Preet Bharara, the top federal prosecutor in Manhattan whose office has sent inside traders and terrorists to prison, told attendees at a hedge fund conference that prosecutions foster confidence in the market.
“If you have open and aggressive and fair and proper and proven cases that you bring, and you show that in the kinds of cases that we’ve brought, that’s the kind of thing that over time gives people more confidence in the market,” Bharara said today at the annual Delivering Alpha Conference in New York sponsored by CNBC and Institutional Investor.
Bharara, previously Senator Charles Schumer’s chief counsel on the Senate Judiciary Committee, became the U.S. Attorney for Manhattan in 2009.
In June, Bharara’s office won the conviction of former Goldman Sachs Group Inc. Director Rajat Gupta for passing inside tips to Galleon Group LLC co-founder Raj Rajaratnam. Last year, prosecutors in his office persuaded a jury to convict Rajaratnam, who was sentenced to 11 years in prison.
Since August 2009, at least 70 people have been charged and at least 65 have been convicted in the largest insider-trading prosecution in U.S. history, Bharara’s office said.
The Federal Bureau of Investigation in New York rattled the hedge fund community in late 2010 when agents executed search warrants on at least four investment firms as part of a U.S. crackdown on insider trading at hedge funds involving managers, analysts, technology company employees and expert-networking consultants.
Bharara said today that the evidence at trial has shown there was a “culture” at some businesses to subvert the law. He said many defendants developed multiple sources of illegal inside information to maximize their returns.
“People spend a lot of time thinking about the bottom line,” Bharara said. “They sometimes forget about the culture within a firm. There is a penchant in too many institutions of people wanting to come as close to the line as possible.”
Jim Cramer, a CNBC-TV program host, asked Bharara if prosecutions can have a negative effect on a business, citing the demise of Arthur Anderson LLP after the accounting firm, once the fifth-largest in the U.S., was indicted over its handling of audits of energy trader Enron Corp.
Bharara said his office doesn’t shy away from bringing cases against large corporations and banks and instead follows the evidence where it leads them.
Arthur Andersen, Enron’s outside auditor, was convicted by a federal jury in 2002 of obstructing an investigation into Enron’s collapse. The U.S. Supreme Court overturned that verdict in 2005.
“No institution is too big to prosecute,” Bharara said. “That insider trading was rampant was proven by the number of cases we’ve brought.”
While the prosecutor said that’s “disheartening,” he added that “people need to believe that the markets are fair and that the rules apply to everyone.”
The audience at today’s speech included fund managers and analysts. Other speakers included KKR & Co. co-founder Henry Kravis and former Treasury Secretary Hank Paulson.
Bharara offered fund managers in the audience a few lighthearted remarks, quipping, “I was told there would be a lot of people from the hedge fund industry here. I didn’t realize just how many. I apologize in advance that I don’t have enough subpoenas for all of you.”
He then deadpanned, “Obviously I’m kidding; I do have enough.”
Bharara’s office also has successfully prosecuted Somali pirates, al-Qaeda operatives and Faisal Shahzad, who pleaded guilty to driving a bomb-laden car into New York’s Times Square in 2010. Shahzad was sentenced to life in prison.