call him once a month or so. I know you will do that if you get money from me, Rajaratnam said. And I know you will not remember to keep a list if you dont get money from me. Kumar agreed to be paid a quarterly sum of a hundred and twenty thousand dollars. To evade the scrutiny of McKinsey and of the government, he followed Rajaratnams instructions and set up a Swiss bank account for a shell company in Geneva called Pecos Trading, which transferred the quarterly payments, through offshore banks, to a Galleon account under the name Manju Das. This was Kumars housekeeper in Saratoga, California, who also cared for his ill son. Lots of people set up offshore companies, Rajaratnam said, trying to alleviate Kumars squeamishness. Pulling off the subterfuge required a false mailing address, signatures obtained under false pretenses, backdated investment documents, and phony doctors bills. Yet Kumar initially believed that he was going to pass information to Rajaratnam legally. He soon realized that Rajaratnam wanted tips that he could convert into profitable stock trades. Once the flow of money created an obligation, Rajaratnam began asking for financial details about companies that Kumar advised. Soon, Kumar was breaking both McKinseys confidentiality rules and the securities laws that forbid such exchanges. His offerings were never good enough for Rajaratnam, who kept pressing for more. As an incentive, Rajaratnam offered to pay Kumar a percentage of the profits from trades made on his tips. Kumar recoiled: the paper trail documenting such trades would put him at risk of exposure, and receiving Galleon trading profits would bring him too close to Rajaratnams illegal business. He didnt want to know what Rajaratnam did with his secrets. As long as he was paid as a consultant, Kumar felt sufficiently sheltered from the truth. So he secured a different arrangement: at the end of each year, Rajaratnam would give him whatever he thought his information had been worth, a common practice at McKinsey. In 2006, it was worth a lot. Early that year, the microprocessor-maker Advanced Micro Devices decided to acquire a graphics-chip company called A.T.I. Hardly anybody on Wall Street anticipated the deal except Rajaratnam, who knew exactly what was going to happen because Kumar was A.M.D.s consultant at McKinsey, guiding its strategic decisions. His tips allowed Rajaratnam to time a trade perfectly, and Galleonbetting long on A.T.I.cleared twenty-three million dollars. After the deal was announced, in July, 2006, Rajaratnam called Kumar at home from Galleons offices and said, Thank you. Were all cheering you. Youre a hero. At the end of the year, he called Kumar again: Ive had a fabulous year. Im handing out huge bonuses. Kumars was a million dollars. Tell me where to send it, Rajaratnam said.

In the language of hedge funds, Galleons strategy was to arbitrage reality with the consensus on the Streetto find information about a given company that diverged from Wall Streets view, allowing Galleon to cash in when the companys stock price rose or fell. At Galleon, this was known as getting an edge. The analyst or portfolio manager with the best read on a company was called the axe on that stock. The surest way to become the axe was to have a source who passed on information about a companys earnings, upcoming deals, and other confidential matters. The ultimate edge was insider tradingthe acquisition of nonpublic information about a companyand Rajaratnam was the king axe. At Galleons daily 8:30 A.M. meeting, he always had more information than his employees and didnt hesitate to let them know it. By the mid-aughts, hedge funds accounted for nearly half of all stock trades, and there was ferocious competition for wealthy investors and the business of investment banks. Lightly regulated and nearly opaque, hedge funds played a central role in the creation of credit-default swaps and other financial exotica that led to the economic collapse of 2008. Rajaratnams goal was to be running a ten-billion-dollar fund by the end of 2009. In seducing Kumar, he made a valuable addition to the network that he had built up over the years. Some of Rajaratnams informants were his subordinates at Galleon, such as Adam Smith, a graduate of Harvard and of Harvard Business School, whom Rajaratnam hired in 2002. Clean-cut and calculating, Smith was the sort of ambitious financier who worked hard, did his homework, and cheated, too. In 2004, in the class notes for his ten-year college reunion, he wrote about working at Galleon: Its the first job Ive truly loved, and I find the challenge of the stock market exhilarating. By then, Smith had become a reliable conduit of illegal tips to Rajaratnam. Some of the biggest ones came from Kamal Ahmed, at Morgan Stanley in Menlo Park, California, where Smith had worked. To throw off potential investigators, Smith used code names and adopted one of his bosss favorite techniques, creating false e-mail trails. (The merger of two companies whose names began with I became the two eyes.) Rajaratnam soon promoted Smith from analyst to portfolio manager. At the heart of Rajaratnams informant network was a group consisting largely of Indian-born businessmen. They included Krish Panu, a board member of the outsourcing company PeopleSupport; Kris Chellam, an executive at Xilinx, a Silicon Valley semiconductor company; and Rajiv Goel, a manager at Intel, who was, in a comically assertive and bumbling fashion, one of Rajaratnams close friends. The most illustrious was Rajat Gupta, the former worldwide head of McKinsey; the onetime chair of the Global Fund to Fight AIDS, Tuberculosis, and Malaria; and a board member of several prominent business schools and companies, including Goldman Sachs. All these men had investments that were tied to Galleon, and therefore benefitted from the trades that they helped Rajaratnam make. Rajaratnam tried to keep each source unaware of the others so that their trails of information led only to him. Rajaratnams sources revered him, except Kumar, who viewed him with condescension, and Gupta, who was on friendly terms with heads of state and didnt need Rajaratnams approvalonly his money. In August, 2008, when Gupta was considering a position with the private-equity firm Kohlberg Kravis Roberts, Rajaratnam and Kumar exchanged gibes on the phone about Guptas greed.

