In October 2009 I was arrested and charged with insider trading. I chose to fight the charges against me because I was innocent. The prosecutors alleged that 0.01% of my trades between 2005 and 2009 were illegal.
I understood that in the US there is a 97% conviction rate (similar to China and Russia) and a punitive trial penalty for those who dare to go to trial. Empirical studies have shown that the trial penalty is just about double that handed to those who plead guilty. If a defendant agrees to become a cooperating witness, helping the government with testimony — irrespective of the truth — to convict another defendant, the co-operating witness gets a much-reduced sentence and in many cases just parole.
I understood the stakes. I chose to go to trial. Why? It’s a question I’ve since been asked hundreds of times. Why. Why jeopardize everything. Because to my core I believed I would get a fair hearing. And with a fair hearing and a rational exposition of the facts, the truth would have prevailed. Until my arrest I had the highest regard for the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI). I believed that most Americans felt that way in 2009. Since then of course, the American public has become jaded about the sanctity of these institutions with multiple examples of overreach and excess. Certain DOJ and FBI sections operate, each attempting to further its own agenda without regard for Constitutional checks and balances. The term “fake news,” the “Dark State” are now bandied about with almost wild abandon, humor, and satire. The public now assumes the existence of “fake news” alongside “authentic” news with little effort towards journalistic integrity. During the time of my arrest and trial, information from the media, DOJ, and FBI was absorbed as unquestioned Trust. While I still believe that the vast majority of those who work for the DOJ and the FBI are people of integrity, this book is an attempt to shed light on the corrupt few who act with impunity and destroy lives and families to further their career ambitions.
From the moment of my arrest, the narrative of my story was recast with a precise agenda, shaped to direct public attention away from the stark horror of the 2007-2008 financial crisis while promoting media idolatry of the publicity hungry and ambitious rookie US Attorney, Preet Bharara, who became a demi-God, the “Sheriff of Wall Street” riding into battle against myself, relentlessly personified as evil incarnate on the front pages of major newspapers around the world. Wanton disregard for the law, recognized by the judge at my trial, allowed a corrupt element within the FBI, Agent Kang, to falsify documents leading to my arrest and falsify testimony leading to my conviction. I faced prosecutorial misconduct at its finest. The overzealous media, feasting on a human story they could sell every day, also profoundly prejudiced any hope of gathering an impartial jury by the time of the trial. These three institutions, ostensibly guardians of the public interest, charged with impartiality and integrity, bore down in a concerted campaign to make me the face of the financial crisis. My arrest and subsequent trial, a two-year process, deflected attention from a glaring fact: Not one major banker was held accountable for the 2008 global meltdown. No arrests. No searing prosecution. No jail time.
In the midst of a financial crisis which brought a multi-trillion-dollar world economy to its knees, these three institutions, independently and collectively, targeted a tiny slice of the US financial industry, hedge funds; honed in on a single hedge fund, Galleon; isolated only me, its CEO, who had recently become one of the few immigrants on Wall Street to be identified as a billionaire; and built a fabulous and intricate tale of “sex, drugs, and rock and roll” to entertain the public and build their own reputations. Their two-year reality series was successful beyond measure.
Preet Bharara, the then-US attorney for the Southern District of New York, used my prosecution to launch an unprecedented press campaign to promote himself. Bharara ran roughshod over the truth, standard Department of Justice protocols, and the office’s own dignity in his extraordinary zeal to convict me. Time Magazine put Bharara on its cover, their headline proclaiming “this man is busting Wall-Street.” It was Preet’s finest moment. Bharara did not touch the real perpetrators of the 2008 financial crisis – Wall Street’s top bankers. In a rare moment of public acknowledgement, both Preet and the influential New York Magazine observed in 2014 that Bharara was almost sheepish about the insider cases — “they made our careers, but they (didn’t) change the world.”
