Confessions of a Wall Street Insider

CAN YOU REHABILITATE A MAN WHO considers himself unjustly convicted? What does “success” look like in that situation? What is the system supposed to do?

When it comes to my case, I still believe any respectable journalist, judge, or legal scholar examining the facts will conclude that I got a bum rap. My mistake was trusting people. I trusted the people I went into business with. I trusted that presiding judges would be impartial and fair. Even after the FBI stormed my home during a pre-dawn raid, I still trusted that this was all just a big, strange mistake and that justice would prevail.

Truth, justice, and the American way. Cut to the Stars and Stripes billowing in the breeze. Boy, did I misread that one. To me the preamble of our Constitution now reads, to use an appropriate British expression, like a bunch of cock and bull.

Spend any time in prison—even in a minimum security prison—and you will regret not doing whatever might have been in your power to prevent those circumstances from happening. You will regret that decision every single morning when you wake up on that cramped bunk with a half-inch slab of foam between you and the steel planks—sore and knowing you’ll be just as sore each night you lie back down and try to sleep. You will regret it in the shower, or hovering over a rust-stained toilet, or watching your back.

You will regret it long after you’re released. You will regret it when you see how your children have grown without you, and how your actions have damaged what should have been an era of innocence in their lives.

Even now, as a divorced man struggling day by day to rebuild my life, some part of me still believes that the time will come when my friends and family will tell me that, despite it all, I did the right thing. I even dare to dream that, someday, my beloved children might tell me that as well.

One day they will read this book and understand their father, warts and all. They will see me for who I was: someone who worked too hard to give his kids and his wife a “better life,” who drank too much, who thrived on risk and competition, but most of all, someone who cherished the time he spent with them and tried to live a life by example. They will see their father as flawed—as all children come to see their parents when they grow up. I dare to dream that, when this happens, my children will conclude that I was, in fact, caught in a maelstrom, unfairly tried and unjustly convicted.

That if I had, in the end, taken the government’s offer and pled guilty, everything I would have said to my kids, or myself, about my fundamental innocence would have been compromised, forever tainted. My word would have meant nothing—to them, who mean everything to me.

In June of 2014, I sat down and wrote an angry but lucid letter about my plight. I considered submitting it to the Wall Street Journal or the New York Times as an editorial. But then I thought twice. The ugly truth is when you’re on probation, you’re still a prisoner. The “system” can still snap its fingers and send you back to hell.

So instead, I sent it to Walter Pavlo, a journalist at Forbes who focuses on white collar crime. He asked if he could publish it, and I said sure, as long as it was anonymous. He prefaced my piece as follows:*

Recently, I received a submission from a defendant who had faced U.S. prosecutors in court, lost the case and completed his/her prison term. The person, who wishes to remain anonymous (supervised release and exercising free speech can be at odds), gave me permission to share their views here on my blog. Like all of you, this person is now just an observer, except that they have the experience of having been on the front lines of a federal courtroom.

I called the piece “The Wheel of Misfortune.” I present it here, in a slightly edited form.

There has been a growing and long overdue realization that the US mass incarceration policy is an economic and human tragedy. The New York Times recently ran a long front page story for two straight days, along with an editorial* (“End Mass Incarceration Now,” May 25, 2014) calling into question a system that subjects first time nonviolent offenders to disproportionately harsh sentences, and compels innocent defendants to plead guilty to avoid those same life-destroying sentences. We as a society spend four times more to imprison than to educate our citizens, an unsustainable trajectory with a total tab well north of $60B. The statistics are haunting and familiar. The US imprisons 25% of the world’s incarcerated, despite having less than 5% of its population. The government puts up a head-scratching conviction rate of 98%, year in, year out. Heavily encumbered by widespread institutional racism and deep structural biases in favor of the government, arguably the system itself is a gross distortion of our Constitutional rights and traditions.