Rajaratnam said, Here he sees an opportunity to make a hundred million dollars over the next five years, or ten years, without doing a lot of work. Two weeks earlier, Rajaratnam had disparaged Kumar to Gupta, saying that he was trying to be a miniRajat without bringing anything new to the party. He added, Im giving him a million dollars a year for doing literally nothing. Worse, Kumar had never thanked him. Ive never seen him laugh and be really happy, you know? He is constantly . . . not schemingits not the right wordbut constantly trying to figure out what other peoples angles are. One of Rajaratnams most enthusiastic informants was Danielle Chiesi, a former teen beauty queen from upstate New York. She worked at a hedge fund called New Castle, which was owned by Bear Stearns. A bottle blonde in her early forties, Chiesi lived alone in midtown and slept with men who gave her stock tips. She said that when she profited from such tips she felt mentally fabulous. By 2008, Chiesi had entered a relationship with Hector Ruiz, the chief executive of A.M.D. (Ruiz has denied that it was intimate.) Rajaratnam, hearing of Chiesis highly placed source, told Kumar that he had established a new inroad at the company, noting, Your value to me is a bit diminished. In October, 2008, Kieran Taylor, an executive with Akamai, an Internet-services company, told Chiesi over the phone, Danielle, I have a major present for you. Drugs? she asked. I hope not. Information, information. I love you for that. When am I going to see you? After another phone conversation with Taylor, Chiesi told Rajaratnam, I played him like a finely tuned piano. She was eager to impress Rajaratnam, flirting with him as if by reflex, and passing him secrets without expecting much in return. Rajaratnam kept his distance, and declined to tell her when her information confirmed tips from other sources. After receiving one tip, he warned, We got to keep this radio silence. That is my pleasure, Chiesi said. Not even to your little boyfriends, you know? Believe me, I dont have any friends. Rajaratnams view of human nature was not so different from that of Willie Stark, in All the Kings Men: Man is conceived in sin and born in corruption and he passeth from the stink of the didie to the stench of the shroud. If there are examples of people whom Rajaratnam unsuccessfully tried to corrupt, they have not surfaced in the voluminous public record on Galleon. Once, his brash younger brother, Rengan, put out a feeler for inside information to a friend from Stanfords business school who had become Kumars protg at McKinsey. Rengan gleefully relayed to his brother that the young associate was a little dirty. When Rajaratnam shared this assessment with Kumar, Kumar asked him to lay off the associate, not wanting his protg to be sucked into Galleons corruption. Later, Rajaratnam laughed with his brother over the episode. I just wanted to show how your friend is Scumbag! Rengan said. Everybody is a scumbag! In October, 2009, Rajaratnam and Kumar flew to Trinidad with their wives to attend a wedding. On their way home, they stopped in Miami to spend two days at Rajaratnams beachfront condominium. On the evening of October 6th, the men went out in Rajaratnams boat, then returned to shore and took a swim. They were lounging

on deck chairs, reading and chatting, when Rajaratnams phone rang. Excusing himself, he walked down the beach to talk. Five minutes later, he came back, excited. That was a Cisco executive, he said. Cisco is buying Starentan informationtechnology company. Kumar had never heard of Starent, and he wondered which Cisco executive was calling Rajaratnam. Rajaratnam then gave Kumar a warning: a man named Ali Far, who had worked at Galleon, was rumored to be wearing a wire. I have to be really careful, Rajaratnam said. I cant believe hes doing that and betraying me. He instructed Kumar to start using unregistered prepaid cell phones for their calls. When they returned to the condominium, Kumar opened his laptop, went into his Charles Schwab brokerage account, and bought three hundred shares of Starent, worth about eight thousand dollars. The deal was announced a week later. It was Rajaratnams last known inside trade. Early on the morning of October 16th, F.B.I. agents converged on Rajaratnams town house, on Sutton Place, on Manhattans East Side, where he lived with his wife, Asha, his two younger children, and his parents. The agents arrested him on charges of conspiracy and securities fraud, and released him on a hundred-million-dollar bond. Within hours, Adam Smith and Rengan Rajaratnam had removed evidence from the Galleon offices. At six that same morning, Danielle Chiesi was roused from bed in her apartment on East Fifty-ninth Street by the knocks of four agents wearing bulletproof vests. The agents spent an hour showing Chiesi a file of evidence before concluding that she wouldnt coperate. She refused to place a monitored call to someone on the West Coastprobably Hector Ruiz. At the same hour, agents appeared at Anil Kumars Manhattan apartment, at the Time Warner Center. When they put him in handcuffs, Kumars long struggle to separate himself from what he had become ended. He fainted, hitting his head against a wall. He had to be treated at a local hospital before he could be brought in for booking. Two of Chiesis co-conspirators and Rajaratnams friend Rajiv Goel were also arrested. Later that day, Asha Rajaratnam sent a text message to Kumars wife, Malvika. It said, Im sorry. Three years earlier, in October, 2006, a thirty-one-year-old lawyer from Weston, Connecticut, named Andrew Michaelson started working at the New York office of the Securities and Exchange Commission, at 3 World Financial Center, just west of Ground Zero. Michaelson, a graduate of Harvard Law School, had wanted to work in government in order to help fight corporate fraud and abuse. When the S.E.C. lifted a hiring freeze, he jumped at the chance. In the seventies and eighties, the S.E.C. had been a powerful regulator, led by ambitious attorneys; it handled important cases like the insider trading of Ivan Boesky and Michael Milken. But by the mid-aughts the commission was languishing. Its chairman, a former California congressman named Christopher Cox, exuded blithe faith that the financial markets would regulate themselves. The S.E.C. ignored warnings when Wall Street inflated the credit bubble with dubious synthetic securities known as collateralized debt obligations. After the Enron scandal, in 2001, the S.E.C. began attracting promising lawyers like Michaelson, but it was still a largely impotent institution. Wall Street regarded it with disdain, and when companies

under investigation were called to give testimony their executives may have felt little reluctance to lie, which carried far less risk than admitting to a crime under oath in a civil action. Michaelsons first assignment was a month-old case involving a small hedge fund called Sedna Capital, which was run by Rengan Rajaratnam. A tip from a source in the banking world had alerted the S.E.C. to a pattern of cherry picking at Sedna reserving the biggest profits for a fund in which all the investors were family members and friends. In its first month of operation, the favored fund executed ten trades, all winners, and doubled its capital. Some of the trades seemed to involve inside information, including on A.M.D. The S.E.C. soon shifted its focus to Galleon, the much bigger firm of Raj Rajaratnam, where most of the trades were duplicated. In March, 2007, the S.E.C. briefed the F.B.I. and the United States Attorneys Office for the Southern District of New York, which opened a criminal case. That same month, an anonymous letter arrived at the S.E.C.s offices, postmarked Queens, March 13, 2007. It is hedge funds like Galleon Group that create wealth for their shareholders and themselves at the expense of innocent investors, the letter began. Insider trading word in this fund should be changed to insider partnership and prostitution. . . . Prostitution is rampant for executives visiting Galleon. You will find that the Super Bowl parties for the executives, paid for by Galleon Group, include prostitutes and other forms of illegal entertainment. In return, the executives provide Galleon the unfair edge that the fund leverages so well. The letter was signed Seeking integrity in business. The writer sounded knowledgeable about Galleon and the industry, but it was impossible to track him down. In 2006, Galleon had registered with the government as a regulated investment adviser. In order to obtain this title, which conveys to potential clients the impression that a business is soundly run, Galleon had to agree to preserve its electronic correspondence. Rajaratnam, aware of this requirement, instructed his subordinates to move key dealings off the Internet and onto the phone. Nevertheless, a few electronic records gave hints of widespread insider trading at Galleon. In February, 2007, an S.E.C. examination team began going through the companys electronic correspondence, and after several months of meticulous work they found enough suspicious fragments to issue Rajaratnam a subpoena. On June 7, 2007, Rajaratnam arrived at 3 World Financial Center for an all-day session of giving testimony. That morning, a member of the exam team told Michaelsons supervisora New Delhiborn former corporate tax lawyer named Sanjay Wadhwathat there was definitely some interesting chatter in a batch of cryptic I.M.s from a person using the handle roomy81. Wadhwa and Michaelson hastily formulated a way to ask Rajaratnam about roomy81 without raising his suspicion. The session took place in Testimony Room 416, which had scuffed yellow walls, a stained beige carpet, and windows overlooking the World Financial Centers Winter Garden. The session lasted seven hours, and Rajaratnam, relaxed and fluent, spent a good part of it telling lies. After Rajaratnams lawyer, Jerry Isenberg, requested a midafternoon break, Michaelson looked up from his papers on the conference table, as if he had just remembered something. A couple quick questions before break, he said. Are you familiar with a roomy81 instant-message address?

