A court ruling, on March 10th, in a Southern District of New York (Manhattan) lawsuit, raises serious question as to whether Preet Bharara, U.S. President Barack Obama’s Prosecutor for Wall Street crimes, is a glory-hound fake, who cares little or nothing about destroying Wall Street’s innocent relative small fry, in order to provide to the public the false impression that the Obama Administration is pursuing criminality by the really big fish in Wall Street’s authentic mega-firms. (TRAC Reports, the service that tracks federal prosecutions, reported in 2015, “Federal White Collar Prosecutions at 20-Year Low” and that this was especially so for “Bank Fraud.”)
Here was the laudatory TIME front cover of the 13 February 2012 issue:
Notice there the subheadline: “Prosecutor Preet Bharara collars the masters of the meltdown.”
The news-report’s headline was “Keeping Wall Street Honest,” and, “The Street Fighter.”
On wall street and in financial firms across America, the conference call is a standard workday tool. Traders, analysts and executives hop on to discuss trades, news and rumors that might move the market. Such was the case at the hedge fund Level Global Investors on Nov. 4, 2009, when one of its analysts joined a call organized by a second firm, Primary Global Research. PGR connects hedge funds, brokerages and other market players with executives of corporations–a Wall Street matchmaker of sorts–and on that day, PGR had some hot information for the hedgies at Level Global.
A young and very pretty female admirer-at-a-distance gushed about him on her blog, “there are some people who if I were to see them in the streets, I would run towards them screaming like a crazed Elvis fan, hysterically pulling my hair. They are generally male, cerebrally brilliant & the king of whatever realm in which their brilliance is known. One of them is this man, who I saw yesterday walking towards the courthouse for the Southern District of New York (near where I live): The genius regulator of the most powerful federal district in the United States: Preet Bharara. Isn’t he gorgeous??? Could he be any more handsome?? Just looking at this photo and remembering my sighting of him makes my heart beat out of my body like in the cartoons.”
And, here is an edited (for clarity and brevity) version of the Judge’s far-less-palpitating report on the man, and of Bharara’s role in this particular case: the star case in that starring article about Obama’s star fighter for the public and ‘taking down Wall Street’:
DAVID GANEK, Plaintiff, against DAVID LEIBOWITZ, et al., Defendants. WILLIAM H. PAULEY III, District Judge:
In late 2010, the FBI executed coordinated raids on several well-known hedge funds in a highly touted investigation of insider trading. Plaintiff David Ganek’s hedge fund, Level Global Investors, was among them. These raids sent shockwaves through Wall Street: investment bankers and traders were indicted, and multi-billion dollar businesses — including Level Global — were shuttered.
But five years later, a different picture has emerged. The Second Circuit rejected the Government’s theory of insider trading. Criminal convictions were vacated, and indictments dismissed. And in a nearly unprecedented role-reversal, the SEC agreed to disgorge monies it collected in connection with consent judgments against various hedge funds, including Level Global.
In this lawsuit, Ganek seeks to hold government agents accountable for violating his civil rights. More specifically, Ganek alleges that the affidavit supporting the Government’s request for a search warrant of Level Global and his office contained deliberate misrepresentations that were later exposed by sworn trial testimony of an FBI agent and a government informant. According to Ganek, that fabricated evidence led a magistrate to issue the warrant. That, coupled with Defendants’ heavy-handed tactics, precipitated the closure of Level Global. These are grave allegations. Ganek asserts claims against FBI Agents Holly Trask, David Makol, James Hinkle, and Matt Komar, along with Assistant United States Attorneys Reed Brodsky and David Leibowitz, for violation of his Fourth and Fifth Amendment rights. Ganek also asserts claims against Preet Bharara, Boyd Johnson III, Richard Zabel, Christopher Garcia, Marc Berger, Diego Rodriguez, Rachel Rojas, David Chaves, and Patrick Carroll (the “Supervisor Defendants”) for supervisory liability and failure to intercede. Ganek seeks compensatory and punitive damages pursuant to Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics, 403 U.S. 338 (1971). Defendants move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). …
[MY NOTE: On 2 April 2013, one of America’s highest-paying law firms, Gibson Dunn & Crutcher, headlined a press release, “Former Federal Prosecutor Reed Brodsky Joins Gibson Dunn’s New York Office,” and announced: “‘We are delighted to welcome Reed to the firm,’ said Ken Doran, Chairman and Managing Partner of Gibson Dunn. ‘Our white collar defense and investigations practice is thriving, and expanding our capabilities in this area is a priority for the firm. Reed has a very strong reputation in the legal and financial communities, particularly in New York. His trial skills and success in the courtroom will complement our existing strengths and help us to better serve our clients.’