Closer to home, US Attorney for the Southern District of NY Preet Bharara has put together an 80-0 record in insider trading cases. As if widespread structural bias and a 98% guilty conviction rate wasn’t enough, a new and rarely discussed trend has emerged. One of the most vital determinants in the outcome of a criminal case tends to be which judge the defendant “draws,” or rather what judge is “wheeled out,” as they like to say in New York. That’s right, if you weren’t aware of this, the Southern District of New York, the preeminent Federal Court in the country, still alleges to use an actual wooden wheel covered in index cards in order to determine which cases will be assigned to which judges. A wheel like you might find in an Atlantic City casino or on the popular game show Wheel of Fortune. The major difference, of course, is the currency being wagered here: it is the very life and liberty of the defendants themselves, as opposed to mere dollars and cents. Now it appears that the “wheel” may be rigged, or rather, never really spun at all.

One might ask, what’s the big deal? Well, as the 2nd Circuit Court of Appeals recently voiced, it might be a very big deal indeed. In the cases of Anthony Chiasson and Todd Newman, two hedge fund analysts convicted of insider trading, the stratagem by the United States Attorney’s Office (USAO) to place key cases before a specific judge may blow up in their face and tarnish their perfect record. During recent oral arguments, 2nd Circuit Judge Ralph K. Winter was critical of the government’s apparent manipulation of the system to steer cases before a judge named Richard Sullivan, which he viewed as potentially paramount to “judge shopping.” Why would the government want to do this? The answer is simple, obvious, and inexcusable—to make their jobs easier. Most judges have spent the majority of their careers as former prosecutors, and the government perspective has been heavily imprinted upon their psyche. It’s like asking Bill Belichick to referee a New England Patriots game. While most judges are deemed pro-government, some are considered so friendly to the government, that I’ve personally heard stories about normally stoic AUSAs actually high-fiving each other on learning their cases have been assigned to a certain judge. Judge Sullivan just happens to be one of those judges.

In the recent 2nd Circuit hearing, AUSA Antonia Apps stuttered when challenged by Judge Winter as to how a disproportionate number of these cases ended up with Sullivan, a judge who requires a lower burden of proof by the government with regard to tippee knowledge. Statistically, there are fifty eligible judges, yet in seven major recent insider trading trials, Sullivan heard four of them, a resounding 57% ratio. That’s like spinning a Vegas roulette wheel and hitting Green-00 on four out of seven spins. A simple statistical analysis yields a probability outcome of 6,000,000 to 1 if the wheel was truly random. The next time Preet goes to Vegas, I’d like to bankroll him. Either he’s the luckiest man alive, or more likely, he’s got his thumb on the wheel. Not surprisingly, AUSA Apps could only muster a weak argument, claiming judicial efficiency in having two totally different trials with different defendants heard by the same judge, an argument quickly dismissed by the appellate court. If, in fact, judicial efficiency was the USAO’s goal, then why didn’t they look to have the case of Zvi Goffer heard before Judge Holwell, the judge in the Raj Rajaratnam case that was tried just a month earlier, and which had many of the same legal issues and parties? It seems, therefore, that the USAO only cares about judicial efficiency when it makes their job easier by being in front of one of their preferred judges.

Judge assignment not only has serious repercussions for defendants who exert their constitutional right to a trial—it similarly affects those who plead guilty or cooperate with the government during the sentencing phase. The discrepancy in sentencing in the Southern District of NY is huge. As history has proven, defendants receive very different sentences based on which judge they draw (for instance, Rajat Gupta got two years from Judge Rakoff, while Zvi Goffer received ten years from Judge Sullivan).* Now it seems that a defendant cannot blame their fate on a bad spin of the wheel but, rather, on a rigged system allowing the government to steer cases to their preferred judges. Isn’t this the type of gaming of the system that the USAO is supposed to despise and look to prosecute? Haven’t they paid repeated lip service to a “fair playing field” as the justification for the recent round of insider trading prosecutions? Is there no shame, no sense of decency?

With SAC Management’s Michael Steinberg sentenced last month, this topic once again climbs to the forefront. Steinberg’s attorney, Barry Berke, focused on this travesty at the indictment stage, asking Judge Sullivan to allow the case to be randomly assigned to a new judge. Berke claimed Sullivan had given prosecutors an easier burden to meet in past insider trading cases compared to rulings by two other judges. He rightly identified this as a “significant legal issue,” and claimed the government’s indictment gamesmanship “violates the letter and spirit of the district’s rules, due process and basic fairness, and creates the appearance of impropriety.” Sullivan said he would “consider” letting Steinberg’s case be reassigned, telling Mr. Steinberg “Don’t believe Mr. Berke, I’m not as bad as he says.” However, Judge Sullivan refused to allow random assignment of the case. Will there be any punishment for the prosecutors who potentially broke the law? At least an outside investigation? Will Sullivan only get a slap on the wrist? Preet’s focus is now on corruption in Albany, so maybe some angry state politicians will take the lead.