Yes. Who is that? She worked at Galleon and then she left Galleon to start her own fund. I think she primarily manages her own money. What is her name? Roomy Khan, Rajaratnam said, spelling out the surname. Do you know where she works now? From home. Michaelson asked, Did you ever talk with Roomy about A.M.D.? She may have given me information, but I cant recall. We can take a break. Five days after Rajaratnams deposition, the investigators turned up an I.M. exchange, dated January 9, 2006, between rajatgalleon and roomy81:
IM Administrator: The Galleon Group archives and reviews incoming and outgoing instant messages. rajatgalleon: hey rajatgalleon: u back roomy81: i am here roomy81: did not go any where rajatgalleon: call me..just got back today roomy81: please let me know on JNPR roomy81: donot buy plcm till i het guidance roomy81: want to make sure guidance OK

PLCM was the ticker symbol for Polycom, a manufacturer of voice and video equipment. JNPR was Juniper, a company that made switching routers. But what jumped off the screen was till I [get] guidance . . . want to make sure guidance OK. The term guidance refers to the direction of a companys quarterly earnings, up or down. Roomy Khan seemed to have an inside track on Polycoms financial information. Without this I.M., the case would probably have died. In the months after Rajaratnam testified, the S.E.C. investigators stayed away from Galleon, wanting to make him think that they had moved on. In fact, Michaelson went back and scoured all of Rajaratnams I.M. correspondence from 2006thousands of pages. The S.E.C. issued subpoenas to phone companies, and when the records finally came in, a new member of the team, Jason Friedman, combed through the call histories of Rajaratnam and Khan. By comparing I.M.s, phone calls, and trading records, the investigators determined that Rajaratnam and Khan, in the days after their January 9, 2006, I.M. exchange, had called each other frequently and begun trading heavily in Polycom stock. At the end of January, 2006, when Polycom announced record quarterly earnings, Khan made three hundred thousand dollars, and Galleon cleared at least twice that. One of Khans phone contacts was a Polycom vicepresident named Sunil Bhalla, who lived near Khan in Silicon Valley and, like Khan, was Punjabi. The investigators guessed that he was Khans source. In July, 2007, another S.E.C. lawyer noticed that there had just been several large purchases of stock options in Hilton Hotels immediately preceding an announcement of the chains takeover by the Blackstone Group. One of the prescient traders was Rajaratnam; another was Khan. The lawyer went to Michaelson and asked, Isnt this the woman you were talking about?

The S.E.C. gave Khans name to B. J. Kang, the F.B.I. special agent assigned to the case. On July 10th, a background check revealed that Khan had a criminal history, and that it involved Rajaratnam. Khan was married to a wealthy Indian entrepreneur and lived in Atherton, California, in a mansion with a tennis court. In 1998, she had been caught on a security camera faxing to Galleon confidential documents from the offices of Intel, where she worked at the time. Khan pleaded guilty and received three years probation, but the case against Rajaratnam was too hard to makethe volume and the complexity of hedge-fund trading makes pinpointing the source of just one trade almost impossible. The Rajaratnam file was sealed in 2002. The investigators believed that the evidence on the Polycom trade was also too circumstantial to bring a criminal charge against Rajaratnam. To break the case open, they needed a source in Rajaratnams inner circle to flip and give direct evidence of providing Rajaratnam inside information. Anil Kumar, the McKinsey consultant, and Rajiv Goel, the Intel executive, came up frequently in Rajaratnams phone records. But there was no sign that Kumar was making trades on inside information. Then investigators discovered that Galleon had been given the password to Goels Schwab account, which it was using to make profitable trades on his behalf. Goels account was like a road map to insider tradingbut Goel was considered too close a friend of Rajaratnams to be approached without irrefutable evidence. The F.B.I. would have only one chance to flip someone; if it failed, Rajaratnam would know that he was the target of a criminal investigation and take precautionary measures. The best shot was Roomy Khan, who had already pleaded guilty once, and who had said a little too much in an I.M. before Rajaratnam could nudge her onto the phone. On November 28, 2007, Kang and another agent rang the bell at the gate of Khans house. Khan, a dishevelled, overweight woman of forty-nine, allowed the F.B.I. inside. She was in distress, having recently lost a lot of money on trades. She had sold her jewelry through Sothebys; her house was on the market for eighteen million dollars; and her marriage was in trouble. Khan told Kang that she was in contact with Rajaratnam only because she was hoping to get a job with Galleon, and that he talked to her only to be nice. She said that she knew Sunil Bhalla, of Polycom, because he had dated one of her friends. For more than an hour, she blizzarded the agents with lies. Then Kang brought out a file with the roomy81 I.M.s and other incriminating evidence. Khan retreated to one of her seven bathrooms, cried, and emerged with a new understanding of her situation. If I dont coperate this time, she told Kang, Ill go to jail. After meeting with Kang, Michaelson, and prosecutors in New York, Khan agreed to coperate with the investigation. She gave up a new source: Shammara Hussain, a young employee of an investor-relations firm in San Francisco, who, in mid-2007, had tipped Khan about Googles poor quarterly earnings. Khan had passed the news to Rajaratnam, who made eighteen million dollars by shorting Google stock. But for months Khan continued to lie about the Hilton trades. Finally, in April, 2008, she revealed that her source was Deep Shah, a young analyst at Moodys, the rating agency, who had been assigned to Hilton and who called Khan the day before the acquisition was announced. (Shah, whom Khan paid ten thousand dollars for the information, is now a fugitive in India.) Khan had met Shah through a relative, and

