The Preet Bharara Interview
Every week, we work hard to create original and interesting content for you. This week we are borrowing it. Only because he’s a man everybody wants to hear from and he rarely does interviews. So when my CNBC US colleague Jim Cramer bagged an interview with him, I knew I had to share it with you. Here is the giant slayer, the Sheriff of Wall Street, the Public Prosecutor with a funny bone – Preet Bharara
Cramer: 65 and 66 is your record. I do not know of anyone who has had that kind of record - what percentage of the people in this room, besides you and I, are wearing a wire?
Bharara: That is your first question?
Bharara: Okay. Could I just to take a second to say it is great to be here - to say that it is really interesting, because I have never been interviewed by somebody – you are probably the only person in the country who is more caffeinated than I am. Let me also say that I know that you told me there were going to be a lot of people here from the hedge fund industry and other folks. I did not quite appreciate how many people, so I just want to apologize in advance that I do not have enough subpoenas for all of you. Obviously, I am kidding. I do have enough. What was your question again?
Cramer: How prevalent is it, insider trading, that we can even make a joke that there are - I mean think about it, you are making a joke about subpoenas and the answer is you have to have a lot of them because it certainly is much more systemic than we ever thought.
Bharara: Look, when we began looking at securities fraud cases in particular, insider trading cases, which were being looked at, a lot of the cases that we brought, the investigations began with the FBI and the SEC and prosecutors at my office before I got there three years ago, and we continued many of them and began many new ones.
I think about a year and a half ago, I made it a point to say that, given everything we had seen and given how casual people were- based on the evidence that we had seen and how arrogant some people seem to be acting- based on the evidence that we had seen, that it was rampant.
I think that was proven by the number of cases that we brought. And just to be clear, we brought 71 cases, and we have 65 convictions, and six are still pending. It is disheartening to have the level of insider trading that we have now proven beyond a reasonable doubt in dozens and dozens of cases, for a lot of reasons. Because I think people need to believe that the markets are fair and the same rules apply to everyone. And every time you have a case of insider trading that is proven beyond a reasonable doubt, you are showing that people's confidence in that belief is misplaced. It is especially disheartening, given the variety of cases that not only have been brought by my office, but other U.S. Attorney's offices around the country, that it is not limited to one industry; it is not limited to one type of person; it is not limited to one area of geography. You have it in the pharmaceutical industry, you have it in the hedge fund industry, you have it in the technology industry, you have it in the healthcare industry. And when you see the kind of insider trading cases that we have been bringing off late, which is a little bit different from the kind of classic insider trading cases that you have seen before where they were one-offs, you get concerned about culture, not only at trading entities, but also at companies.
Because what we have shown in cases that have been developed and proven in court, that there are literally people who are developing networks of sources, so that if they do not get the information from one source at a particular technology company, they might get it from another source. And if they can not get it from that source, they have a stable of other sources from sometimes places that are called "expert networks." So the problem and the concern you have about culture and about this problem, it is far beyond the fact of a single insider trading case or act, because we are bringing in individual cases, cases against individuals, multiple-count prosecutions. I think in the old days you would not quite see that level of pervasiveness.
Cramer: Why in the heck should we ever buy a stock again? I listened to what you just said. I have read your cases, I have read your speeches. I do not want to buy a stock, because I got a feeling that someone knows more than I do. And I do my homework, I try really, really hard on the show. It doesn't matter. You are telling me about a world where someone has it a day before I do.
Bharara: I do not think you are allowed to buy a stock.
Bharara: Look, part of our job is in exposing these cases and showing that we can have a deterrent effect is to bring people's level of confidence in the market. I was once asked at a forum, something like this, except there were no screens, “You know isn’t it the case, Preet, that these cases you are bringing are undermining people's confidence in the market?” I said that is an odd question, because I think it is the conduct that we are uncovering is what should be bringing people's confidence back. And I think if you have open and aggressive and fair and proper and proved cases that you bring, and you show that you are having a deterrent effect, which I believe we are having, although it is impossible to measure, I think that is the thing that over time gives people more confidence and tells people they are going to get the same fair shake as everybody else.