Bharara’s impotent and poisoned approach to the non-prosecution of criminal activity on Wall Street — ranging from the mortgage bankers who precipitated the financial crisis (Goldman Sachs, Lehman Brothers), the money-laundering of drug cartels (HSBC), and the encouraging of tax evasion by US citizens (UBS, CSFB) — would become the defining legacy of his tenure. Each of these firms settled civil charges by paying billions of dollars in fines using shareholder money, but no single person was criminally charged or individually fined. Every one of the insider trader prosecutions was criminal. The towering hypocrisy remains startling.
The prosecution under Bharara’s watch advanced a theory of trading to prosecute me and several others which the second circuit appeals court subsequently overruled, criticizing it for “doctrine novelty.” Soon after my trial in May 2011, the then-SEC commissioner Mary Shapiro gloated that “the beauty of insider trading laws is the flexibility in interpreting them.” The lead prosecutor in my case, Jonathan Streeter said in December 2012, “Insider Trading cases are confusing to investment professionals.” He went on to add, “There is incredible confusion on what is illegal and it’s a real problem. The law is very complicated and the lines are a bit murky.” A US Attorney, the prosecution in my trial, and the head of the SEC, all acknowledged their reservations about a “murky” set of laws but had no “murky” reservations using them liberally in my case and at my trial.
The FBI agent overseeing my case Special Agent BJ Kang lied on his sworn affidavit to obtain wiretap authorization of my phone. Recognizing there had been government misconduct, Judge Richard Holwell who presided over my trial case, issued a searing criticism of the wiretap application used by Agent Kang, reprimanding him for “reckless disregard for the truth with respect to both probable cause and necessity.” The Judge went on to add that “false and misleading statements and omissions pervaded the affidavit (submitted by Special Agent Kang) so extensively that it was impossible for the authorizing judge to have the constitutionally required determination for the issuance of the wiretap…rather than provide a full and complete statement as required by the law, the wiretap affidavit made full and complete omissions and included literally false information.”
Kang did not stop at blowing through truth on paper. He menaced and threatened my family and employees with prosecution, frightened away crucial defense witnesses, and routinely leaked false information to the media churning up an unabated feeding frenzy that shredded me in the court of public opinion. Kang took his cues from the playbook of the publicly reviled former FBI director, J. Edgar Hoover. I was tried, convicted, and sentenced in the press even before I fully understood the charges against me. The atmosphere was so toxic that my lead counsel, veteran defense lawyer John Dowd said “the prejudicial publicity orchestrated by the USA was so palpable in the courtroom…It was the most toxic atmosphere of any case I ever tried.”
My defense team led by John Dowd, along with expert testimony from a former SEC legal counsel, repeatedly highlighted that all the information discussed in the wiretaps was already in the public domain. Every bit of information was in the public domain. It did not matter. No amount of truth could overcome the false testimony trained into the co-operating witnesses by Streeter, his team of prosecutors, and Bharara, who sat on the sidelines, waiting in eager anticipation for any opportunity for a press conference. Each of the cooperating witnesses had committed his own set of crimes, unrelated to Galleon. Yet each chose to testify against me as an opportunity to reduce their probable sentences. That they were perjuring themselves was irrelevant; the government coerced them into an immediate mandate to take me down. Even the government’s star witness, Anil Kumar, offered damning testimony under oath in my case only to recant the very same sworn testimony three years later during the trial of my brother. My brother was subsequently acquitted as a result of the revised and opposite version of Anil Kumar’s testimony. A few newspapers picked up on this gross disparity, but that was it. The fact of perjury had no consequence. The cycle was vicious. “Innocent until proven guilty,” the cornerstone philosophy of the American judicial system was proving to be a farce.