Sullivan’s refusal to recuse himself may have a silver lining for Steinberg. If the 2nd Circuit’s oral arguments in the Chaisson-Newman cases are any indication of things to come, Judge Sullivan’s stubbornness to allow a random assignment of his case may have gift-wrapped a new trial for Steinberg, and Messrs. Chiasson and Newman as well. Only time will tell.*

So the next time Mr. Preet Bharara touts his perfect record, and an overall conviction rate of about 98%, perhaps take a step back and ask yourself how, in an allegedly fair and impartial adversarial system, could something be so close to perfect? Perhaps because the government was stacking the deck all along?

Pavlo published this almost verbatim. Not only did my article allege something unholy in Preet’s unseemly judge shopping—a pure desecration of the enshrined, “Justice is Blind” tenet that allegedly upholds our system—but it showed that evidence of bad behavior was everywhere, and it could be unearthed with even perfunctory research.*

One month later, in July, Preet suffered his first real defeat, after eighty-one straight convictions, when a jury acquitted Rengan Rajaratnam, Raj’s younger brother and protégé. Rengan had worked for Raj at Galleon. He had originally been charged on five counts, with two dismissed before the trial and two quite serious fraud charges dismissed mid-trial. And no, Sullivan was not presiding. No surprise there. After four hours of deliberation, the jury found Rengan not guilty of the lone conspiracy charge, citing that the entire trial seemed to be all about Raj, and that nothing seemed to stick to Rengan specifically. All poor Preet could do was take it on the chin, and as of the fall of 2014, he has moved on from insider trading cases.

When it came to my case, this was only the beginning. On December 10, 2014, the Second Circuit Appellate Court overturned the convictions of Anthony Chiasson and Todd Newman, traders who had been convicted by Bharara in 2013. In their decision, the same Court went out of its way to publicly slap and chastise Judge Sullivan as being the only judge in the entire circuit that refused to properly instruct juries on tippee** (e.g.: me) knowledge as required by the law. (During trial, we got the sense that Sullivan was a prosecutor in drag, donning the black robes of a judge. Now, everyone else was finally starting to also see a smidgen of what we had witnessed firsthand.)

The same day those convictions were overturned, my buddy Peter Bogart published the following on his Facebook page:

My close friend and former colleague Michael Kimelman lost his insider trading case in 2011. He had turned down probation because there was no credible evidence against him. Evidence did not matter. The Government was on an insider trading crusade and Mike was road kill: he lost and went to federal prison. The jury was clueless. Mike lost his reputation, his law license, his CFA license, his money, his marriage, years of seeing his 3 young children, and 3 years of his life. Today they finally figure out that he did absolutely nothing wrong under the law, and that his jury was wrongly instructed on the law. I professed his innocence then, and I do so again today. Where is the justice for Mike?

Choked up, I thanked Pete for his unwavering support—from the moment of my arrest until that day—and added: “Same facts, same judge, same incorrect jury instruction. I guess I didn’t need to go to prison after all …”

When Judge Sullivan’s peers are questioning his tactics, and when Bharara is being soundly defeated, it signals that the times they are a changin’. Yet for me it was too little too late. Knowing full well that the charges against me were measures weaker than those leveled against Rengan, Chiasson, and Newman, and even Steinberg, did not fix my family or reverse my time in prison. That makes for a hollow victory from where I’m sitting.

I had still been vilified in the press and made a poster child of the “corrupt culture of Wall Street.”

Occupy Wall Street wanted blood, and they had gotten mine—the blood of a proprietary trader. But what about the big guns? The Goldman Sachs and JP Morgans, the Wells Fargos and the Banks of America? What happened to them? Were Jaime Dimon’s Park Avenue digs raided? Was he handcuffed and perp-walked, fingerprinted and tried before a jury of his peers? We know the answer to that one. In fact, his stature and power, and that of Morgan—and all the big banks, really—seem only to have to have increased since the initial crash that triggered the Great Recession. America has always been about amusing the sheep, rather than shooting the elephants in the room, as Lewis Lapham once famously observed.