Cramer: As someone who tried and failed to get a job in your office under Rudy Giuliani, because I did not have the grades, Harvard law, did not matter, they turned me down, I am continually amazed how business people believe that the U.S. Attorney's office is somehow the repository of people who could not get a good job in private practice, and they do not fear you because they think you are not sophisticated enough to spot their strategies.
Bharara: Do these people actually say that? Look, the kind of people who come to my office are - and I am blessed to inherit a tradition of excellence in the office, I mean this is the same office whose heads included former Secretaries of State and people who ran for governor and people whose names are endowed on law school buildings, some of the smartest and most integrity filled lawyers and prosecutors that the country has ever seen.
And I do not think that they are a second tier to anybody. And I have also seen very, very many people who are incredibly privileged and incredibly smart in the financial sector and other sectors, quite frankly, and lawyers as well who are now sitting in jail cells because they thought they were too smart for public servants who engage in law enforcement.
But the other thing I will say about your question is, it is true that some people in our office do not have a business background, and we appreciate that. In the same way, that there are members of boards of directors who do not have subject matter expertise about companies that they are supposed to be overseeing and monitoring. And the same is true when you read about CEOs going from one industry to another industry. But we take great care at all times to make sure that we understand the facts. We have a lot of discussion with Counsels for companies. I have sat in the library at my office, in the conference rooms of my office, on a number of occasions when we are talking about the state of play with respect to a business organization, whether it is a financial institution or otherwise, and the CEO comes or the CFO comes and the General Counsel comes, and we have a discussion, and we have experts and consult with experts and we talk a lot about what the business model is. And if people say to us, "We do not understand what you are talking about; you do not understand what business is about," we say, "Well, prove us wrong.” Because you know what? Cheating is cheating, and lying is lying, and whether it is masked behind 17 pages of PowerPoint presentations about why this particular tax shelter is okay, at the end of the day I think our folks and our investigators and the FBI and the SEC are smart enough to see through them.
Cramer: Let us talk about business models. You brought it up. In this room, I am sure we have a lot of people who are worried. All day today, I have been listening to all of Delivering Alpha and it has been fabulous. I hear people worried so much about fiscal deficit, worried what it could do to their firm. They worry about what the breakup of the euro could mean. They worry about the collapse of the Italian bond market. But there is a systemic risk that they seem to be not worried about, which is the franchise risk of you rolling that grenade into their office. Why do not they put it in there along with the euro and the fiscal?
Bharara: So, I think you are right. I am agreeing with you a lot today. I spent some time not only talking to groups like this, but going to business schools and talking to boards of directors and not just talking to lawyers and securities lawyers about this very issue; that people spent a lot of time thinking about external things, they spend a lot of time thinking about the bottom line, as they should, and they spend a lot of time thinking about the business model, and I think they sometimes forget about culture within a firm.
Culture is important, not just in a U.S. Attorney's office, not just in government, not just in Congress, not just at a school, at an institution, it is also important at a business organization and, in particular at financial institutions. I am shocked and amazed at how few people think about that. I mean you have a conference, and it is terrific, called Delivering Alpha. But I wonder and worry sometimes, based on my conversations with actual business people, not sitting behind my desk reviewing indictments that others have written, but conversations with people like you and others, that they are not spending enough time thinking about the kind of people that they are hiring, thinking about the culture that they are creating in their firm. The thing that happens to me a lot, and you and I talked about this a few minutes before we came out here, is a penchant in many, many places, not just in the business community, but in too many institutions, but we're here to talk about the business community, I think, of people wanting to come as close to the line as possible. And they think my job and the job that my corporate counsel should have should be to tell me how close to the line I can get so I can maximize my profit without going over the line. So I do not have to worry about the SEC or the FBI or Preet Bharara's office. The problem with that is it is a dangerous game to play.