she had lied about the Hilton trades because she hadnt wanted to implicate a family member. This was Roomy Khans notion of honor. As part of her coperation, Khan began recording her calls with Rajaratnam. She caught him on enough dirty calls that, in March, 2008, Judge Gerard E. Lynch, of the Southern District, approved the governments application for a thirty-day wiretap on Rajaratnams cell phone. The order was renewed through the rest of the year. The Rajaratnam recordings led to taps on other phones, including Chiesis, and identified other conspirators, harvesting a huge crop of direct evidence. By the time of the October, 2009, arrests, the government had taped thousands of calls. The S.E.C. had issued more than two hundred and thirty subpoenas for phone numbers and reviewed at least eight thousand call records. Over the course of the investigation, the agency gathered nearly ten million documents. By law, the S.E.C.s lawyers were kept in the dark about the wiretaps. In late 2008, the financial crisis and the Bernard Madoff scandal exposed the S.E.C. to unprecedented criticism, and higher-ups at the agency pressured the New York office to bring the Galleon case early and score a quick victory. But New York refused to jump the gun. By that time, it had become clear that the criminal authorities were building the biggest insider-trading case in history. Preet Bharara, the United States Attorney for the Southern District of New York, is, like so many others in the Galleon story, a Punjabi. He was born in 1968, in Firozpur, India. When Bharara was still a toddler, his father, a pediatrician, moved the family to Monmouth County, New Jersey, and Preet grew up in the suburbs, a thoroughly Americanized striver. His parents drove him pretty hardThe Tiger Mom actually made my dad look good, he joked to meand he was the kind of schoolboy who bought how-to books on getting an A-plus in math. After graduating as his highschool valedictorian, in 1986, he attended Harvard, then Columbia Law. Bharara is the son of a Sikh father and a Hindu mother who moved from Pakistan to India after partition; he is married to the daughter of a Muslim father who moved from India to Pakistan after partition and a Jewish mother who was born in Israel. The Bhararas have three young children, religious affiliation unknown. After law school, Bharara worked at private firms; in 2000, he was hired as an assistant U.S. Attorney, in the Southern District. He wasnt a star prosecutor, but his intelligence, wit, and skill at navigating the politics of a large and competitive institution caught the attention of Senator Charles Schumer, of New York, who, in 2005, named Bharara his chief counsel. The next year, Bharara helped lead the investigation into the Bush Administrations firing of eight U.S. Attorneys for political reasons, and stood out as a sharp, nonpartisan interrogator of witnesses who were to testify before the Judiciary Committee. After President Barack Obama took office, Schumer put Bhararas name forward to lead the premier U.S. Attorneys office in the country. The prominent curve of Bhararas nose and his striking pale-green eyes give him an unsettling falconine gaze. As a Democrat from New Jersey in his forties, Bharara inevitably loves Bruce Springsteen and watches The Daily Show. When Bharara was interviewed at the White House for the U.S. Attorneys job, he was asked if he had been born in India. Yes, Bharara replied. But was he a citizen of the United States? Damn, Bharara said. Youve got to be a citizen for this job?

He started in the position in August, 2009, and his short tenure has been crowded with aggressive prosecutions of terrorism, Medicare fraud, illegal tax shelters, and public corruption. But the arrest of Rajaratnam, on October 16, 2009, gave Bharara his highest-profile case. From the start, Bharara made it clear that he would go after Wall Street crime. Greed, sometimes, is not good, he said in announcing the arrests. A month after Rajaratnams arrest, Bharara gave an unusually dark speech at N.Y.U.s law school, speaking of epic frauds surfacing with increasing frequency. He noted, There is a lack of faith in the economic system; a lack of belief in the markets; and a lack of trust that the playing field is level. He made no apologies for ferreting out insider trading by using wiretaps, a practice that was unpopular on Wall Street. When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such, he said. Bharara spends a surprising amount of time speaking off the record at business schools, companies, and financial institutions. Its like a D.A. who visits schools where crime and drug use are widespread and explains to the students, Look, this is why this is happening to you. A key purpose of the insider-trading prosecutions is deterrence. As Daniel Richman, a Columbia law professor and a former Southern District prosecutor, told me, The average hedge-fund guy whos lawyered up and a serious reader of the relevant publications is going to be more deterred by prosecution than the average dope dealer. In May, Bharara met with me in his office, on the eighth floor of 1 St. Andrews Plaza, a brutalist concrete structure near the federal courthouse in lower Manhattan. His windows face south, and through the murky light of a damp late afternoon the towers of Wall Street were barely visible. There are often two categories of reasons to do the right thing, he said. Category 1 is a sense of right and wrong. But if that doesnt work for youand it doesnt for a lot of peoplethen theres the Category 2 reason: youre going to get caught, your business is going to go down the tubes, youre going to go to jail. For a lot of these people, maybe Category 1 doesnt work but Category 2 should. But maybe there was not enough enforcement, such that they thought, Whats the big deal? Insider trading, Bharara observed, was unlike other federal crimesit wasnt committed by people with a violent outlook or a bad upbringing, or by serial lawbreakers who knew no other life. These folks seem not to have been of that type, he said. The insider-trading type was someone like Adam Smith, the Galleon portfolio manager from Harvard. After the public announcement of a deal on which hed given Rajaratnam inside information, Smith had a sinking feeling, a flush of worry. But no one spoke to him about the deal, so he moved on. Smith was a Category 2 guy. So, apparently, were a lot of traders. Bharara referred me to a 2007 poll in which twentyfive hundred Wall Street professionals were asked if they would use inside information to make ten million dollars if the chances of getting caught were fifty per cent. Seven per cent said yes. But, if there was zero chance of getting caught, fiftyeight per cent said that they would break the law. Some Wall Street observers have called the Galleon case a sideshow. When Charles Ferguson, the filmmaker, won an Oscar, earlier this year, for Inside Job, a scathing documentary account of the Wall Street meltdown, he began his acceptance speech by saying, Three years after a horrific financial crisis caused by massive

