U.S. Attorney Preet Bharara speaks at a press conference, January 2014. (NYLJ/Rick Kopstein)
Manhattan U.S. Attorney Preet Bharara has had his share of big weeks since taking office nearly five years ago. But even for him, the last one was a doozy. Bharara netted his 79th (!) straight insider trading conviction on Thursday, securing a guilty verdict against former SAC Capital Advisors portfolio manager Matthew Martoma. And his office started the week with a record-breaking False Claims Act settlement against a bank, inking a $614 million deal to resolve allegations that JPMorgan Chase & Co. duped two government agencies about loans that it underwrote or originated.
Bharara, the top prosecutor in the Southern District of New York since mid-2009, has spearheaded nine major cases against Wall Street banks since 2011. During his tenure, the 50-lawyer Civil Division has become a noticeably activist, risk-taking department, using some of the most powerful civil laws at the U.S. Department of Justice’s disposal and applying them in new ways and against new financial targets. In the process, Bharara’s office has prompted several important precedents vastly expanding the scope of both the False Claims Act and a savings and loan crisis–era statute, the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
The Litigation Daily recently spoke to Bharara about his approach to pursuing post-–financial crisis cases. Our conversation has been edited for clarity and length.
Litigation Daily: In your first few months on the job as U.S. attorney in Manhattan, your counterpart in Brooklyn lost a landmark criminal trial against two Bear Stearns hedge fund managers. Since then, the DOJ has relied primarily on big-ticket civil settlements, resulting in withering criticism by the likes of U.S. District Judge Jed Rakoff and Sen. Elizabeth Warren. Why aren’t we seeing any criminal indictments of top executives involved in mortgage market frauds?
Bharara: We’ve had very great success in the white-collar area of convicting people who have committed financial crimes like insider trading, but that does not mean that every kind of conduct, whether it’s negligent or reckless, can be brought criminally. It is very, very, very hard to convict someone criminally—and it should be. But that also doesn’t mean that just because something can’t be brought criminally, that you should just call it a day.
At the beginning of 2010 we in this office were talking generally about how we might use civil statutes to accomplish things where the criminal statutes either were not adequate or appropriate to use. Among other things, civil cases had a quality to them that smart lawyers can become enamored of: the preponderance standard. And we wanted to bring to bear powerful tools, some of which had not been used as aggressively as they might be or had not been used for specific industries, so we could hold institutions and individuals both accountable, to cause reforms to happen where appropriate, and to exact penalties that would actually mean something. On top of that, we wanted to make sure that if there were resolutions, there were admissions of conduct, so that people understood why we were bringing the cases and so that the whole world would see and understand the bad conduct.
LD: In your office’s first three FIRREA lawsuits targeting mortgage underwriting banks, civil prosecutors overcame objections by the defendants that the law doesn’t apply in cases where the affected bank was both victim and perpetrator of alleged fraud. It must have been far from clear to your team that judges would agree with an expansive, self-reflexive interpretation of the statute. What was your thinking going into the first test cases?
Bharara: This place is great, because lawyers here think within the constraints of the law, but outside the box. That’s exactly what happened here. Initially, our view internally was even though there’s some risk when you use a statute in a particular new way, it is worth it—because if people weren’t going to use a statute in that way because there’s no precedent on it, that’s the effective equivalent of having bad precedent. Our analysis was that the plain language of the statute should govern, and our analysis has been borne out in decisions from all three very well-respected judges in a very sophisticated district.
LD: Is the case against Bank of America/Countrywide, which resulted in a big trial win for your office on Oct. 23, the template for a new approach to civil enforcement against the big banks?
Bharara: Right. It’s not a criminal case, but it is an incredibly significant civil case that has a lot of ramifications for that bank, and a lot of impact on the thinking of other banks because of all the things aired in a public courtroom. Sure, it would have been risky had we lost, but the value for the government in having won in a massive case with very sophisticated counsel on the other side—who were maybe overconfident—is that the next institution knows that we’re not afraid to go to trial. Too long on the civil enforcement side in a lot of places there’s been a fear of going to trial. Not just a fear but concern about the enormous amount of resources that it takes. But you cannot go credibly into a litigation where you hope to get the result you want if you are afraid to, or if it is perceived that you are afraid to or unequipped to go to trial in front of a tough judge and prove your case.
LD: All of the civil suits you’ve brought against the major mortgage market participants have been the work of a six-lawyer civil frauds unit that you created in March 2010. Why was creating a specialized unit so important?
Bharara: The problem is that the more difficult and time consuming and laborious your defensive docket gets, the less time you can spend on the affirmative stuff. And unlike the criminal division, which is all affirmative, on the civil side most of its responsibility is to defend agencies and individuals in the government who are sued for things. Added to that, in 2009 and 2010, an increasingly large part of the civil work was representing the Treasury in the giant bankruptcies like GM. Most people’s dockets were getting overwhelmed. We realized that one way to make sure that we didn’t lose sight of the affirmative goals was to have a dedicated group of people who basically did not have any defensive docket, and their only job was to wake up and figure out what affirmative cases to do to ferret out fraud.
LD: What do you think we’ll see coming out of your office in 2014?
Bharara: I think you’re going to see more of the same. But in the next two to four years, that depends on what shenanigans people can get away with. You follow trends and see what’s coming down the horizon. It’s not that long a horizon. You’re talking about March of 2013, and we went from zero—I mean zero—there was not a soul in the Civil Division who had yet geared up to use the [FIRREA] statute the way we had described. And in a very short period of time, we not only launched a tremendously successful unit, but tremendously successful investigations against major institutions, including Deutsche Bank, CitiMortgage, Wells Fargo and Allied, went to trial and defeated Bank of America, recovered [over a billion dollars] in settlements and now have three district court decisions in our favor in respect to the use of a statute in a particular new way. And that’s in a space of three years.