U.S. Attorney Preet Bharara on Cleaning up Wall Street and the Thin Line between Confidence and Arrogance

He is known as “The Sheriff of Wall Street,” but during a recent Wharton Leadership Lecture, Preet Bharara, the U.S. Attorney for the Southern District of New York, suggested that future business leaders can avoid scrutiny from his office by approaching their careers with integrity and a dose of humility. 

Since his appointment to the top federal law enforcement job in New York City in August 2009, Bharara has earned a reputation for taking aggressive stands against white collar criminals, including the successful insider-trading prosecution of Raj Rajaratnam, billionaire founder of the Galleon Group. Rajaratnam is due to be sentenced on October 13 and faces up to 24 years in prison. “Notwithstanding the power we have, we are not in the gotcha business,” Bharara said. “We are not going after folks just to go after folks and put a victory notch in our belts.”

Bharara also rejected criticisms that his office is anti-business or anti-Wall Street. “We don’t tag industries or specific types of industries. Sometimes financial institutions are our targets, other times they are themselves the victims,” he noted.

While Wall Street crime makes up just a part of Bharara’s caseload, he is concerned not only about the number and scope of finance-related cases, but also about the growth of organized networks carrying out fraud or insider trading. In the past, he said, cases may have revolved around a single friend or relative passing along confidential information. “Now we’re talking about people, in some instances, who are basically creating a business model for a stable of insider sources. That has been distressing.”

Bharara finds it somewhat ironic that many of the suspected criminals he confronts on Wall Street are extremely intelligent people who are paid handsomely to assess risk for hedge funds or other financial groups. He said convictions and harsh sentences are designed to “convince rational business people that the risk is not worth it.”

In addition to the Wall Street cases, Bharara’s staff of more than 200 prosecutors successfully prosecuted Times Square bomber Faisal Shahzad; charged terrorism suspect Khalid Sheikh Mohammed with killing nearly 3,000 people on September 11, 2001; tried the first pirate in modern times; broke up a Russian spy ring; extradited suspected arms trafficker Russian businessman Viktor Bout (who faces trial this week) and extracted a guilty plea from Jamaican drug trafficker Christopher Coke. In addition, the office has conducted major probes into Medicare fraud and illegal online gambling. “Those are the visible cases,” Bharara stated. “There are a lot of investigations I can’t talk about.”

Despite its triumphs, Bharara is often asked — even by relatives at family gatherings — why his office has not gotten convictions related directly to the current global financial crisis. “It’s appropriate to wonder about that question and to be frustrated by the lack of accountability for what looks like bad conduct,” Bharara noted. However, he pointed out that his office has a “much narrower mission,” which is to hold individuals “criminally accountable to the laws on the books now.”

Nonetheless, he said his office has people in different places looking to see if anyone can be held accountable “for some of the mess we’re in…. I don’t think there are any institutions that are too big to prosecute, but the evidence has to be there,” Bharara noted. Cases may indicate negligent or reckless behavior that is not, as defined by the law, criminal. While guarded about discussing specifics, Bharara added that his office puts resources toward investigating financial firms “if there is a case to be made.”

He noted that deferred prosecution agreements, in which a company agrees to pay fines and enact reforms in order to avoid criminal prosecution, may also be an effective way to serve justice. According to Bharara, such arrangements can be a good option for his office if a criminal judgment resulting from the behavior of a few people might bring down an entire company and cost thousands of other workers their jobs. Last week, Bharara’s office entered into an agreement with one of the largest volume mortgage foreclosure firms in New York State, Steven J. Baum PC, requiring the so-called “foreclosure mill” to pay $2 million to the United States and change its practices.

Crossing Lines

Born in India in 1968, Bharara’s parents moved to New Jersey when he was a child. After graduating from Harvard, he earned his law degree at Columbia. Bharara noted that his parents are of Sikh and Hindu descent, while his wife’s parents are Muslim and Jewish. As a result, he joked, that must make his three children “Episcopalian.”

After law school, Bharara worked for two New York law firms and served as an assistant U.S. attorney for five years. In 2005, he became chief counsel to Sen. Charles Schumer, a Democrat from New York and a leading member of the Senate Judiciary Committee. While working for Schumer, Bharara led the investigation into the firing of eight U.S. attorneys that ultimately resulted in the resignation of Attorney General Alberto Gonzales. Schumer recommended Bharara to President Barack Obama for his current job.

Running the U.S. Attorney’s office, Bharara said, is like being the chief executive of a small corporation. His budget is $50 million, but the office has been able to generate $800 million [for] the U.S. Treasury, a return, he said, that is better than many companies in the S&P index.

While his office has won major victories against killers and thieves, Bharara said the lawyers in his office are mindful of the consequences of their actions. The power to prosecute, he pointed out, comes with an obligation to be sensitive to companies and individuals who may be innocent. “If we launch an investigation, it is like rolling a grenade into the front door of a financial institution. We spend time discussing how we do that investigation in such a way as to avoid collateral damage to the innocent.” At the same time, he stated, no individual or firm should expect to be immune. “When there is smoke, especially if there is a lot of smoke, firefighters are going to show up at the scene. It’s the same with us.”

According to Bharara, criminal prosecutors tend to stay in situations that are black and white, and avoid those that are grey. “We don’t have the resources to chase ephemeral shadows of potential criminals.”

Bharara, who considers the most important qualities of a good leader to be integrity and humility, has been surprised to learn that many business schools do not have ethics programs. A lot of people just assume that it is obvious that integrity is important in business, he noted, but “if that were true, [the people in his office] wouldn’t be as busy as we are.” Leaders need to continually and publicly state that integrity is essential to their organizations. “If you ever find yourself at a place where this is not repeated on a regular basis, I submit there is something amiss at that place. There is already the seed of trouble.”

Bharara has noticed a phenomenon within organizations of employees trying to stay as close as possible to the line between legal and criminal behavior in an effort to make as much profit as possible. “If that’s the way you are thinking about your business or decision-making process, you are bound to run afoul of regulators or prosecutors,” Bharara said. “Inevitably, bad things happen.” He urged leaders to build a culture that encourages employees to “ring the alarm bells early” if others are engaging in unethical or illegal behavior. He called employees who tolerate bad behavior “enablers.” “A lot of this is hard,” Bharara conceded. “It is hard to turn in friends.”

He also stressed the importance of humility in leadership. “I bet a lot of people spend a lot of time telling you that you need to be confident to reach your dreams. But I think we sometimes forget that confidence quickly, or over a long time, leads to arrogance, which isn’t a good quality in a leader.” The best leaders, he added, find a balance between “enormous self-confidence and enormous self-doubt.”

A leader who is humble also has a better chance of avoiding errors. “Humility teaches you [that you] are not always right,” noted Bharara, who said he is “amazed” by the number of “really smart people” who shy away from asking questions. “I am successful, but I feel ignorant a lot of the time,” he said, adding that managers who “know it all are on the way to disaster and are probably pretty insufferable, too.”

Finally, Bharara argued that humility prepares leaders to meet the competition. Self-doubt encourages leaders to think hard about what others are doing, which helps in devising strategies that will put them ahead of competitors. “People who get complacent through arrogance fail in business and government. I never underestimate anyone because from time to time, I think people have underestimated me and my efforts.”

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