fraud, not a single financial executive has gone to jail, and thats wrong. Ferguson told me that Bhararas focus on an insider-trading scandal was misplaced, given that the financial crisis was caused primarily by shoddy mortgages and the cynical trading of those irresponsible loans. Last month, the Times columnist Joe Nocera accused Bharara of displaying phony toughness while sending a message to Wall Streets lites that crime pays. Matt Taibbi, of Rolling Stone, has taken the even harsher view that prosecutors have given bankers a pass because they covet lucrative jobs in the private sector. At the other extreme is the argument that the crisis was caused simply by greed and stupidity, which remain legal under federal law. In February, this was Noceras stance: he published a column on why there had been no prosecution of Angelo Mozilo, the disgraced head of Countrywide Financial, which was at the center of the mortgage crisis. Delusion is an iron-clad defense, Nocera wrote. Eliot Spitzer, who brought dozens of suits against financial institutions between 1999 and 2006, when he was New Yorks Attorney General, told me that it wouldnt be easy to build prosecutions directly tied to the financial crisis. Top bank executives, with the assistance of lawyers and accountants, took care to insulate themselves from the fraudulent activities of mortgage lenders and other low-level players. But, he added, Ive always believed you start at the bottom, the credit department of the bankthats where the guys with green eyeshades, who dont get the bonuses, write down what is honest and truthful about their critiques of the loans being made. As in the Galleon investigation, prosecutors could amass a document trail allowing them to flip someone down below; they could then work their way to the top. Spitzer referred me to a set of documents produced by Clayton Holdings, a company hired by investment banks to evaluate the loans that they were securitizing and selling to investors. In some cases, thirty per cent of the loans were found to be bad, if not fraudulent, yet the banks packaged and traded them anyway. Just track this, Spitzer said, and youll be able to make the case that people were willfully blind. Fraud abetted the financial crisis, from the marketing of deceitful financial products to the banks concealment of losses after the housing market collapsed. Then why are no executives in jail? One reason is that criminal law often founders in what prosecutors call a dead-body case. During the mortgage bubble, the possible crimes were committed before any investigations had begun. By the time the government could have gathered enough evidence to obtain wiretaps, any incriminating conversations would have long since taken place. The Department of Justice also played a role in inhibiting vigorous prosecutions. In 2008, the department, under President George W. Bushs Attorney General, Michael Mukasey, distributed the major new investigations across different offices. Countrywide went to the U.S. Attorneys office in Los Angeles; Washington Mutual was claimed by Seattle; A.I.G. was pursued out of Washington, D.C., with the coperation of New Yorks Eastern District, in Brooklyn. Lehman Brothers was split among New Jersey and the Eastern and Southern Districts of New York. The Southern District, with its superior experience and expertise in accounting fraud, was largely cut out. Neil Barofsky, a former Southern District prosecutor who left the office in December, 2008, to become the first inspector general of the Troubled Asset Relief Program, considers this a mistake. The Department of Justice made a decision that

decreased the probability that those cases are going to get made, he said. He suggested that the attorneys in the Southern District werent happy about missing the chance. Getting the C.E.O. of a major bank is not a career killer, he said. Its a career maker. At the time, the Southern District was between leaders, and the attorneys in its securities unit had their hands full with other cases, including Galleon. Bharara insists that the lack of charges stemming from the meltdown cant be blamed on insufficient resources. He told me, If the well is dry, a thousand more people arent going to get you water in that well. But, given the targets in questionhuge banks, well-insulated executives, intricately structured financial products, tens of millions of knotty documentsits unlikely that a federal prosecutors office, staffed by generalists and operating under standard procedure, which is to wait for cases to come in, could have made serious headway. Several financial-fraud experts told me that a task force, made up of assistant attorneys adept at financial investigations, should have been created in key districts, especially in New Yorks Southern District, and given two or three years to investigate a single bank. These teams could have functioned almost like special prosecutors, with an open-ended mandate, and worked in tandem with agencies like the S.E.C. and the F.B.I., as in the Galleon case. These prosecutors might have had the time and the expertise to recognize a subtly incriminating e-mail or spreadsheet. Such a major initiative needed to come from Washington, but investigating Wall Streets big banks seems not to have been a top priority. In November, 2009, the Obama Administration announced the creation of an interagency Financial Fraud Enforcement Task Force. Its principal accomplishments to date have been press releases claiming credit for cases that often predated the financial crisis and involve low-level Ponzi and mortgage-fraud schemes. In the spring of 2009, Congress authorized a hundred and sixty-five million dollars to be spent on more vigilant fraud enforcement. According to a recent article in the Times, only thirty million or so was spent. In December, 2009, Senator Ted Kaufman, of Delaware, as a member of the Judicial Committee, held an oversight hearing on financial-fraud prosecutions. A Brooklyn jury had just acquitted two Bear Stearns hedge-fund managers of fraud and conspiracy, in the only criminal case related to the major players in the financial crisis. At the hearing, Kaufman urged Justice Department officials not to be deterred by the unwelcome verdict. It is just very hard for me to understand why there havent been more indictments, Kaufman, whose Senate term ended last November, told me. I am incredibly disappointed. Kaufmans chief of staff at the time, Jeff Connaughton, was even more scathing toward the Obama Administration. Attorney General Eric Holder, he noted, said in his swearing-in that he would make it a priority. We thought we were making sure that they were doing the right thing, and they said all the right things in hearings, and nothing happened. I feel gamed by it. In the spring of 2010, a respected prosecutor from the Southern District named Raymond Lohier, who had been running Bhararas securities-fraud unit, was nominated for the position of an appeals-court judge on the Second Circuit. As part of the confirmation process, he met members of the Senate Judiciary Committee, and, according to Connaughton, Kaufman asked Lohier about his priorities at the Southern District, hoping to hear about financial-fraud cases. To Kaufmans dismay, Lohier

said that his top priority was cyber-security. Lohier also expressed satisfaction that the Southern District had passed on the Bear Stearns case that had ended in acquittals. (Bharara later told Kaufmans staff that these were not the views of his office.) Until now, Bharara has not spoken at length about the lack of financial-crisis prosecutions. When I asked him about it, his even manner gave way to pent-up annoyance at ideologues. He said, It bothers me a little bit when people suggest, without knowing anything, that were not even bothering to look. We have grand-jury secrecyI dont go out and announce my investigations. But I got to tell you something: where theres smoke, we take a look. Do you have any idea how much people want to bring the case if it exists? So what could be the reason we havent? Sometimes people say, Its because youre beholden to these guys, which doesnt make any sense. Do we look like were afraid to prosecute anyone? Bharara walked me through the decisions of a prosecutor, using the example of a taxpayer filing false returns. The question then becomes, did you have criminal intent that can be proven beyond a reasonable doubt? Two things, two hurdles, right? If a taxpayers accountant wires up and his client is caught saying on tape that he intends to cheat the Internal Revenue Service, thats an example of where you have the actual criminal intent and you have the evidence. At the other extreme, youre not going to have the evidence because you dont actually have the criminal intent, and it may look like the person was simply negligent. In between, there are other scenariosfor example, an accountant involved in a conspiracy wont flip. So now we know, if were omniscient, that a crime was committed, that the accountant was involved, that the taxpayer was involved. Maybe theres a lot of smokenow comes the proof. This guys going to testify, My accountants a smart guyI just relied on my accountant. The accountants going to say, I just relied on what he gave me, and everyone has plausible deniability. Thats a simple example of a way in which people can get away with even criminal activity when theyre making false certifications to the government. I asked Bharara about the Clayton Holdings documents, and the various reports by commissions and congressional committees suggesting that laws were broken during the mortgage bubble. While he refused to comment specifically on the findings of any report, he answered generally that the damning evidence of an investigation can look very different upon closer inspection and when it comes up against the counterevidence produced by a skilled defense in a criminal trial. Bharara seemed equally frustrated by his inability to clear the high bars set up by criminal law and by his critics inability to understand why they exist. At times, he got caught in a defensive flurry: People who did bad things, whether its criminal or otherwise, should get punished, there should be some comeuppance, right? he said. In any arc in a movie, when someone treated his or her spouse badly, you want to see that person pay for that later. Doesnt mean its a criminal act. There are lots of bad people out there who I cant charge criminally. Perhaps indictments couldnt be brought against top bank executives, but Bharara could take down Rajaratnam, and he went out of his way to give the case a high profile. It was his best chance to deter the pervasive corruption of Wall Street. One former prosecutor compared the financial crisis to international narcotics trafficking,