I was convicted by a jury, sentenced to 11 years in jail, and paid fines of over $150 million. The irony is that even in setting the fines, the prosecutors working in tandem with the media kept up the unceasing drumbeat of punishment for the financial crisis. Never mind that I did not personally make any money from the alleged trades. And never mind that not one single investor sued me. Galleon went through an orderly process of closing down the firm and returned all the funds with a gain of 22%. Not a single investor lost money. Most important to me, personally, was that not one single investor sued me.
In July 2019, I was released after serving 7.5 years of my 11-year sentence under the First Step Act. I wrote this book entirely in prison and by hand. I began by writing about an hour a day. Soon that increased to two hours. Then three. I am choosing to publish the book for two specific reasons: First, I want my peers, professionals who understand the nuances of managing money, to hear the facts of my case. I want them to judge me. It is my assertion that I was entrapped, framed, unlawfully wiretapped, surveilled, and then made to endure a brutal and very public media lynching.
Secondly and more importantly, I want to begin a public discussion by creating awareness of how certain corrupt prosecutors and FBI agents are allowed to get away with criminal behavior. There are no checks and balances in our Justice system. Recently there has been a lot of discussion as to whether the President should be above the law. The President is so closely scrutinized that doing anything against the law would ring alarms bells the world over. Instead, my assertion is that the focus should be on the corruption within the American judicial system, on a handful of corrupt US attorneys who live their lives exempt from the law by which they control the lives of others and the rest of the country. In this book I will show how ambitious prosecutors actively take advantage of murky laws and coerce testimony from government witnesses to obtain wrongful convictions. Winning at all costs, regardless of the truth appears at every level to be an operative mantra. I realize there is only one book I can write to set the record straight. This is it.
My story is also about greed. In all its forms, greed boils down to avarice, hunger, power, money, ambition. All of these are readily available and identifiable in the financial industry, by definition. In fact, I would say that in the financial industry, greed is effectively a cliché with fear being on the flip side of a pair trade. Fear and greed are easy to communicate, and the media hones in on these aspects of Wall Street. But what I would like to do in this book is to hone in on the excess and greed in the judicial system. Ambition in the judicial system also translates to power and money, a far more insidious and dangerous consequence to society because it goes unchecked. After I was convicted, the press had a field day speculating whether the “new sheriff” of Wall Street, Preet Bharara, was actually in line to succeed Eric Holder as the next US Attorney General when Holder stepped down. While Bharara was at first coy about his intentions, he eventually made clear his goal to secure the job based on his work prosecuting Wall Street. He may have wanted the job but did not get it.
The same ambitions were true for the three government prosecutors in my case – all three left government shortly after closing out my case for higher paying jobs as partners in leading law firms. They and their new employers spent considerable effort drumming up business on the heels of the skills honed during their time as former prosecutors to future defendants accused of insider trading. They had no problem making the transition from denouncing apparent “greed” in the financial markets to defending that same greed, switching sides in an effective demonstration of greed. As partners at leading law firms they would be highly compensated. The “protectors from greed” sold themselves to the highest bidder, all under the trusting gaze of an unaware public. The door meant to separate and maintain a balance between the public and the private sectors revolves efficiently and profitably.
It is important to understand context of the time and the prevailing mood of the country in October 2009 when I was arrested. In 2008 we had seen the near collapse of the financial system and the wiping out of trillions of dollars of home equity and life savings of the American middle class. The government was forced to bail out the major banks. Mortgages that were bundled up or securitized and sold by banks had contributed to the crisis. Millions of American homes went into foreclosure. Institutions such as Lehman Brother, Bear Stearns, Fannie Mae, AIG and Freddie Mac either filed for bankruptcy or lost over 90% of their market value. An estimated $7 trillion in US household assets were wiped out. And to add to the catastrophe, in late 2008, Bernie Maddoff admitted to running the largest Ponzi scheme under the very eyes of the regulators. Politicians and the public placed the blame squarely on Wall Street. The pubic was clamoring for blood and there was no blood forthcoming. From anywhere.
