Saturday, June 25, 2011

George Packer: "A Dirty Business New York City’s top prosecutor takes on Wall Street crimes" @ The New Yorker


... On November 28, 2007, Kang and another agent rang the bell at the gate of Khan’s house. Khan, a dishevelled, overweight woman of forty-nine, allowed the F.B.I. inside. She was in distress, having recently lost a lot of money on trades. She had sold her jewelry through Sotheby’s; her house was on the market for eighteen million dollars; and her marriage was in trouble. Khan told Kang that she was in contact with Rajaratnam only because she was hoping to get a job with Galleon, and that he talked to her only to be nice. She said that she knew Sunil Bhalla, of Polycom, because he had dated one of her friends. For more than an hour, she blizzarded the agents with lies. Then Kang brought out a file with the roomy81 I.M.s and other incriminating evidence. Khan retreated to one of her seven bathrooms, cried, and emerged with a new understanding of her situation. “If I don’t coöperate this time,” she told Kang, “I’ll go to jail.”

After meeting with Kang, Michaelson, and prosecutors in New York, Khan agreed to coöperate with the investigation. She gave up a new source: Shammara Hussain, a young employee of an investor-relations firm in San Francisco, who, in mid-2007, had tipped Khan about Google’s poor quarterly earnings. Khan had passed the news to Rajaratnam, who made eighteen million dollars by shorting Google stock. But for months Khan continued to lie about the Hilton trades. Finally, in April, 2008, she revealed that her source was Deep Shah, a young analyst at Moody’s, the rating agency, who had been assigned to Hilton and who called Khan the day before the acquisition was announced. (Shah, whom Khan paid ten thousand dollars for the information

, is now a fugitive in India.) Khan had met Shah through a relative, and she had lied about the Hilton trades because she hadn’t wanted to implicate a family member. This was Roomy Khan’s notion of honor.

As part of her coöperation, Khan began recording her calls with Rajaratnam. She caught him on enough “dirty” calls that, in March, 2008, Judge Gerard E. Lynch, of the Southern District, approved the government’s application for a thirty-day wiretap on Rajaratnam’s cell phone. The order was renewed through the rest of the year. The Rajaratnam recordings led to taps on other phones, including Chiesi’s, and identified other conspirators, harvesting a huge crop of direct evidence. By the time of the October, 2009, arrests, the government had taped thousands of calls. The S.E.C. had issued more than two hundred and thirty subpoenas for phone numbers and reviewed at least eight thousand call records. Over the course of the investigation, the agency gathered nearly ten million documents.

By law, the S.E.C.’s lawyers were kept in the dark about the wiretaps. In late 2008, the financial crisis and the Bernard Madoff scandal exposed the S.E.C. to unprecedented criticism, and higher-ups at the agency pressured the New York office to bring the Galleon case early and score a quick victory. But New York refused to jump the gun. By that time, it had become clear that the criminal authorities were building the biggest insider-trading case in history. ...

Read more at The New Yorker.

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