and insider trading to street-level drug dealing. Maybe a federal prosecutor couldnt nail Scarface, but he could always go after Stringer Bell. The trial of Raj Rajaratnam began on March 8, 2011, in the federal courthouse at 500 Pearl Street, in lower Manhattan. Prosecutors accused him of having made $63.8 million, in profits and averted losses, from insider trading. Forty-seven conspirators, in overlapping networks of insider trading, had already been charged, and twentythree of them had pleaded guilty. One of the last to do so was Danielle Chiesi. By then, she was on the anti-anxiety drug Cymbalta and seeing a psychiatrist. She sobbed, and told the court, I ruined a twenty-year career in my field that I truly love and I have been extremely devoted to. I brought disrepute to what is an honorable profession. And yet, in her way, Chiesi had been more honorable than the others: to the end, she refused to turn anyone else in. Within days of the arrests, Galleon had been shut down. Adam Smith, who had initially avoided arrest, started his own operation, managing the money of a Galleon investor. Perhaps because Smith could no longer achieve the expected results without the help of his performance-enhancing drug, he continued to use his edge, fully aware of the governments extensive wiretapping efforts. In December, 2010, Smith was caught in the dragnet. F.B.I. agents told him that unless he coperated he wouldnt see his young sons until they were grown. Frightened, and still calculating his best position, Smith agreed to record his calls and lure a former Galleon colleague into admitting knowledge of the Cisco-Starent tip. On the phone, the colleague, a trader named Ian Horowitz, wouldnt bite. I feel like that yourethe questions you are asking me are, like, you are tapping me on the phone trying to get me to say some things. Are you serious? Dude, come on, Smith said. Im telling you, one hundred per cent, thats not the case. Having failed at entrapment, Smith proceeded to testify against Rajaratnamthe boss whose approval he had worked so assiduously to win. After his arrest, Anil Kumar, who had been paid $2.1 million by Rajaratnam, confessed everything to his lawyer. He pleaded guilty on January 7, 2010, becoming the governments lead witness. Rajaratnam retained the defense attorney John Dowd, from the Washington law firm Akin Gump. The choice was surprising. Dowd, who had represented Senator John McCain in the Keating Five case and led Major League Baseballs investigation of Pete Roses gambling, wasnt a New York criminal defender, and, at seventy years old, he would be appearing at his last big trial. But Dowd was known for fighting rather than bargaining, and Rajaratnam liked that. In spite of the overwhelming evidence against him and the prospect of a twenty-five-year sentence, he never seemed to consider pleading guilty. Observers attributed this decision to the limited deal he could hope to make with prosecutors, but in fact Rajaratnam could have offered them someone who was, perhaps, even bigger than he was: Rajat Gupta, the former McKinsey head. Instead, the competitors code that had brought Rajaratnam to the height of his industry drove him to fight the case. Im a warrior, he once told Chiesi. They cant kill me. The prosecution was led by Jonathan Streeter, a ten-year veteran of the Southern District. Streeter, a Cleveland native, was unassuming, but, in an office of cautious

colleagues, the fact that he spoke his mind and owned a speedboat made him a bit of a character. His colleague Reed Brodsky, from Long Island, had slick black hair and an open face; he was ebullient and aggressiveone former colleague called him a trial animal. The third lawyer at the prosecution table was Andrew Michaelson, who had come over from the S.E.C. just after the wiretaps went up, in March, 2008, because he knew more about the Galleon case than anyone else. This was his first trial, but the case had already consumed almost five of his thirty-five years. On the first day of testimony, in the courtroom of Judge Richard J. Holwell, Anil Kumar, the McKinsey consultant, walked to the witness stand, where he stood for a moment, in a dark suit and tie, and bowed his head, his hands clasped before him. He looked like a prisoner waiting to be sentenced. Rajaratnam sat not with his lawyers but, rather, on a bench behind the defense table, the shiny wave of his hair almost touching his hunched shoulders. He was not as bulky as he looked in photographs. His lower lip jutted slightly, and he stared through rimless glasses with undisguised contempt at his former friend. As Streeter led Kumar through the story of his descent into crime, Kumars sombre penitence lifted and gave way to the didactic precision of a consultant. His memory was astounding, and his explanations to the jurors, whom he often addressed directly, were so smooth that they came across as almost smug. He gave crisp lectures on the difference between private-equity and hedge funds, and on the purpose of a board of directors. Kumar could not help contrasting, with a slight smile, his own interest in the long-term condition of American companies with Rajaratnams focus on short-term payoffs. Then a question about a breach of trust, or a lie, brought Kumar back to why he was in the courtroom, and his face sagged. Dowd, Rajaratnams attorney, tried his best to undo the damage. Bald and imposing, with a phlegmy voice, he bullied Kumar, accusing him of peddling a monstrous lie. At one point, taking Kumar through the forgeries that had been required to set up the Manju Das account, Dowd said, Your wife didnt know how adept you were at faking paperwork, did she? Kumar was clearly offended. Do you want an answer to that, sir? I sure do. Yes, my wife did not know how adept I was. For that moment, the criminal enjoyed moral superiority. In case the cross-examination had unsettled the jury, Streeter, in his redirect, took Kumar through the crucial events one more time. At the very beginning, Streeter said, you thought he was asking for legitimate information? Yes, sir. And, once he started paying you, he was asking you for confidential information? Thats correct, sir. And, once he was paying you, you started giving it to him? Yes, that is correct, sir. To my eternal regret. With that, Anil Kumar was excused by Judge Holwell. A verdict would not come for another eight weeks, but in a sense the trial was already over. Rajaratnams defense, which cost him as much as forty million dollars, according to the Wall Street Journal, was based on the argument that there was too much

