Circle of Friends (34 page)

Cohen's supporters contend that SAC's traders are just better than Buffett and the markets. Brodsky indicated to Hollander that no one is that good. The only question was how to prove it.

CHAPTER 13

THE LUCKIEST MEN IN LAW ENFORCEMENT

O
n the morning of May 9, 2011, after the grueling two-month trial of Raj Rajaratnam for insider trading had gone to the jury to decide, Jon Streeter had a nightmare. The jury hadn't come back with its verdict now for almost two weeks, and Streeter woke up in a cold sweat after dreaming that the foreman had read the long-awaited verdict in one of the most high-profile insider cases ever, and Rajaratnam was acquitted on all fourteen counts.

This, despite the mountains of evidence—from wiretapped conversations of the Galleon chief discussing how he used confidential inside information to make money trading stocks, to cooperators explaining how he gamed the system, to trading records showing how he traded time and time again with absolutely pinpoint accuracy right before a major event, all of which allowed him to own homes around the world and fly in his own private jet. All this while Americans slogged through a nasty recession created by Wall Street risk takers, and the jury still believed Rajaratnam was an innocent man.

What was so scary about the dream was that the jury deliberations made it seem like it
could be true.
Streeter had gone into the case believing it was a slam dunk and a guilty verdict on all counts could be delivered in twenty-four hours. Streeter's ten-plus years as a prosecutor taught him how to read a jury and try to see the world as they saw it.Most of them were middle-income people, caught in the vortex of the financial crisis and the bad economy that followed, with daily struggles that the Rajaratnams of the world didn't have.

They were fair-minded people and the looks on their faces, Streeter determined, showed disgust for what Rajaratnam had done by cheating the system. During the trial Streeter hammered home that point, with the help of more compelling evidence than he ever had in any case during his career—maybe any prosecutor ever had in such a high-profile matter: dozens and dozens of wiretaps, plenty of cooperating witnesses, and hundreds of shady transactions.

Having been in front of so many juries, Streeter knew they demanded simplicity. He narrowed the list to the best stuff: forty-five telephone calls, three cooperators, and about twenty dubious transactions, including the most sensational of them all, the notorious Goldman Sachs trade. That's where Rajaratnam bought shares of Goldman stock just minutes after he received word from Goldman board member Rajat Gupta that Warren Buffett had extended a lifeline to the firm in the form of a big investment.

Goldman shares, of course, shot up when the news became public the next day, but that was after Rajaratnam bought Goldman stock and earned a quick $1.2 million. That doesn't count the roughly $3 million he saved a month later when he was alerted by Gupta that the firm was about to post its first loss as a public company, and he sold his shares.

Gupta had yet to be charged, and some in the media and others in academia opined that the feds had a difficult case against him since they couldn't find any direct payments in exchange for these well-timed tips. But Streeter had a different theory pointing to Gupta's guilt.

Gupta's compensation from Rajaratnam didn't come in the form of wads of cash or bags of lobsters. They exchanged something with more long-term value: access to each other's circle of friends.

Streeter and his team had come across a speech Gupta had given to the 2010 graduating class of the Indian School of Business, where Gupta gave the following advice, which he had adroitly followed during four decades at the highest levels of finance: “try to make other people successful. You will work in businesses; you will work with lots of people. Try to make them successful. The reason for that is simple. You know, no matter how good you are, how brilliant, how fantastic, by your own efforts you can only achieve so much. But if you work on making other people successful, they will in turn make you successful beyond your dreams. There will be lots of people working to make you successful. And that in the end is how I would see a successful career.”

It was all great stuff, and Streeter thought a jury would eat it up when it was Gupta's turn to face the music. But his more immediate concern was Rajaratnam and why the jury was taking so long putting this guy in jail.

Streeter believed he had assembled as good a team as he had ever had in a case to present. SEC investigator Andrew Michaelson came over to assist—not just for his courtroom acumen, but because he had been trailing Rajaratnam longer than anyone alive except perhaps Sanjay Wadhwa.