I analogize it to a person who is trying to figure out the way to have as much to drink as possible at a bar, but not get pulled over for a DUI, not blow the DUI limit. I guess if you are really cleaver and you are really smart and you are good about body weights and you are good about figuring out what you have eaten and you are good about figuring out how much alcohol is in the drink, and you can do all that calculation in your head, and you are smarter than all the people in this room, I suppose you can do that for a while. But just think to yourself how long it is going to be before you blow the limit, before you are pulled over on the highway, and worse, before you kill someone on the highway.
I go to these business schools and these meetings and people - after making points like that, and I get a question that has often asked seriously, which kind of amazes me, and it goes something like this: Mr. Bharara, you talk about how important it is not to cross that line and be careful of that line between criminality and non-criminality. So my question to you is, how far from the line do you recommend that we stay? I say, you know, 3-1/2 feet is a good distance. It is obviously the wrong question, because if you are focused at every moment on where the line is and getting as close to the line as possible, maybe you won't be convicted of a crime. But what ends up happening is that it generates smoke and when smoke is generated, as happens in real life, firefighters show up. And firefighters, just like prosecutors in my office and other regulators, they are conditioned and they are trained to make sure that you do not do undue damage. But you have got to figure out whether or not there is a fire. And firefighters sometimes will go into a building to make sure they are saving lives and putting out the fire, and it turns out it was just smoke, but damage occurs to the building. And damage occurs, as I understand it, and as people in my office are sensitized to understanding it, to business organizations, even from the mere opening of an investigation. And we know that. The grenade analogy you mentioned before, just so people understand the context of that, is when I go to business groups and I talk to CEOs and members of boards of directors, I say: Look, you have to understand when you are assessing risk, when you are talking about what risk - at what cost you are delivering your alpha. You have to consider the risk, the catastrophic risk not just of a prosecution and a conviction, but of a mere investigation.
People understand in our office that the mere opening of investigation or discovery that we are investigating, whether it is a hedge fund or financial institution or any kind of business, can have a devastating collateral effect on the business even before there is a proven charge.
So on the one hand, we need to be very sensitive to that and make sure we are not doing anything undue and anything improper and that we are not over-reaching. But at the same time, we have a duty and obligation to uphold the law, because no one is above the law, and when we see things that may be going on, if we see smoke, we have an obligation to go and investigate. The correlator to that is, if you are a financial institution and you are sensitive to that kind of an investigation, and the mere opening of an investigation or the mere execution of a search warrant is such that it is going to ruin your business or cause people not to invest with you or cause creditors not to have anything to do with you or cause you reputational damage, then it is your obligation, if that is the kind of business you are in, to be that much more above board and that much farther away from the line as is possible.
Not only should the CFO think that, but everybody else in the company needs to think that also. It is not enough - I see over, over and over again, very smart people and very smart lawyers who are good and well-intentioned and have integrity and are ethical and they ask the wrong question. They say: How much time should we be spending on compliance issues? I do not know, as long as is required.
Somebody asked me once at the New York Stock Exchange, "Preet, what percentage of time should boards of directors be spending on ethical issues?" I almost fell off my chair. As much time as is required. If you are working - if you are a member of the board at a corrupt company and you have reason to believe it is corrupt, then you should be spending a lot of time on it. If you think it is pretty honest and you have asked a lot of questions and satisfied yourself that they had a plan in place and it is an honest place and everybody understands that integrity is important and honesty is important and candor is important and whistle blowers will be taken seriously and things will be investigated, then you can spend less time on it.