information available in the marketplace for anything to be considered a secret. Moreover, Rajaratnam had too much information at his disposal for any single item to account for a given trade. Insider trading is defined as the transmission of material, nonpublic information in breach of a duty and for some benefit. The defense came close to arguing that, in the age of hedge funds and electronic communications, everything is public and nothing can be proved materialthat insider trading cannot exist. This view was most cogently expressed by Professor Gregg Jarrell, a professional expert witness and an economist at the University of Rochester, who came out of the University of Chicagos free-market school of thought. As the S.E.C.s chief economist in the mid-eighties, he had argued against stronger regulation of that eras leveraged buyouts. Rajaratnams spokesman, Jim McCarthy, of CounterPoint Strategies, who appeared in court every day with a carefully pressed pocket square that matched his tie, was a libertarian. For McCarthy, the wiretapping of Rajaratnam violated the Fourth Amendments prohibition against unreasonable search and seizure, and Preet Bhararas crusade against Galleon posed a threat to the legitimate activities of all hedge funds. Throughout the trial, John Dowd seemed like a great aging elephant, slow and ponderous but still capable of inflicting damage. He took extreme dislikes: to Kumar, whom he accused of being the biggest liar in the history of the Southern District federal courthouse; to Reed Brodsky, the prosecutor, whom he mocked as a crybaby; and to the reporters covering the trial. After a Wall Street Journal article suggested that the defense had been caught off guard by Brodskys cross-examination of one of its witnesses, Dowd shot off an e-mail to the reporter, Chad Bray:
This is the worst piece of whoring journalism I have read in a long time. How long are you going to suck Preets teat? All to hurt a decent, honest witness, Brodsky could not lay a glove on. It did not work. The jury was not impressed by the worst cross examination ever delivered. So in the style of Preet, try to smear him by working the sycophants in the back of the Courtroom. He learned from Schumer in the Senate. . . . Preet is scared shitless he is going to lose this case so he feeds his whores at the WSJ. What a disgrace for an otherwise great paper.

Rajaratnam never took the stand, allowing Kumar and other witnesses to narrate the story of Galleons fall. He sat silent and imperturbable on the bench behind the defense table for weeks while his voice echoed in the courtroom day after day, through the static of the wiretaps. (The government played forty-six tapes.) Alongside the shallow cockiness of Rengan Rajaratnam, the pathetic insecurities of Danielle Chiesi, and the sour knowingness of Anil Kumar, Raj Rajaratnamwho never raised his voice and never let his own vanity or his interlocutors neuroses distract him from the business of the dayseemed like the only sound character in the bunch. Yet his every word incriminated him. One day, in the eighth-floor cafeteria, I noticed Rajaratnam standing alone by a refrigerator case, contemplating the beverage choices. By unspoken agreement, reporters had refrained from approaching him, but it was a chance that seemed unlikely to come again. In court that day, he had been carrying a small paperback. I walked over and asked what he was reading. Rajaratnam recoiled. Why? I saw you had a book. I just wondered what it was. He smiled in a shy way that seemed self-protective. No, it was just some papers.

In a mere ten seconds, Rajaratnam had managed to lie. I didnt blame him. I was sorry that Id broken the invisible barrier. He was facing the end of his freedom, and it was a kind of cruelty to make him engage. During jury selection, Judge Holwell had passed out fifty-two questions for members of the jury pool. One question mentioned the financial crisis and went on, This case does not have anything to do with the recession or who is to blame for the financial problems we face. . . . Does the fact that the case involves the financial industry, Wall Street executives, hedge funds, mutual funds and the like, make it difficult for anyone to render a fair verdict? In spite of the Judges caveat, the catastrophic events of 2008 haunted the proceedings. All the wiretaps had been made that year, and so the jurors heard tapes of a hedge-fund manager running his business as one investment bank after another fell. In early October, with the government scrambling to rescue the banking system, Kumar called Rajaratnam:
Ah Raj, eBay is gonna do massive layoffs on Monday. Theyre gonna do what? Layoffs on Monday. O.K. Now the problem again, as usual, is will that mean everyone will say, shit, this company is in trouble . . . or will it be good news, right? Right. But the only thing I do know is, I, I tried to get the percentage, I couldnt.

While the ocean liner was sinking, these leaders of finance and industry were focussed on keeping their chips from sliding off the lower decks poker table. The wiretaps, which breached the normally soundproof walls of hedge funds, told a breathtaking tale of selfish, short-term thinking. According to the government, two of Rajaratnams most important conversations in 2008 occurred on his office phone, which wasnt tapped. On the afternoon of September 23rd, Rajat Gupta, the former head of McKinsey, joined members of the Goldman Sachs board on a conference call. They discussed Warren Buffetts proposed investment of five billion dollars in the investment bank, which had been imperilled by the crash. The conference call ended at 3:54 P.M. Sixteen seconds later, Gupta called Rajaratnams office. At 3:58, just two minutes before the markets closed, Rajaratnam gave an order to buy three hundred and fifty thousand shares of Goldman stock, worth forty-three million dollars. That night, the world learned of the Buffett investment. At the peak of the crisis, Gupta the Goldman board members first thought was to make sure that his investment partner Raj Rajaratnam could exploit the deal. A month later, the drill was repeated: as Goldman prepared to announce an unexpected quarterly loss, Gupta called Rajaratnam, and Rajaratnam sold all his Goldman stock before the announcement. Two cell-phone wiretaps caught Rajaratnam telling colleagues about his Goldman tips. A few days before the trial started, Gupta was charged with insider trading, in an S.E.C. civil suit. Prosecutors in New York werent pleasedthey had not yet filed criminal charges against Gupta, and civil suits complicate criminal cases. The failure to charge Gupta is a much discussed mystery, but the answer might be simple: the prosecutors, consumed with other cases and with preparation for the Rajaratnam trial, might not have realized what they had on Gupta until shortly before the proceedings began. Gupta, through a spokesman, denied any wrongdoing.