Reed Brodsky had a reputation for being a smart and able prosecutor, but also one who was so well versed in facts that at times he tended to get lost in mind-numbing details. But Brodsky kept with the program laid out by Streeter: Rajaratnam and those like him broke clear rules of conduct, he argued, and they were getting rich illegally while the average guy was following the rules and getting poor. Putting him in jail was necessary to make sure that the markets
are fair
, or, as Brodsky put it in his closing remarks to the jury: “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.”

People who know Streeter will attest that he comes across as the most self-confident man in the world, and yet his dream exposed a certain level of self-doubt, possibly about the crime of insider trading and how the government approached the Rajaratnam case.

Sure, Rajaratnam was guilty as charged, as was Gupta, a man Streeter believed had built a career by fostering relationships with powerful people, and then later finding ways to make money from those connections.

But in an era where a single Ponzi schemer like Madoff can steal billions from average people, who exactly were Rajaratnam's or Gupta's victims? Whoever was going to buy what Rajaratnam was selling, was going to buy it anyway. In a sense, they were victims of their own market calls. Rajaratnam just happened to be a more informed seller, albeit one with the advantage of illegal information.

Or maybe the jury had somehow taken a liking to Dowd, and bought his convoluted defense strategy in which Rajaratnam didn't take the stand to defend himself. Dowd asked the jury of eight men and four women to ignore the government's many witnesses because they were forced to say bad things about his client to save themselves from going to jail. He also asked them to believe that at bottom, Rajaratnam relied on his mosaic, rather than any piece of confidential, nonpublic data to make winning trades.

As the jury deliberated, it wasn't just the prosecutors who had a growing sense of unease, but people at the SEC as well. Wadhwa and his close-knit team had spent more time on the Galleon case than anyone in government; a loss would be devastating to them and their broader effort to clean up the markets. And yet it kept nagging at them that two of the best people in white-collar law enforcement had screwed up on the wiretap evidence—a mistake that Dowd had tried to exploit and might well exploit on appeal.

Maybe the jury was coming to that same conclusion, or maybe it saw Rajaratnam through the prism that Dowd had also attempted to construct; that he was a good businessman, albeit a well-connected one, who would never risk his fortune, well into the billions of dollars, for what the government said was just a few million dollars in dirty trades.

Such was the risk in Streeter's approach to the case, of course: Simplify and narrow the argument so he and Brodsky could tell a story about a man who brazenly cheated the system, even if that meant minimizing the raw number of dirty trades Rajaratnam had profited from. He thought it would work going into the case, but now he wasn't so certain.

“I'm starting to believe the jury didn't believe me,” Streeter lamented one afternoon, as he told Reed Brodsky about the bad dream of how a case that should have been a layup was actually lost.

What scared him even more was Brodsky's response. He was worried as well; in fact, Brodsky said that he had just had the very same bad dream.

R
aj Rajaratnam once told a reporter for
Newsweek
that he had been sitting at home in early 2007 when he received a telephone call from his sister Vandani, who was vacationing in Singapore. While Raj and his brother Rengan went to college and then launched careers on Wall Street, their sister had taken a different path. She was into yoga and believed in mysticism. That's why she was calling. A psychic had told her that a woman with a mole on her face, an Indian woman at that, was going to betray him.

At the time Rajaratnam didn't pay much attention to the remark. But not long after the day the FBI came knocking on his door in late 2009 and placed him under arrest for insider trading, Rajaratnam recalled that Roomy Khan had a mole on her face, and it made him seethe with anger.

No case is made with just one informant. All in all, the feds recorded a multitude of conversations Rajaratnam had had with as many as 130 people. Some were friends such as Rajiv Goel. The former Intel executive had also agreed to cooperate and help the feds wiretap the Galleon chief accepting and then trading on illegal insider tips.

One call from Goel underscored how the system worked, and worked against Rajaratnam. Goel began by asking Rajaratnam if he got his “message [that] you're a good man.”

Rajaratnam was initially skeptical, responding “that's highly suspicious. . . you don't just call and say ‘Hi, I'm just calling to say you're a good man' unless of course you want something,” adding with a laugh, “You're a good guy, too. When I see you I'll give you a kiss on the cheek.”