The other example I give, no business person would think to ask and think it would be an intelligent question to ask – I am getting a little bit out of my wheelhouse here - would think that it was an intelligent question to ask how much time should RIM, the BlackBerry manufacturer, spend or have spent thinking about the iPhone as competition? As much time as it takes. If it is a business question, people understand that you have to tailor the amount of time you spend on an issue, depending on what the problem is and understanding what the catastrophic risk is. People seem to understand catastrophic - although not always, given the example I just mentioned - seem to understand what catastrophic risk is as a business matter. But boards of directors and CEOs and CFOs and general counsels and outside counsels need to think seriously about the kinds of things that can happen to a company if they do not take seriously this issue of not just technical compliance, but really from within the marrow of the company, a culture of integrity and doing the best that you can.
Cramer: You talk about CEOs, CFO being on it, I know in your speeches you talk about notion of the team player and how some cultures are so rotten to be a team player, you basically have to break the rules, what happens if we put all this together and the CEO, CFO, board of directors have a team player attitude and it is at an institution that is too big to fail?
Bharara: I do not know about what you mean by too big to fail- you are talking about whether or not it should be the case that prosecutors ever deemed some institutions too big to prosecute. As a general principal manner, it is my view and I think it is Justice Department’s view that no institution is too big to prosecute. There are guidelines that every prosecutor is required to follow and fact is you are required to consider, not just because of written guidelines, but because our principal job is to make sure that we are serving the cause of justice and there are situations in which collateral damage is so severe and so many people could lose their jobs and so many people could lose their money in terms of investments and so many people would be out of a customer base would be destroyed. There are lots of factors you are required to consider and prosecutors do but I do not think it should ever be said that any company or corporate institution is too big to prosecute because you set in place a tremendous more hazard that causes I think more corruption than you have in the first place. So I do not think you will find anybody saying there is anybody too big to prosecute but there are particular circumstances in which you take the consequences of a prosecution and I think that is only appropriate, fair and just.
Cramer: You are going after some pretty tough types. You got mob types, cartel members, violent criminals. How do the white collar violators stack up in terms of when your people serve them at their home? Do they come down in their pajamas in 6 a.m. and they see your crowd and do they react like tough guys?
Bharara: Not the most tough as you. Typically when agents go and arrest members of violent gangs or organized crime figures from one of the La Cosa Nostra families, they don’t faint, the same is not true of white collar offenders and I am not just telling that as a sort of an interesting anecdote and something that you know about such people. Part of a prosecutor’s job is to make sure that we are not only holding people accountable and we are not only bringing money back to victims who may have been victimized, but also they were having an effect on the rest of the industry and were having the turn effect on the rest of the population that might be considering engaging in crime or is engaging in and you want to get them to stop. I had been present for some of the meetings that’s been going on today and I hear a lot of people talking about risk and people talking about how you assess risk and people talking about computational models and methods and I will tell you the difference between white collar criminals and other criminals is often white collar criminals are supposed to be people who understand risk and people who understand cost benefit analysis and often they went to premier business schools and so part of our job in return is I think more easily achieved in some ways with white collar criminals who understand if you make them understand it and if you show them the consequences of bad conduct and you show them that you are engaged in enforcement and you don’t get a free pass and no one is above the law. Over time rational people who have gone to business schools and understand quantitative models will come to the inevitable conclusion that I shouldn't commit that crime, because not only will there just be a financial penalty to pay, I may have to disgorge my profits but my liberty could be taken away from me and that’s part of the message that I think we want to send to people who are thinking about committing that crime.
