Goldman New Cop Is FBI Agent Who Put Away Madoff, Rajaratnam

Raj Rajaratnam
Raj Rajaratnam, the Galleon Group LLC co-founder accused of insider trading. Photographer: Peter Foley/Bloomberg

The FBI agent who oversaw the Bernard Madoff investigation and helped pioneer the use of wiretaps that yielded dozens of insider-trading convictions is now working for Goldman Sachs Group Inc.

Patrick Carroll, 50, joined the bank after almost a quarter century with the Federal Bureau of Investigation, the latest in a line of former feds who’ve moved to Wall Street firms. He is a vice president in Goldman Sachs’s compliance, surveillance and strategy group, part of a division overseen by Alan Cohen, global head of compliance.

While Carroll’s FBI career spanned bank robberies and organized crime, he’s best known for being at the investigative center of securities-fraud cases ranging from Madoff and billionaire fund manager Raj Rajaratnam to a $554 million Ponzi scheme used to buy expensive teddy bears.

His appointment comes as regulators and prosecutors are tightening scrutiny of financial institutions, sometimes charging banks as corporate defendants and imposing billions of dollars in fines following guilty pleas.

“It’s really about how Goldman is reacting to the tidal wave of litigation that now seems to be part of the ongoing government toolkit for regulating banks,” said Roy Smith, a professor of finance at New York University’s Stern School of Business and a former Goldman Sachs partner. “It can help to have some people who know how government prosecutors and investigators think, some guy who has the mindset of an alligator.”

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the scope of Carroll’s work.

Joe Friday

A native New Yorker with a Joe Friday “just the facts” style, Carroll became an agent in 1991, after stints at Lehman Brothers and Merrill Lynch, in a bureau push to hire people with financial backgrounds following the savings-and-loan crisis. He got Series 7 and Series 63 licenses soon after graduating from Fordham University.

He rose to become supervisor of one of the New York FBI’s two squads investigating white-collar crimes, eventually overseeing as many as 25 agents.

In 2003 the FBI unveiled Carroll’s 18-month undercover securities-fraud case called “Operation Wooden Nickel.” It borrowed law enforcement techniques commonly used against drug cartels and mobsters.

To unearth fraud in the foreign currency markets, he sent an undercover agent posing as a corrupt trader to work in an exchange and used cooperating witnesses to record brokers in boiler rooms, banks and interbank forex brokerages. Almost 50 traders were arrested for cheating thousands of investors in rigged trades. At least 40 were convicted.

Hedge Funds

“Here you have professional criminals operating at major, well-respected financial institutions,” Carroll said in an interview. “That was kind of an ‘aha’ moment, that we could do it, that these allegations are correct and that we were also capable of getting to it.”

The strategy would later be applied to hedge funds, which proved tough to infiltrate as rogue traders committed crimes with friends or business school classmates, he said.

Small-time traders “would always complain to us, ‘Why aren’t you doing anything about the bigger guys?’” said Carroll.

The prosecution of Galleon Group LLC co-founder Rajaratnam was the first significant use of wiretaps in a securities-fraud case. The evidence was essential, said Richard Holwell, the former judge who presided over the trial and upheld the legality of the intercepts.

Controversial Wiretaps

“They provide a chance for the jury to hear it as it happens,” said Holwell, of Holwell Shuster & Goldberg LLP. “And there is something else -- maybe if there is someone out there intent on breaking the law, they will now be more careful in light of the fact that their phone may be tapped.”

To date, more than 80 people have been convicted as part of the insider-trading initiative carried out by the Manhattan U.S. Attorney, the FBI and regulators. Wiretaps played a role in many, and helped persuade at least a dozen people to plead guilty and cooperate after they were confronted with their recorded conversations.

The wiretaps have been controversial. While a federal appeals court rejected Rajaratnam’s argument that the intercepts weren’t properly authorized, two federal judges criticized their use. One said he was troubled by the FBI’s failure to stop listening to unrelated calls between a trader and his wife. The couple’s suit against 16 agents was dismissed May 15 by an appeals court.

Madoff Scheme

Carroll’s squad also had to deal with Ponzi schemes exposed in the wake of the 2008 financial crisis, including Madoff’s. When prosecutors needed to question and arrest Madoff, they called Carroll, said former prosecutor Bill Johnson. Madoff, who ran the biggest Ponzi scheme in history, is serving a 150-year prison term and 14 others were convicted.

The Ponzi schemes broken up by Carroll included one by two WG Trading Co. Fund managers convicted of swindling investors of $554 million. The U.S. found the managers used the funds to buy horse farms, cars and rare Steiff teddy bears. An auction of the stuffed toys later generated more than 1.1 million pounds ($1.69 million).

Goldman Hire

Carroll, who started at Goldman Sachs in April, isn’t the first FBI agent from New York to join the bank, said Peter Grupe, his former FBI supervisor.

Joseph Demarest, currently the FBI’s assistant director of cyber-investigations and a former head of the New York office’s international terrorism branch, also did a stint at Goldman Sachs in its Global Security unit before returning to the bureau, Grupe said.

“The financial sector is a natural place for former FBI special agents to continue to make a difference, as the corporate security and compliance fields require strong leaders with honed investigative skills,” Demarest said in a statement. “The FBI produces some of the most seasoned and successful leaders in America, who often continue to put their specialized skills to work in private industry following government service.”

Carroll says he already knew many people at Goldman Sachs, having worked with “their compliance for many years.” His leaving was motivated by a desire for a new challenge after 25 years at the FBI, he said.

Given the fate of former employers Lehman Brothers and Merrill Lynch, he added with a wry smile, “I haven’t told the FBI this, but every place I’ve left has crumbled.”

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