Goel, of course, did want something: more incriminating evidence for the government, which he received. He alerted Rajaratnam that “the Sprint thing [a reference to a transaction between Sprint and Intel] isn't happening in the short term” and that the company he worked for, Intel, was also having a confidential board meeting. Also, another matter of importance to Rajaratnam was “not happening today,” he said.

Rajaratnam responded, “Thank you,” and ended the call.

He should have ended his call earlier with Goel, with Anil Kumar, and of course with Roomy Khan. But he didn't; the allure of money was just too great to think twice that he might be getting set up by his circle of friends.

The six-week trial of Rajaratnam had some tense moments, of course, with Dowd trying to bully witnesses and an occasional reporter. The long jury deliberations led to some sleepless nights for Streeter and Brodsky.

But after Dowd failed to get the wiretaps thrown out, the case was pretty perfunctory, and in the end Streeter's and Brodsky's joint nightmare proved false. On May 11, 2011, the jury handed down a verdict that convicted Rajaratnam on all fourteen counts. The biggest insider trading case of all time (to date) was finished.

“I guess they believed us,” Streeter told Brodsky after getting word of the verdict. Brodsky just smiled. They felt like the luckiest men in law enforcement, for many reasons, but most of all because they didn't blow a case that had more good evidence against the accused than maybe any other in the history of insider trading.

There weren't any smiles in the Rajaratnam camp, but there was some fingerpointing at Dowd over whether his demeanor made a tough case even tougher.

Armed with just circumstantial evidence such as phone records and trading patterns, prosecutors always face a difficult challenge proving if someone intentionally traded on “material nonpublic information.” But Rajaratnam basically convicted himself. The wiretaps, once admitted, left little to be interpreted. Rajaratnam and his cohorts, such as Chiesi, were heard brazenly bragging about how they were getting their hands on confidential information and making lots of money trading on it.

To be fair, Dowd did have his moments. He managed to get Judge Holwell to criticize Kang and Goldberg for their sloppy handling of the wiretap application. He did a formidable job assembling evidence that the Justice Department was looking to put a man in jail for crimes that amounted to a mere $70 million in illegal profits—a scapegoat, so to speak, for the much bigger and yet to be prosecuted crimes of the financial crisis. Rajaratnam was worth billions, and Galleon managed $7 billion in customer money. So even if he traded on some dirty information here and there, it was small potatoes—immaterial to both his net worth and the overall size of his fund.

But Dowd's tough-guy tactics never caught traction—and a few of his stunts became a sideshow that made Rajaratnam's case appear even more desperate than it already was, including one where Dowd emailed a reporter he thought provided biased coverage and asked, “How long are you going to sucks [sic] Preet's teat,” in a reference to the now-famous Manhattan U.S. attorney.

He fired his well-connected PR spinner, George Sard, for someone more to his liking, the attack-dog flack named Jim McCarthy, who, along with Dowd, went on the offensive against the government's leak machine. Dowd wrote to the Obama administration's Attorney General Eric Holder (and Bharara's boss) to complain about a “continuing pattern of unconstitutional conduct” by attorneys and others representing the three agencies involved in the Galleon problem—Bharara's Manhattan U.S. attorney's office, the FBI, and the SEC.

His central message was that the leaks of stories and the government's use of the press had violated Rajaratnam's civil rights to a “fair and impartial” jury trial.

McCarthy, who had a long record of sparring with reporters for their use of anonymous sources, went after the press, mainly the
Wall Street Journal
for running stories based on anonymous tips. Both Dowd and McCarthy made some good points about the leaking: in a way it was the government's form of insider trading. The leaks against Rajaratnam would allow the FBI and Bharara's prosecutors to benefit by controlling the public debate about the size and scope of the investigation and the guilt of the accused. And some of the leaks were sickeningly obvious: Reporters somehow knew when people would be getting arrested so they could take pictures of the FBI at work in a timely fashion. Both witnesses and targets were outed.