But even more important than that if I can continue, when I go to these business schools and I talk to business groups and I will say the same thing to you folks- the vast majority of people at any institution, whether it’s a government institution or a private equity firm or a hedge fund or an expert network company, all these places are overwhelmingly occupied by people who are honest and ethical and want to do the right thing and yet at all these places you find bad conduct taking place and conduct that’s so bad that husbands and wives and brothers and people who rely on them and care about them are hold off to jail, you know why that is? A- it’s because they committed a criminal misconduct, but also every single time you see it’s because other people, these good people that I am talking about, the overwhelming majority of good people didn’t do anything when they saw something funny. When they thought there was a hint of someone cooking the books, when they thought there was a hint of somebody getting an outside tip from somebody that they weren’t supposed to get, when they thought there was an hint of somebody whose returns were little too good- all of these frauds were known or suspected by people virtually every single one of them was known and suspected by somebody who is smart, intelligent, wants to do the right thing and didn't. So the concern you have, I think, in financial institutions and in a lots of places and not to be too dramatic- you worry about having many pain states throughout industry where people knew that something funny was going on and I am not equating those things at all, but people knew something was on and they didn’t say anything. So part of the goal for people like me coming out and talking to people like you and going to business schools and talking to those kids who are going to be leaders of capitalism around the world for generations to come is to get them to understand that if they are in a place and they think something funny is going on, they have to understand what the risk is and they have to screw up the courage somehow to elevate it to somebody and do something about it, because at the end of the day it’s not worth the failure. I have seen institutions fail, hedge funds have gone under and people will sometimes complain and say we have an overreaching prosecutor. The fault lies with the folks at the place who didn’t do enough to fair it out and we have a case after case after case. We have a case recently that we did that’s outside of the financial industry where we had a contracting company who admitted that its company was responsible for defrauding the City of New York to the tune of USD 0.5 billion. There was a whistleblower complaint in that case that a lot of people knew about and was not investigated properly and they admitted when they ultimately handed over every penny of that fraud back to the people of City of New York that they did not investigate it properly. So part of our goal, I hope people understand, is not just to hold people in handcuffs, because we can’t police every transaction, we can’t police every trade, we can’t police every document that gets prepared at a firm. What we can do it show that we are serious, show that we mean business and show that there is a role for very, very smart people who are throughout the business community to do something about the bad guys that they see before it becomes too bad.
Cramer: Alright. Let’s go with this mini pain state analogy. One of the reasons why I think the Joe Paterno or his team got away was because he was Joe Paterno for heaven’s sake. He was the top. He was the guy who cared more about people graduating. He gave money to the libraries. When I hear a name like Gupta or Raj, I just have to tell you if I were in your shoes, I would have said, ‘No way! Gupta didn’t need to do that. No way! Raj is a billionaire, that it can’t be true? Don’t you have a factor and you say, ‘No, it is just not possible, not that guy?
Bharara: That’s what defence lawyers say. It is a very common defence. There are millionaires who shoplift. There are people who do really stupid things. If every one was brilliant, then we would be out of business. As in your question, ‘Why do people do these things?’ I don’t know, I actually don’t get it sometimes. I am not a psychologist, I am not a shrink, I am not a life coach.
Cramer: I wouldn’t take you as a life coach….
Bharara: Some people commit crime in white collar areas because they are bad people. They don’t know right from wrong. Some people commit crime because they made a mistake and they got ii over their heads. Some people commit crime because there is a lot of pressure to meet deadlines. Some people are arrogant- they think they are never going to get caught. Some people have done their calculation and they figure it’s a worth a risk. There are lots of reasons for that, but I am going to tell you, I don’t know why. Somebody who has a billion dollars wants to risk his liberty and be taken away from his or her family for years and years for an extra million bucks. I think that’s an important thing to be telling, in particular, young people who are coming into firms. I have a particular concern having gone to business schools, about young people who come into these industries where the job market is not great, the economy is not great and I literally have really young, smart earnest, people from Harvard Business School, from Wharton come up to me later and sometimes clearly speaking about an event that they personally experienced and say here I am at this company. I am a summer person there and I was there for a couple of years and I saw something that made me uncomfortable. What am I supposed to do? It’s a tough market. I don’t want to be a troublemaker and you have to figure out a way to embrace people like that saying something about it and I say you got to elevate it because if you don’t elevate it, when the company goes down even though you were honest, you averted your eyes, so you are responsible for it and maybe more directly and importantly for your own purposes you are going to be out of the job and you are going to be associated with a tainted place. There are lots and lots of good people at these institutions that have gone under where we prosecuted some of the bad apples out of them and those people, they can’t get jobs now I am guessing because they are associated with a bad place. So I think sometimes people need to think about the message that they are sending to people who are coming into these financial institutions and explain to them that you know integrity does matter, profit is important, delivering the alpha is also important, but part of that has to be a message to everybody who comes into the firm that lack of integrity and cheating is not going to be tolerated. It’s not something that you just mention once a year when you send around the compliance program and it’s very thick so people will be impressed by that. It’s got to be more than that.