The culture of corruption and collusion between the Federal Reserve and the biggest banks—once the domain of eccentric conspiracy theorists—further came to light in a big way with the revelations of Carmen Segarra, a brilliant lawyer who dug too deep into the matter, under the original request of her bosses at the Federal Reserve of New York, whose offices are also on Wall Street. When Segarra raised a red flag about how Goldman Sachs seemed to run roughshod over the Fed, she was summarily fired.* She fought back, filing a lawsuit, which a judge dismissed. But then Segarra revealed tapes that she had made during her investigation—tapes that now demonstrate her claims with dazzling clarity.*

And consider too the “settlements” with Bank of America, Morgan, and others, $16 billion and counting in the case of Bank of America and Countrywide, due directly to the sleazy subprime mortgage scam that caused millions of Americans to lose their life savings, their homes, and often their futures. There is no doubt, no doubt at all, that laws were broken by these banks, by entities but also by individuals at the highest levels. Yet no arrests were made, no careers or lives destroyed among those at the top.** In the Morgan settlement, because the firm was not required to admit guilt, they were able to write off part of the settlement as legitimate losses. What this means is that the US taxpayers had the honor of picking up part of the tab. It boggles the fucking mind. To add insult to injury, there was the Washington bailout of Wall Street that we’ve all had to pay for as well in one way or another.** (Or will have to pay for, given the federal government’s ever growing $19 trillion debt and market distortions from zero interest rate policy.) The phrase “too big to fail” has become part of the average American’s financial lexicon. I would humbly submit that “too big to be held accountable” belongs there too. No entity should be too large or important to answer for what it has done. Simply put, that is a luxury that we as a country simply cannot afford.

Raj is still in prison, and his appeals have failed. However, prison may have literally saved his life. Formerly, he was massively overweight and had health issues. His outrageous appetites cannot be indulged where he is today. But will his reformed behavior extend his life long enough that he will ever see the outside of a prison cell again? That remains the question.

Nu, like me, has now been released. I haven’t heard a peep from him and I don’t ever expect to. I believe he’s living off of his wife, who is still a lawyer. In prison, Nu kept himself going by talking about all his big plans for the future. When he got out, he was going to go back into business and do it right this time. He was going to raise millions, and do X, Y, and Z with it. These were pipe dreams. If you’re a felon convicted of a financial crime, the only way you might get a job on Wall Street again is by being so brilliant and charismatic that a firm would decide you were worth the added risk. And that’s just not him. Nu is lucky if he’s working construction.

When this book is published, Zvi will have another year or so left on his sentence. He’s the only guy in all of this that I still have any residual anger toward. Looking back, there were so many good things he could have done. So many opportunities to be a decent human being. He could have walked forward and said this was on him. He could have given me a deferred prosecution. He could have put his family first. He could have decided not to gamble with other people lives, in addition to his own.

Prison’s a horrendous place as it is. It might have been just tolerable for me to be there without him. Instead, he took a bad situation and made it unbearable.

These days I’m a pretty Zen-like guy and I try to forgive everyone. But I haven’t been able to forgive Zvi.

I don’t know what will happen when he gets out, but I hope he chooses to just disappear. Gets smart and chooses to form a new life somewhere far away. And while that’s a pleasant fantasy, that may be all it is. A fantasy.

This is a man whose memory runs deep, and who has threatened me and threatened my children. Will Zvi try something one day? I’d like to say “no,” but I know his stupidity all too well.

Just before dropping dead of a massive coronary (at around the same age as I am now), F. Scott Fitzgerald famously wrote that there are no second acts in American lives. It’s a poetic, powerful turn of phrase. Sometimes I think about how it applied to Fitzgerald himself. He became a celebrated, best-selling writer in his twenties, and then spent the next two decades unable to recapture that initial success. Does it come as any surprise that he basically smoked and drank himself into an early grave?

As a nation, we tend to forget quickly, and we turn our eyes to the present and the promise of the future. Yet aphorisms are not always correct, even famous ones about second acts. Some things, some people, do change. I plan on being one of them.

