Dowd and his team have relied on the so-called mosaic defense—the idea that today’s sophisticated investors don’t trade on any one piece of information from a single source but on a million little bits of information from multiple sources. Whatever Rajaratnam heard from his alleged tipsters, his lawyers say, was inevitably similar to rumors that had been circulating in the financial media. Rajaratnam was simply conducting aggressive research, and nothing he did hurt other investors (to secure a conviction, Bharara’s team must prove that harm was done). “It is legal to trade stock, and the law does not place a person’s liberty at risk simply because he trades in the company’s stock while knowing something about the company,” Dowd has argued.
Streeter, meanwhile, has brought out a litany of witnesses, including one former Galleon Group employee, each telling some version of the same story: that Rajaratnam had positioned Galleon to procure and deploy inside information from a variety of tipsters, some of them paid. The most-talked-about witness was Blankfein. Compelled to testify after a friend of Rajaratnam’s, former Goldman director Rajat Gupta, was shown to have called Rajaratnam just after finishing a conference call with Blankfein, the Goldman CEO confirmed that Gupta had violated the bank’s confidentiality policy in revealing information spoken about on the call.
The prosecution’s main weapon, however, has been the taped phone calls showing Rajaratnam and Galleon employees scouring the world for information. “I’m dead if this leaks,” Danielle Chiesi, another hedge-fund contact of Rajaratnam’s eventually flipped by prosecutors, says in one phone transcript. “I’ll be like Martha fucking Stewart.” Whether the content of the conversations proves criminality will be for the jury to decide, but their tone is clearly damning. “These people are talking about using disposable cell phones and how so-and-so may be wearing a wire,” says Stephen Bainbridge, a UCLA law and business professor. “It’s not at all clear that they thought what they were doing was legal. It looks like there was some hubris here. They just thought they were too smart, too rich, to be taken down.”
The Galleon wiretaps were under way before Bharara started as U.S. Attorney, but he actively embraced the case, and it was he who announced on October 16, 2009, that Rajaratnam had been arrested. Bharara, who lives a quiet suburban life with his wife and three children, always wanted to be a trial lawyer. He was born in Ferozepur, India, and came to America two years later; while his father had grown up without plumbing and was the first member of his family to go to college, Bharara, naturalized at 12, had a comfortable middle-class childhood in a liberal enclave of Monmouth County, New Jersey. He went to private school, and graduated from Harvard magna cum laude. “He was a deep thinker,” says Viet Dinh, a close friend from that time, who went on to become the Washington lawyer who authored the USA Patriot Act. “He does not try to score points through technicalities. He tries to understand the argument.”
After Columbia Law School and several years of white-collar defense work at Gibson Dunn and another firm, Bharara joined the Southern District as an assistant U.S. Attorney in 2000. For five years, he specialized in organized-crime cases, using warrants and wiretaps against the Gambino and Colombo crime families. Then he moved to Washington to become chief counsel to Chuck Schumer in the Senate, where he led the congressional probe into Bush Attorney General Alberto Gonzales’s firings of eight U.S. Attorneys. He won a reputation for being aggressive but decent. “I will always be grateful to Preet for being fair to me,” says one highly placed Republican DOJ official he questioned directly. “And I didn’t even know the guy.”
When Schumer nominated Bharara for U.S. Attorney in the Southern District in the summer of 2009, Bharara gained attention for his light touch and sense of humor. “Dang, do you have to be a citizen to get this job?” he’s said to have joked during his White House interview. Under Michael Garcia and then–acting chief Lev Dassin, the Southern District office had been in, if not a fallow period, a quiet stretch. Bharara embarked on a drastic reorganization, bringing a new focus to white-collar work—with a special emphasis on the use of warrants and wiretaps. His deputy, Boyd Johnson III, and chief of the criminal division, Richard Zabel, had narcotics and crime backgrounds, like Bharara, and Bharara appointed as chiefs two prosecutors with experience going after drug cartels and the Mafia.
As an outgrowth of the Galleon case, Bharara began prosecuting members of so-called expert networks, executives of public companies who are paid on the side to deliver insight into their own companies—insight Bharara contends is at times just thinly veiled inside information. He has investigated expert networks like Primary Global Research and Broadband Research and investment funds that patronized them like Citadel Asset Management, Janus Capital Group, Wellington Management, MFS Investment Management, and Steven Cohen’s $12.8 billion SAC Capital. Working with Bharara’s office, the FBI learned of alleged tipsters listening to conference calls in which corporate-earnings information was discussed before it was made public; on the hedge-fund side, they saw people keeping their inside information hidden on flash drives. By February, a number of the funds whose names made news reports went out of business, and Bharara went after traders and analysts who allegedly destroyed evidence and began frantically calling friends. Two former SAC employees, Donald Longueuil and Noah Freeman, were indicted, as well as research analyst Jason Pflaum and hedge-fund founder Samir Barai, who investigators say sent one text that read “shred as much as u can.”