I had nothing to do with the housing crisis. I was an easy target for politicians, for prosecutors, for pundits, and for Bharara who had just been handed leadership of the Southern District of NY including a mandate for bringing Wall Street under control. I was a successful and expendable hedge fund manager who employed just 250 people. We obtained an overwhelming amount of information on a daily basis and my trading was 100% consistent with the written recommendations of my analysts. In ALL cases, I had a pre-existing position in the stock before allegedly receiving the “tip.” In 2009 and even today, insider trading laws are murky at best and often (intentionally) misinterpreted by prosecutors. The government painted our systematic, well-researched investing as being criminal. Theirs was an overreach of enormous proportions to show that “Wall Street fat cats” were being brought to justice. If I am guilty, then the entire investment business should be declared illegal.
As the Wall Street Journal noted insightfully, “Under standard rhetoric, the public is somehow cheated by all this, but the standard rhetoric is nonsense. The public isn’t damaged because another party wants to sell or buy (and most hedge funds strive to make sure their trading doesn’t affect prices anyway). But a cynic might note one thing: insider-trading law provides a bottomless reservoir of (supposed) financial ‘crime’ for Washington to investigate whenever it needs a Wall Street prosecution to flounce in front of the press.” [Endnote 1]
As a child, having gone to boarding school in a foreign country at the age of eleven, I learned quickly and early to be a fighter, a scrapper. This is a blessing and a curse. Over the years, I have learned that you don’t always have to fight. The kindness of many people has defanged and disarmed me to a large extent. However, when people try to take advantage of me, I have to respond. I don’t back down. And I am fortunate to have been blessed with the mental fortitude and financial resources to fight for my innocence. Too many people do not. They plead guilty to indictments they cannot challenge. In my experience about 10% of the inmates at the prison in which I spent seven-and-a-half years were innocent.
When I was researching the Justice Department while in prison, I came across a paragraph that struck a chord in me. Unfortunately, I did not write down the name of the author or the source. “Criminal punishment is the greatest power that governments use and wield against their own people. When employed justly and appropriately, it is vital to any safe and productive society. But when employed aggressively based on vague laws and personal agendas the criminal justice system unnecessarily destroys lives, livelihoods, and families.”
Oddly, my experience of the law has left me without rage or a sense of victimhood. While I would never say I am grateful for the experience, I can say with confidence that I like myself better because of it. When I finally broke through the wall of despair, I realized I had gained a sense of peace and awareness that had opened me up and cracked me free. I realized how incredibly strong the human mind is and that nothing can beat a person who refuses to be beaten.
Finally, I want to say that despite what happened to me as a result of a corrupt prosecutor, I love this country just as much as I did before I went to prison. I feel truly blessed to be one of the 5% of the world population who live in America. I do not see people lined up to emigrate to China, Russia, or Japan, for example.
As I reflect on my circumstances and my past, if God had arrived at my doorstep when I was 11 – with a crystal ball — and told me, “Raj, I will give you the wife and children you see here, these friends, and ensure that both your parents live long and happily and give you also the ability to help the less fortunate — But you need to sacrifice about seven years of your life,” I would have taken that deal in a New York second.
I feel very fortunate.
I am very fortunate.
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Raj Rajaratnam, the respected founder of the iconic hedge fund Galleon Group, which managed $7 billion and employed 180 people in its heyday, chose to go to trial rather than concede to a false narrative concocted by ambitious prosecutors looking for a scapegoat for the 2008 financial crisis. Naively perhaps, Rajaratnam had expected to get a fair hearing in court. As an immigrant who had achieved tremendous success in his adopted country, he trusted the system. He had not anticipated prosecutorial overreach—inspired by political ambition—FBI fabrications, judicial compliance, and lies told under oath by cooperating witnesses. In the end, Rajaratnam was convicted and sentenced to eleven years in prison. He served seven and a half.
Meanwhile, not a single senior bank executive responsible for the financial crisis was even charged.