I can honestly say that, following all of this—my arrest, trial, incarceration, and release and divorce—I am beginning a “second life.” As an innocent man, this second life is not exactly an act of humble contrition. Though I’m still plenty humbled. For the foreseeable future, it’s an uphill battle. I’m a forty-two-year-old man who once helped create a $40 million company from scratch in eighteen months. Now a friend is on the lease to my apartment and my brother is on my electric bill. I can’t get a credit card, or open a bank account, so I use a prepaid debit card like the “unbanked” or “unbankable.” I am technically both. I continue to send out my résumé and get called in for interviews, only to return home and agonize over the results of the background check. But I’m hardly waiting on others to make something happen for me, and my status hasn’t stopped me from grinding, pushing forward, and trying to do better for myself and my family. I am motivated to keep trying in part by the knowledge that I am now sober. Even in the midst of the incalculable stress, depression, fear, and emptiness of prison, I knew in my heart that I had been operating for the last twenty years at a 60 percent capacity, at best. The saddest regret of all is what might have been. How would my life have been different if I hadn’t leapt into a black hole of vodka at so many different turns?

I didn’t know the answer to that question. But what I did know is that the past is the past and the present is the present, so I doubled down on the present and got busy.

Coming out of prison, I hit the ground running. I was eventually able to get some work from a guy sympathetic to those within the clutches of the System. I started writing more and developed a TV show called Coming Home. It has landed a development agreement from a heavily respected NY production company. There were LA firms that wanted it too, but because my travel was limited to midtown Manhattan, NYC it was. We shot a sizzle reel and the initial success led to two follow-up offers for other shows, including a scripted episodic series based on the life of a client. (I started a management firm to complement the production company and handle some of the talent I met while “away.” There is a whole well of pent-up literary, entertainment, and entrepreneurial talent that’s been bottled up in the System for years just waiting to prosper if given the shot.)

I still need permission to go anywhere. I can’t go to Brooklyn, New Jersey, or even Connecticut, which is ten minutes from my apartment, without advance permission. Luckily probation isn’t permanent, although it’s a definite pain in the ass.

Worse though, may be the distance that has grown between me and those who knew me before this chapter in my life. They try. They mean well. But they can never truly understand. To them, my claims seem exaggerated, unlikely, or mistaken.

Upon her return from Oz, Dorothy had this to say to those who thought she was delusional: But it wasn’t a dream! This was a real, truly live place. And I remember some of it wasn’t very nice.

* Gupta was a man of immense power and wealth, a chairman at McKinsey, on the board of Goldman and a confidante of the Clintons, getting only two years, even though the tapes were damning, while Zvi was a comparative nobody, hustling and cheating for a comparative pittance.

* The sad truth is had Sullivan recused himself, even with the correct legal jury instructions, these guys probably still would have all been convicted. Juries want blood. Your “average Joe” is still struggling, and there remains no easier target or scapegoat than a seemingly smug rich guy who allegedly “cheated.”

* Judge Richard Sullivan was actually Preet Bharara’s boss for a time and the two were friends. During Sullivan’s confirmation hearings, Preet is the aide to Senator Schumer who welcomes Sullivan and they have a verbal lovefest on the record prior to his testimony. “I should note that while Mr. Sullivan was with the Southern District of New York, he supervised my chief counsel, Preet Bharara, right here. You probably read his glowing article in Time Magazine. His mother enjoyed it very much, he informed me. But Preet has only had wonderful things to say about Rich Sullivan. I guess that is why it says “Rich.’’

** “Accordingly, we conclude that a tippee’s knowledge of the insider’s breach necessarily requires knowledge that the insider disclosed confidential information in exchange for personal benefit. In reaching this conclusion, we join every other district court to our knowledge—apart from Judge Sullivan–that has confronted this question.”—2nd Circuit Court of Appeals in U.S. v. Newman.

* One exchange has Segarra’s boss literally begging her, “Why do you have to say there’s no policy?” and then demanding she change a report that embarrassingly noted that Goldman had no “conflicts of interest” firm-wide policy. The “oversight” and evident regulatory capture came to light in the NY Fed’s investigation of the Kinder-El Paso deal which featured Goldman wearing far too many hats (advisor, principal, shareholder) without disclosure in a supposedly arms-length transaction.

** See Michael Lewis’s The Big Short and the resultant Adam McKay movie for an excellent narrative of this travesty.