Wednesday, 30 July 2014
Last updated 6 hours ago
Jun 12 2012 | 11:09am ET
Brad Simon, founding partner of the New York-based law firm Simon & Partners, has argued both sides of white collar fraud cases like the current insider-trading case against former McKinsey & Co exec Raj Gupta. As an Assistant U.S Attorney for the Eastern District of New York and later as a trial attorney with the criminal division of the U.S. Department of Justice, Simon prosecuted such cases. These days, you’ll find him at the defense table, representing clients under investigation for a wide variety of federal and state offenses, including securities, mail, wire, and bank fraud. FINalternatives Senior Reporter Mary Campbell asked Simon recently for his thoughts on the Gupta prosecution and the recent spate of insider-trading cases.
How does the Department of Justice build an insider-trading case?
There’s no one formula, it all depends. For instance, in the Gupta case, I don’t think they were focused on him, I think they realized he was involved with Raj Rajaratnam during that investigation. I think there were wire tap conversations or Rajaratnam was boasting about talking to Gupta, so often one case leads to the investigation and prosecution of another case. Or sometimes they do examine suspicious trading or there’s a tip from somebody, there are many different ways.
How does the government decide which cases are worth pursuing?
Insider trading has…in the last couple of years, come to the top as far as priorities. For many years, you never saw any insider trading cases…
I can only guess, based on experience being in the Justice Department…how they generally determine who to prosecute—it’s usually the amounts involved, the people involved…It depends, there aren’t that many of these cases that they’ve been able to uncover so, I don’t know whether they have a formula at the Justice Department as to who they’ll prosecute and who they won’t. But normally, they look at a lot of factors; they want to send a message, they’re also interested in publicity themselves—if they can get a big fish, they’re always interested in that.
Gupta is considered to be a very big fish. The dollar amount, repeat activity, that kind of thing usually enters into the equation. A federal agent will bring it to a U.S. Attorney and they will make a determination whether they want the case or not. Or else sometimes the federal agents and the U.S. Attorney begin it together…In the Rajaratnam case, for the first time, they used wiretaps… in a white collar case such as this. Usually they’re used in drug cases, organized crime cases, that kind of thing. It was the first time in a securities case that they used wiretaps, so it was quite novel
And controversial, the defense in the Rajaratnam case attempted to have the tapes thrown out as evidence, on what grounds?
[B]ecause it was considered unseemly to wiretap Wall Street executives. I guess the thought was, it’s okay to do it for drug dealers and mafia kingpins but not Wall Street executives, so there was a lot of sound and fury over that.
As someone who has been on both sides of this type of case, both as prosecutor and defense lawyer, can you tell me something about the process of jury selection?
I think defense lawyers always want people on the jury who are going to be somewhat skeptical of the government or the powers that be. Who are…not necessarily going to accept whole cloth what’s been told to them. Prosecutors generally want people who they regard as law-abiding people…The defense is not going to want people who are somewhat unhappy with Wall Street, or with people who have amassed great wealth. On the other hand, the prosecutors are not necessarily going to want those people [who are wealthy] because they may think… ‘They may be coming after us next.’ It’s really hard, there’s no real formula—they just look at one person at a time, check out his or her background and then…at least for me, at the end of the day, you’re just relying on your gut as to whether you want this person or you don’t.
What’s the role of a jury consultant?
This comes up in cases that I’m involved with all the time. I think it’s a bunch of nonsense. It’s a lot of pop psychology. Every time I’m in a case with big firms who have lots of money to throw around, they want to hire a jury consultant and my view is, if you’ve been trying cases for a long time, you shouldn’t have to rely on a jury consultant your gut should tell you whether this person is good or not.
Is the idea behind the increase in insider trading cases to send a warning and if so, do you think it’s effective?
I think so…My sense is that people on Wall Street and in the investment banking business are very concerned about these cases, that they are a little alarmed. People are wondering ‘Oh my god, did I speak to somebody and did I unwittingly receive information?’ I think it’s really sent alarm bells throughout the financial services industry.
It seems to me that there’s a fine line between what’s legal and what’s considered insider-trading, is that true?
I think so, which is why these cases are somewhat hard to prove…Because, it is a fine line…between deliberate insider trading or…information [being] unwittingly passed—you know, people talk all day long on the phone and tips are flying around and some are true some are total nonsense and you’re getting into a very grey area, it seems to me, as opposed to other crimes which are more black and white, other frauds.
On the other hand, they were able to get a conviction on Rajaratnam. Generally, the government wins. They have all the resources in the world and they’re usually successful, it just takes good lawyering to try to beat them and to convince a jury there are serious doubts about a case.
Having defended and prosecuted these cases, which side would you rather be on?
I’m much happier on the defense side. Look, the prosecutors do good work and they’re empowered to investigate and indict people. On the other hand…I think there’s often a lot of over-reaching on the government’s side…Often I’m representing very good people who just have found themselves in trouble—sometimes they’ve crossed the line unwittingly, sometimes the line isn’t all that clear, it’s a little grey, and to be able to get a measure of relief for them against the powers that be and the aggressive Justice Department and law enforcement apparatus…it’s very gratifying.
Prosecutors can generally win and they’re expected to win, but it’s much harder on the defense side, you have much less to work with, the system is somewhat stacked against the defense, so it’s a much more challenging job, but can be gratifying—[it] can be extremely frustrating too, when you don’t have a lot to work with.
You’ll be watching Gupta trial, what will you be interested to see?
I’d really like to see how solid the evidence it is or whether it’s just a lot of hearsay and speculation. So far, there don’t seem to be any surprises, they played wiretap evidence…but Gupta wasn’t on the tape, it was Rajaratnam talking to someone else and claiming he had a source and so the jury’s left to speculate, ‘Was it Gupta?’ The government will argue that of course it is and the defense will say, ‘Well, not so fast, there could be others.’ I have no idea how this is going to end, there seems to be good lawyering on both sides.
Do you have any advice for investment executives on avoiding accusations of insider trading?
People should just be very careful—they should be careful with emails, they should be careful with who they talk to. Loose lips get people into trouble all the time. They should just be guarded about what they say, who they say it to, who they speak to. And that’s general advice, not even with respect to insider trading—people talk too much [laughs]. They reveal too much. And these days, where there’s an instant record of everything you say, or instant record of communications with email and whatnot, people need to be careful how they transact their business.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…