Weekend Economists Mark D Day, 2014 June 6-8, 2014

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32. PREET PROSECUTES FINANCIAL FRAUD

Insider Trading

From 2009 to 2012 (and ongoing), Bharara's office oversaw the Galleon Group insider trading investigation against Raj Rajaratnam, Rajat Gupta, Anil Kumar and 60+ others. Rajaratnam was convicted at trial on 14 counts related to insider trading. Bharara is said to have "reaffirmed his office’s leading role in pursuing corporate crime with this landmark insider trading case, which relied on aggressive prosecutorial methods and unprecedented tactics." Bharara has often spoken publicly and written an op-ed about the culture surrounding corporate crime and its effect on market confidence and business risk.


On July 25, 2013, Bharara announced criminal and civil charges against SAC Capital Advisors LP, one of the largest and most successful hedge-fund firms in the United States. The announcement resulted from a multi-year investigation during which eight current or former SAC employees have pled guilty. The government charged SAC Capital with securities and wire fraud and sought forfeiture and money laundering penalties. Bharara accused SAC Capital of creating a culture of “institutional indifference” which facilitated “inside trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry.” On November 4, 2013, Bharara announced a guilty plea agreement with SAC Capital Advisors LP. Four days later, SAC Capital Advisors LP pled guilty to a single count of wire fraud and four counts of securities fraud and agreed to pay a $1.8 billion settlement and close its investment advisory business. It is the largest settlement ever for insider trading.

Madoff Ponzi Scheme

Bharara’s office worked together with Irving Picard, the trustee overseeing the recovery of funds from Bernard Madoff's Ponzi scheme, to secure a $7.2 billion settlement with the estate of Jeffry Picower. The amount, equivalent to the total amount Picower withdrew from his account with Madoff before the scheme collapsed, is the largest forfeiture in U.S. history. The money will be used to compensate victims of Madoff’s fraud.

Almost as soon as he took office, Bharara began investigating the role of Madoff's primary banker, JPMorgan Chase, in the fraud. On January 7, 2014; Bharara announced that his office and JPMorgan had reached a deferred prosecution agreement that called for JPMorgan to forfeit $1.7 billion—the largest forfeiture ever demanded from a bank in American history—to settle charges that it and its predecessors violated the Bank Secrecy Act by failing to alert authorities about Madoff's actions. Bharara said that his office had amassed evidence that JPMorgan had failed to exercise even rudimentary oversight over Madoff's banking activities. The government will use the money to help make Madoff's victims whole. Bharara's office filed a two-count criminal information charging JPMorgan with felony violations of the Bank Secrecy Act, but those charges will be dismissed in two years provided that Chase reforms its anti-money laundering procedures and cooperates with the government in its investigation.

His office also handled the criminal prosecutions of several employees at Madoff’s firm and their associates, who were convicted by a jury on March 24, 2014.

Bank of America suit

On October 24, 2012, Mr. Bharara along with Federal prosecutors in Manhattan sued Bank of America for $1 billion, accusing the bank of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis. He brought the case with the inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, and the government watchdog for the bank bailout program.

The trial, which took place before U.S. District Judge Jed S. Rakoff, lasted four weeks. On October 23, 2013, following roughly five hours of deliberation, the jury found Bank of America liable for selling Fannie Mae and Freddie Mac thousands of defective loans in the first mortgage-fraud case brought by the U.S. government to go to trial. The civil verdict also found the bank’s Countrywide Financial unit and former Countrywide executive Rebecca Mairone liable. Bharara and his team of federal prosecutors argued that the Countrywide program—nicknamed “the Hustle”—processed mortgage applications with a focus on quantity rather than quality, resulting in the bank’s churning out unqualified buyers housing loans that were destined to fail.

The government relied upon the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a civil statue that had rarely been used in the previous two decades. The victory marked the first time a major U.S. bank has been held accountable for its role in the financial crisis.

Toyota Deferred Prosecution Agreement

In March 2014, the U.S. Attorney's Office charged Toyota by information with one count of wire fraud for lying to consumers about two safety-related issues in the company’s cars, each of which caused unintended acceleration. Under the terms of a deferred prosecution agreement that Toyota entered into the same day the information was filed, Toyota agreed to pay a $1.2 billion financial penalty, the largest criminal penalty ever imposed on an auto manufacturer. The company also admitted the truth of a detailed statement of facts accompanying the DPA, and agreed to submit to a three-year monitorship.