NEW YORK — Preet Bharara, the top federal prosecutor for Wall Street, says federal judges are now making it easier for financial executives to facilitate insider trading.
Bharara says New York’s top federal court has now provided “a roadmap” for people to legally dish inside information. In December, the 2nd Circuit Court of Appeals overturned convictions that Bharara secured against two hedge fund traders, a rare setback after his string of over 80 insider trading victories.
“It’s given a little bit of a roadmap to those people who know that information is inside information, know it’s material and non-public, and seek to have an unfair advantage over average investors,” Bharara says in an interview airing on msnbc Thursday.
His office is currently appealing the decision.
The ruling has wide implications not only on Wall Street, but across the nation. Judges have already applied the case to overturn convictions against other traders, and if the decision stands, some prosecutors say it will be harder to charge people who trade on secret information when no explicit benefits have been exchanged.
“There has to be some reason — something you get in exchange for that inside information,” Bharara says. “But it doesn’t have to be, you know, a check. It doesn’t have to be an automobile. It doesn’t have to be, you know, an envelope full of cash.”
Instead, he argues an insider can get “indirect” benefits for dishing valuable stock secrets.
“We think the court has been saying now that anybody who is, for example, a CEO of a company, who decides that he or she wants to give very, very valuable inside information to a son or a nephew or a daughter or a girlfriend — that so long as they didn’t expect, you know, a very substantial pecuniary gain back, they can do that,” Bharara warns. That kind of quid pro quo should also be illegal, he added.
“I think most people would agree, as a common sense matter, that’s not the way we should enforce our securities laws,” Bharara argues. The 2nd Circuit can decide to hear his appeal by convening all the judges on the court, a rare move, or it could reject the request without further hearings, leaving the Justice Department to decide whether to take the case to the Supreme Court.
From trading to meltdown
As U.S. Attorney for the Southern District of New York, Bharara has aggressively pursued insider trading cases, a track record that landed him on the cover of TIME magazine for “busting Wall Street.” But critics stress that he has not sent any executives to jail for the financial meltdown.
It’s a complaint that Bharara — and his boss Eric Holder — have spent years disputing. In the msnbc interview airing Thursday, Bharara strenuously objected to the notion that he or his prosecutors are afraid to pursue crimes from the meltdown.
“People say, ‘Are you concerned about going after powerful people, politicians, or, you know, hedge fund managers?’” Bharara recalls.
“I find that a little bit silly, because a lot of what we do — the bread and butter of what we do — is go after, you know, really, really violent criminals. People who kill witnesses. People who shoot children. People who try to bring buildings down and and try to destroy America,” he added, referencing his successful prosecutions against al Qaeda. “When you have those kinds of cases going on, you know, a guy in a suit with a lot of money doesn’t pose much of a threat to our psyche.”
Given all the investigations, I asked Bharara whether the lack of prosecutions for the financial meltdown has led him to conclude the crisis was a product of bad decisions, but not criminal decisions. Here is that exchange in full:
BHARARA: I think it’s a combination of things. I think there was criminal activity — we brought some of those cases. I think there were people who also committed acts that … we’ve been able to hold some of those people accountable, through civil mechanisms. And the Justice Department and other offices have done that, as well.
Just because someone is not criminally charged doesn’t mean necessarily that a crime wasn’t committed. Sometimes it’s the case that, you know, certain things happened and certain transactions happened and trades happened, that led up to the financial crisis, because people were being stupid. Sometimes it was a case that people were being reckless. Sometimes it was a case that people were being negligent. And in some instances, there was probably criminal activity. But you have to be able to prove that crimes took place. And often it’s the case that you can only do that if you have either someone who’s on the inside, who cooperates with the government and gives testimony. Or you have recordings. That’s one of the reasons we’ve been so successful in the insider trading cases, is that we were able to monitor those things as they were happening.
MELBER: But do people need to just “get over it” — the idea that bankers aren’t going to go to jail over the financial crisis?
BHARARA: I don’t know if there’s something that people need to get over or not. There’s an enormous amount of frustration — on the part of people, because they think that the economy went into the tank, because some people didn’t behave honorably. Now not behaving honorably doesn’t necessarily mean that prosecutors can bring criminal cases. But there’s a lot of frustration, you know? The frustration is shared by people like me and people like us in this office.
I mean, before we were prosecutors, we’re citizens, and we pay taxes also. And we have retirement accounts also. And we have bills to pay also. And so when the financial crisis hits, it hits people who work in government and prosecutors who are responsible for holding others accountable in the same way. But, you know, you can only do what the law allows you to do and what the evidence gives you.
While Bharara has repeatedly disclaimed any interest in politics, his high-profile cases against financial executives, corrupt politicians and terrorists have fed all kinds of political speculation. In legal and political circles, there is intense interest in Bharara’s relationship with his former boss, Chuck Schumer, and whether Bharara may ever run for office. (His predecessors from the U.S. Attorney’s office include prosecutors turned pols, like Rudy Giuliani.)
Bharara said he and Schumer are so busy, they have spoken “just a few times in the last five and a half years” — that was when President Obama appointed Bharara after Schumer’s recommendation. And as to the notion that there could be any link between Bharara’s cases and Schumer, Bharara was unequivocal.
“That’s ridiculous nonsense,” he says. “Anybody who knows me and knows him and knows how this office operates knows that we bring cases based on what the facts and the law are,” he says. “And we don’t care if you’re a Democrat or a Republican. We don’t care if you’re wealthy or impoverished. If you committed a crime and it’s a righteous case to bring, we bring it.”
When I asked whether Bharara might ever run for office, he objected to “the premise of the question,” saying he had no interest. When pressed on all the recent speculation, he added, “Look, I care about public service. I care about honest government. I mean, part of the reason that public corruption is a priority for us is for that reason that, you know, it’s dispiriting and discouraging when you have people who are supposed to be upholding their end of the bargain after a vote, when they don’t do it.” But he was firm on his role, which he says he does not plan to change.
“I’m a prosecutor. I’m a lawyer,” he says. “This is what I plan to do for a long time.”
This article is adapted from part two of Ari Melber’s MSNBC interview with Preet Bharara, airing 3 p.m. on Thursday, Feb. 12. Bharara spoke about political corruption, his disagreement with Gov. Cuomo and prison reform in part one, available here.