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Crime in the Suites An Analysis of Current Issues in White Collar Defense
This Man Is Dodging Wall St.
June 8, 2016

This Man Is Dodging Wall St.

By: David S. Yellin

Rather than confront accusations of baseless zeal and prosecutorial overreach, New York federal prosecutor Preet Bharara would rather spend his energy dodging accountability.

In 2010, Bharara launched a crusade against Wall Street, prosecuting several hedge funds he suspected of insider trading. Highly publicized raids followed. In the wake of the financial meltdown, Bharara was hailed as a hero. A Time cover story proclaimed, “This Man Is Busting Wall St.”

But many of those prosecutions went nowhere. A federal appellate court rejected the legal theory that the prosecutions were built on, and many cases were simply dropped. The SEC even agreed to return some of the money it had seized from several hedge funds.

This was cold comfort to people like David Ganek, the manager of Level Global—one of several hedge funds shut down by Bharara’s inquisition. Even while the case was pending, Bharara all but acknowledged that he meant to shutter Level Global, without regard for the presumption of innocence.

Sadly, even when defendants are harmed by prosecutorial overreach, broad immunity doctrines make it nearly impossible for the wrongly prosecuted to get justice.

But Ganek’s case involved more than just excessive zeal: the warrant used to raid Level Global depended on a false statement. A former employee of Level Global had told federal agents that Ganek did not know he was using information from corporate insiders, but the warrant application falsely said that Ganek did know. That gave Ganek a rare opportunity: federal agents can be shielded for overreaching, but there is no protection for lying.

Ganek sued officials from both the U.S. Attorney’s Office and the FBI (Ganek v. Leibowitz), claiming that the use of the false statement to prosecute him had violated his constitutional right against unreasonable searches and his due process rights. In March, a federal judge ruled that Ganek’s claim could go forward, rejecting claims of governmental immunity.

In most civil cases, overcoming this initial step is a big deal. It would allow Ganek to conduct discovery—that is, to investigate the facts behind his case by methods that can include obtaining documents from prosecutors and the FBI and depositions of federal officials under oath. This process can be extremely onerous—the cost of document production and the risks of laying bare a defendant’s inner workings to a hostile adversary have forced many defendants into settling dubious lawsuits. In addition to uncovering misrepresentations tied to his own case, Ganek also could investigate the conduct of federal officials more generally and, perhaps, even the supervisory practices of prosecutors and the FBI.

In a typical case, there would be no way to avoid this except by an expensive settlement—likely including a premium for avoiding discovery. But this is no typical case, and Preet Bharara is no typical litigant. Although most of us in Bharara’s position would have to wait until the end of a federal case before filing a single, final appeal, Bharara has relied on a narrow legal doctrine that allows him to appeal the court’s decision immediately, based on his claims of immunity. As a result, the court has delayed discovery and other proceedings indefinitely. Instead of accepting the need for transparency and letting Ganek be made whole for his wrongful prosecution, Bharara’s office will get a second bite at the apple by rearguing the issue of immunity in front of the U.S. Court of Appeals for the Second Circuit.

It is hard to imagine that Bharara will prevail on appeal—immunity does not cover outright lies by federal agents. Yet by belaboring a weak immunity argument, Bharara can postpone having to answer for the actions of his office for months, if not longer, while creating additional costs and burdens for Ganek.

This case goes beyond Ganek’s personal quest for justice. Civil suits like this are important for holding public officials accountable and can provide a window into how they operate. Bharara’s resistance sends a discomforting message: however merciless he may be towards his suspects, he should bear no consequences for his actions.

We’ll see if Ganek can prove him wrong.