In order to introduce evidence about Rajaratnams Goldman trades, the government subpoenaed Lloyd Blankfein, Goldmans chairman and chief executive, who has come to represent the face of investment banking in an age of dubious and destructive practices. In turn, the defense subpoenaed records of government investigations of Goldman Sachs, intending to argue that Blankfein might be rewarded with softer treatment if he testified against Rajaratnam. Streeter informed Dowd that there was no current investigation of the company or of Blankfein. The government formally moved to preclude Blankfein from being cross-examined on whether Goldman Sachs bears responsibility for the 2008 financial crisis. On the morning of Blankfeins testimony, Dowd said in court, Its not something I intend to pursue. Neither the government nor Blankfein need have worried. His appearance in court on March 23rd was pure celebrity spectacle, and he entered the room smiling broadly. Preet Bharara, who had regularly attended the trial, was in court that day with four of his top deputies. Andrew Ross Sorkin, the Times reporter and the author of Too Big to Fail, showed up. Dowds cross-examination was marked by uncharacteristically gentle questioning and occasional banter; even the jurors seemed charmed. Under Michaelsons direct examination, Blankfein subtly rewrote the history of the financial crisisa phrase he never uttered. Instead, Blankfein spoke vaguely of riskiness and uncertainty. Asked what the collapse of Lehman Brothers meant for Goldman Sachs, Blankfein hedged: Some people outpeople might have drawnsome might not have, but some might have drawn the conclusion that their business was similar to our business. As for Buffetts five-billion-dollar investment in Goldman, Blankfein suggested that it had made an already attractive company even more so. According to Too Big to Fail, in September, 2008, Timothy Geithner, then the head of the New York Federal Reserve, wasnt sure that Goldman would survive, and its stock price was plummeting so fast that Blankfein was in a state of panic. But at the Galleon trial the prosecutors only goal was to get Blankfein to say that Rajat Gupta had violated the companys confidentiality rules. After a pause, Blankfein did. During the governments closing argument, Reed Brodsky finally spoke to what the jurors might have been feeling about all the Wall Street characters in the trial. You dont get on the board of Goldman Sachs without having accomplished a lot in your life and having a great reputation, Brodsky said, his voice rising as he paced before the jury box. But having a great reputation doesnt give you a free pass to violate the law. Nobody is above the law, no matter how good their reputation is. Later, Brodsky said, The ordinary, average investor doesnt have access to Mr. Gupta, and added, The laws against insider trading are designed to protect the investing public against cheating. The stock market is supposed to be an even playing field. The jury deliberations lasted twelve dayslonger than almost anyone expected. But on the morning of May 11th the jurors pronounced Rajaratnam guilty on all fourteen counts of securities fraud and conspiracy to commit securities fraud. The room fell silent. Trials are excruciatingly slow, but when the end comes, it comes with devastating speed. Nothing is as dramatic and sombre as when the foreperson of a jury of twelve Americans stands up and pronounces a verdict, Bharara later told me. Its a really stunning thing. Rajaratnam, seated for the first time with his lawyers at the defense table, kept his head steady. His stoicism was impressive. But when he

turned to leave the courtroom his eyes were filmy. Sentencing was scheduled for July 29th. The defense team vowed to appeal. Everybody is a scumbag, Rengan Rajaratnam had said. The files of the Galleon case are littered with the names of people implicated in insider tradingRengan Rajaratnam and Kamal Ahmed among themwho have not been charged and perhaps never will be charged, in some cases simply because the government lacks the resources to try them. Its everywhere you look, Bharara said. One obscure document from the case is the F.B.I.s writeup of an interview, on April 16, 2009, with a government informant named Richard Choo-Beng Lee, who had once worked for Rajaratnam and then at S.A.C. Capital, one of the largest hedge funds. Lee told the agents that S.A.C. covered up insider trading by having different portfolio managers buy and sell a certain stock. Entities like the Securities and Exchange Commission cannot detect trading irregularities at S.A.C. because S.A.C. trades around a position, the F.B.I.s writeup said. This is what Lee meant when Lee told Danielle Chiesi to trade around Chiesis A.M.D. position. Lee was attempting to tell Chiesi that S.A.C. trades around a position to make it harder for the S.E.C. to detect insider trading by S.A.C. Several former S.A.C. employees have pleaded guilty to charges of insider trading, but its founder, Steven A. Cohen, has not been charged with any crime. (A spokesman for S.A.C. said that Lees assertion is completely false and reflects a deep misunderstanding of S.A.C.s multi-portfolio-manager model.) In a recent speech in New York, Bharara surveyed the extensive rot of illegal activity on Wall Street and concluded, The bigger and better question may not be whether insider trading is rampant but whether corporate corruption in general is rampant; whether ethical bankruptcy is on the rise; whether corrupt business models are becoming more common. The Galleon case helps to answer these broader questions about the culture of the financial world: it illustrates how, over the past decade, cheating and self-dealing became the principal ways to succeed on Wall Street. Bhararas campaign of deterrence has had a particularly strong effect at hedge funds. Several New York attorneys told me that clients have called in a panic. There are a lot of nervous people out in the Hamptons, one criminal lawyer said. Stanley Sporkin, a retired judge who was regarded as one of the S.E.C.s most aggressive enforcement chiefs when he served, in the nineteen-seventies, told me, People on Wall Street are going to be coming to work with brown pants on. Its going to change the way they work for a long time. And yet, nearly three years after the financial crisis, Wall Street still relies on reckless practices to create wealth. An investment banker recently described the meltdown, with some chagrin, as a speed bump. The S.E.C. remains so starved of resources that its budget this year falls short of Raj Rajaratnams net worth at the time of his arrest. The agency lacks the technology to keep track of the enormous volume and lightning speed of algorithmic trades, like the ones that caused last Mays flash crash of the stock market. The market has become more of an exclusive gambling club for the very rich than a level playing field open to the ordinary investor. As for the larger financial system, in Washington, D.C., implementation of the Dodd-Frank regulatory reform law has been slowed, if not yet sabotaged, by lobbying on the part of the big banks and a general ebbing of will among politicians. Neil Barofsky, the former inspector general of TARP, said, Is Tim Geithner going to have

the political will to take on the size and interconnectivity of the largest banks? Nothing in his previous career suggests he would. Barofsky went on, It is a remarkable failure of our system that weve not addressed the fundamental problems that brought us into the financial crisis. And it is cynical or nave to imagine it wont happen again. Two weeks after Rajaratnam was found guilty, an annual conference of hedge funds, which doubled as a fundraiser for pediatric cancer, was held in midtown Manhattan. Investors paid up to four thousand dollars to hear the views of some of the countrys most famous fund managers. The outlook was upbeat; no one mentioned the recent events downtown at the federal courthouse. The speakers took turns touting their favorite stocks: Zhongpin, the Chinese pork processor; the Home Shopping Network; Tiffanys. A well-known fund manager, Michael Price, spoke up for financial stocks. We like the big banks, Price said. Goldman Sachs, if you have the stomach. The risk/rewards today in financials in particular are very attractive. Goldman stock, he said, is undervalued by at least a hundred dollars. These are tremendous businesses, honest people, he said. These are not people who are trying to rip people off. . . . They have a long track record of doing extremely well for their clients as well as themselves. He went on, In 2008, all of a sudden they didnt turn into criminals. There were some in the business who are no longer in the business, but its not Goldman Sachs.

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