Cramer: In March of this year at SIFMA you said, we should be fearless in bringing righteous cases; no matter the public outcry. We should be fearless also in always walking away from cases no matter the public outcry in the opposite direction. There is a great public outcry about what happened with the mortgage crisis. Your record 65 cases won, 6 pending. Should it be 65 won, 15 not won because you went after some cases that were just too hard but you couldn’t win, but you tried because you knew that there was something beyond the public outcry that was worth going after?
Bharara: We have only one standard and the standard is if we have a proof beyond a reasonable doubt to charge an individual or group of individuals or an institution with a crime and justice is served by bringing that case. We bring the case. Some of those 65 if we are going to stick with it, the entire trading cases were really hard. Some of those cases were not so hard. There was overwhelming evidence. When you have cases where you have people caught on a wire talking about destroying flash drives on which are contained inside information at 1 o’clock in the morning and are chasing garbage truck to get rid of that evidence; that’s compelling stuff. But we bring the easy cases, or we bring hard cases- whether or not they are easy or hard- we bring cases we think are just to bring. That’s not only true in the insider trading areas which everybody loves to talk about. It’s true in all the securities fraud cases we bring. It’s true in the public corruption cases we bring. It’s true in the gang cases we bring. It’s true in the terrorism cases we bring and everything we do that was the thing we think about. Anybody ultimately over time in an overall prosecutor’s office who has a perfect win-loss record is not something to be admired because it’s mean; you are only bringing in the easy cases and we don’t do that. We have a good track record on this particular category of cases you are talking about. We could lose some- that doesn't mean we are going to stop. People before we had a verdict in a major case last year were saying things in advance of the verdict about what is going to happen to the insider trading prosecution program. What’s the Attorney’s office going to do, what’s the FBI going to do if they lose that case? We could have lost the case. The answer was going to be, the same damn thing we have been doing up until that point, because it’s not about winning or losing that case, because it is a difficult thing to convict somebody and it should be a difficult thing to convict somebody, to persuade 12, I don’t know how many of you ever tried a case. I am guessing few or none, it is a hard thing to convince 12 people to order the same kind of pizza, much less to convince 12 ordinary Americans to sit there in judgement of another human being and know that if you convict that person, they are going to go to jail. In the recent case, you mentioned a name earlier, in the recent case there were newspaper articles about how the jury that convicted that person, one of your former peers was crying at the moment of the verdict. That tells me that the justice system is working, that people think that their responsibility is incredibly important and full of gravity which it is and tells you also and I hope the message from that verdict and from other verdicts is there is satisfaction when justice is done and when crime is prosecuted and victims are vindicated, but there is also an amount of sadness there, because it is a tragedy. When somebody who is incredibly accomplished and incredibly privileged and has done so much and perhaps even done a lot of good is stupid enough or arrogant enough to commit serious enough crimes that a jury has to deliberate over evidence and quickly reach a verdict that causes them to weep in the rendering of that verdict because you decided to commit a crime and you thought you weren’t going to get caught.
Cramer: Last week’s journal, clock is ticking on crisis charges about to get to the statute of limitations. Papers says that there is going to be some cases brought in next few weeks literally because it’s almost done. Are we going to hear? I am not asking for names. Are there some cases that are about to be brought that I will pick up the paper in the next two weeks and see your name in it and see some big guns being taken down?
Bharara: I am just going to repeat what I said before. When there is evidence and we have the evidence and it’s a righteous case and it’s in the service of justice to bring a case we will bring a case. So stay tuned.