The War On Drugs Was Misguided, So Was The War On Insider Trading
If America lost the war on drugs because of a criminal justice approach based more on bludgeon than scalpel (more braun than brain), then the same could be said of its approach to prosecuting insider trading.
The biggest headline after the 2008 financial crisis was that banks were too big to fail and the executives who ran them were too big to jail. So to give the perception that someone, anyone, was held accountable, federal prosecutors in the Southern District of New York turned to a crackdown on hedge funds …. Operation Perfect Hedge.
The investigation resulted in over one hundred prosecutions and a win-to-loss ratio for government prosecutors that looked like that of the Harlem Globetrotters versus the Washington Generals. With Occupy Wall Street protests going on in Zuccotti Park, just blocks away from the federal courthouse in New York, then-US Attorney Preet Bharara was taking victory laps for a string of prosecutions that landed him the nickname “Sheriff of Wall Street.” Bharara, who infamously got the “You’re fired!” from Trump in March 2017, is now a CNN contributor, NYU Law Professor and has a popular podcast. Many of the lawyers who once worked under Bharara at SDNY have gone on to lucrative practices as white collar defense attorneys who, no doubt, bask in binge watching episodes of Billions reminiscing the good ole days. The same could also be said of those who worked at the Securities and Exchange Commission. At the same time, those who were part of this big crackdown are picking up the pieces of their lives.
The FBI raids that took down three hedge funds (Diamondback, Level Global and Loche) on November 22, 2010 was a watershed mark in the wayward prosecutions that led to the arrest of Todd Newman (Diamondback) and Anthony Chiasson (Level Global). Nobody from Loche was ever prosecuted. Newman and Chiasson, were found guilty at trial in the courtroom of US District Judge Richard Sullivan only to have those convictions overturned, rightly, by the 2nd Circuit. Judge Sullivan is soon expected to be appointedto the 2nd Circuit Court of Appeals. Go figure.
To prove that these past follies of harsh punishment of a few dissuades the motivation for misdeeds among the masses, we still see cases of insider trading today … some more brazen than those from the past. In August, congressman Chris Collins (R-NY) was indicted on insider trading charges for passing along information on a failed clinical trial of publicly traded, pharmaceutical company Innate Immunotherapeutics. The government alleges that Collins, who was on the board of directors at IIL received advance word of a failure of a clinical trial and then passed that information on to his son who sold his position … avoiding a loss of $768,000. President Trump blasted the prosecution of Collins and one other republican (Duncan Hunter – R- CA) by blaming US Attorney General Jeff Sessions in a Tweet, “Two long running, Obama era, investigations of two very popular Republican Congressmen were brought to a well publicized charge, just ahead of the Mid-Terms, by the Jeff Sessions Justice Department. Two easy wins now in doubt because there is not enough time. Good job Jeff……” If Trump chooses, he could pardon these men as he did other cases in which he felt the prosecutions were politically motivated.
On President Obama’s last full day in office, he commuted the sentences 330 people who were incarcerated with long prison terms for their role in drug-related crimes. Obama used his power as president to address a “systematic injustice” that put people in prison for far too many years. While drugs sentences have received their fair share of exposure as an injustice in our criminal justice system, it is not the only one. Now would be a good time to consider presidential pardons or commutations for a number of those who were convicted of insider trading as a demonstration of righting a wrong and exposing the prosecutions for their political motivations.
President Trump, here is a good starting list of people who should be pardoned or have their sentence commuted … the chances of recidivism is near zero:
Rajat Gupta – He has a history of good deeds but hung out with the wrong guy (see Rajaratnam). His phone call after a Goldman Sachs board meeting was poor judgement but should not have risen to a term of incarceration. He served his time in prison and a pardon would allow him to continue to build on many of his past good deeds.
Raj Rajaratnam – Raj became the big fish because the government could never get to the biggest, Steven Cohen. While his firm Galleon was a nest for insider trading information, 11 years in prison, which was about 10 years less than government prosecutors asked for, is excessive. Raj has already served 7 years, has a billion dollars in the bank and still has the ability to create a few jobs. Let him out.
Billy Walters – When an FBI agent is responsible for leaks to the media about a criminal prosecution, then the whole case should have been tossed. Walters was found guilty of insider trading, the guy who gave him the tip (Dean Foods Chairman) cooperated and was given 2 years prison and the person who profited the most from the information, pro golfer Phil Mickelson, is still walking the fairways at PGA tournaments after paying an SEC fine. Walters, is now 72 years old and is scheduled for release in February 2022. The President should have him golfing at Trump National next week.
Mathew Martoma – The key to Martoma’s prosecution was prosecutors fighting out if the person cooperating against him was a friend or a paid consultant. No matter what people believe occurred in Martomas’ role in Steven Cohen’s best timed trade of the century, Martoma does not deserve 9 years in prison (he was sentenced 9 years ago today, September 7, 2017).
Adam Smith – The former Galleon portfolio manager pleaded guilty to insider trading then went on to found a company that helps inmates receive more information through tablets. Like others on this list, he demonstrated that he was a better person than the charges against him. His cooperation led to his getting probationthough he still has the felony conviction.
Michael Kimelman – Kimelman has been an outspoken critic of his prosecution and the justice system overall (a little pushback is good in democracy). His best selling book, Confessions Of A Wall Street Insider: A Cautionary Tale of Rats, Feds and Banksters is a great read and good insights into how a prosecution went a bit too far. My favorite quote from Kimelman in an interview I conducted with him was, “I got frogmarched in front of 100 journalists in front of the U.S. Courthouse at 500 Pearl Street and had my name splashed across the papers as if I were some sort of Lex Luthor-Bernie Madoff financial super-villain. It was brutal. The hardest part was that I had to wait 18 months on pre-trial before I could even try to defend myself or tell my side of the story. That didn’t go so well either.” Kimelman served his time, completed probation and still continues to lift his voice on injustices everywhere. Pardon him and let him enjoy his time with his kids.
Sean Stewart – Stewart already spent one year of a three-year term in prison for insider trading. The reason for his early release was that the 2nd Circuit is currently reviewing his case and will likely overturn his conviction. Rather than have a new set of lawyers re-try him in the SDNY, let the case go and issue the pardon … if for nothing else just to make this bad prosecution go away.
Matthew Teeple – Teeple pleaded guilty and received a 5 year prison term … Ivan Boesky didn’t get five years! At sentencing Judge Robert Patterson told Teeple he believed the letters of support describing him as a solid family man … but somehow the remedy was a long prison term. He is due to be released in March 2019 … so he’s served his time.
James Fleishman – If for no other reason, this guy deserves a pardon because he never even traded a stock!! He served a 30 month prison term, completed probation and has written a book stating that he still doesn’t know what he did wrong. Pardon the guy and let him continue on his path.
Danielle Chiesi – Proving that sexism is alive and well, Chiesi was dragged through the mud during her prosecution. Often misunderstood under the spotlight that Operation Perfect Hedge pointed at those who did not seek it, the accusations that were part o f Chiesi’s personal life were unwarranted and used to intimidate. She served her prison time and has resumed her life. This pardon would be empowering to women and a warning to future prosecutors to stick to the law.
The list could be longer, but had to stop somewhere ….
Original article was posted on Forbes.com. To view original article, click here.