‘Reed is a unique talent who shines in a courtroom,’ said Randy Mastro, Co-Chair of Gibson Dunn’s Litigation Practice Group. ‘A superb trial lawyer who is a master strategist and magnificent in front of juries, Reed has distinguished himself as a federal prosecutor, winning convictions in the toughest, highest-profile insider trading cases. He is a star, and we are looking forward to having him join our all-star team.’
‘Reed is another triple threat for our White Collar practice in New York: he wins big cases consistently,’ … said Jim Walden, Co-Chair of the firm’s White Collar Defense and Investigations Practice. ‘We could not be happier.’”
Now he’ll be at the defense table. And, so, back to the Judge’s ruling:]
BACKGROUND: The following facts are gleaned from the Complaint and presumed true for purposes of this motion. Level Global was a successful hedge fund with approximately 60 employees and $4 billion in assets under management. Ganek was its co- founder and principal partner.
In 2008, federal authorities in New York began devoting significant resources to insider trading investigations among financial professionals. In 2009, Bharara, the United States Attorney for the Southern District of New York, publicized those investigations as one of his signature initiatives, noting that his Office was utilizing “covert methods” typically reserved for violent criminal organizations, including informants and wiretaps. Agents Trask, Komar, Makol and Hinkle conducted the investigation. Chaves and Carroll led the investigative team, and Rodriguez and Rojas had overall supervisory responsibility within the FBI. These FBI personnel worked closely with Assistant United States Attorneys in the SDNY’s Securities and Commodities Task Force (the “Task Force”). Brodsky and Leibowitz reported to Berger and Garcia. Zabel supervised the Task Force, and reported to Johnson and Bharara.
In 2010, the Task Force targeted Level Global.
The Level Global Investigation
In October 2010, Agents Hinkle and Makol (with Chaves’ approval) approached Sam Adondakis in Central Park and confronted him with wiretap evidence implicating him in insider trading. Earlier that year, Level Global had fired him from his research analyst position for violating compliance protocols.
Confounded with recorded evidence of his own illegal activity, Adondakis agreed to cooperate with the FBI. On November 2, 2010, Adondakis met with AUSAs [Assistant U.S. Attorneys] Brodsky and Leibowitz, and FBI Agents Makol, Hinkle, and Komar, and admitted to trading on material non-public information regarding Dell (the “November 2, 2010 Meeting”). He implicated two other Level Global employees in insider trading, explaining that they also received the information, knew its source, and traded on it.
During the November 2, 2010 Meeting, Adondakis explicitly denied ever informing Ganek that the information came from corporate insiders. Ganek alleges (upon information and belief) that the participants in the November 2, 2010 Meeting shared the results of the interview with FBI Agents Trask, Chaves, Carroll, Rojas and/or Rodriguez, and with AUSAs Berger, Garcia, Zabel, Deputy US Attorney Johnson and/or US Attorney Bharara.
On November 19, 2010 — the same day the Wall Street Journal reported that federal insider-trading charges against financial professionals were imminent — Agent Trask signed a 37-page affidavit outlining the evidence uncovered in the Government’s investigation (the “Affidavit”). The Affidavit stated that Adondakis “obtained Inside Information from insiders at public companies through third-party consultants . . . . On Certain occasions, ADONDAKIS provided this Inside Information to DAVID GANEK, . . . and GANEK . . . executed and caused others to execute certain securities transactions based, in part, on the Inside Information, and that ADONDAKIS informed GANEK . . . of the sources of the Inside Information. In the same paragraph, the Affidavit again stated that “ADONDAKIS . . . informed GANEK . . . regarding the sources of the Inside Information.”
Ganek maintains that Defendants fabricated the Affidavit’s allegation that Adondakis informed him of the sources of any inside information.
The Raid on Level Global
On November 21, 2010, Trask presented the Affidavit to a magistrate as part of a search warrant application. As a target of the warrant, Ganek’s personal office, financial records, correspondence, photographs, address book, phone records, and cell phone would be subject to search. The magistrate issued the search warrant.
The following morning, the Government executed it on Level Global as part of coordinated raids on certain hedge funds. Two dozen agents searched Level Global’s offices, seizing, inter alia, Ganek’s personal files and cell phone. Prior to executing the warrant, the Government alerted the Wall Street Journal that it would be raiding Level Global’s offices.
Because the Wall Street Journal was “tipped off,” it was able to publish photographs of FBI agents carrying boxes of documents from Level Global’s office. Only the Supervisor Defendants [including, of course, Bharara] had the authority to alert the media.
Ganek alleges that the sole purpose of executing a highly publicized raid on his office (as opposed to issuing a subpoena), was to maximize publicity and damage his reputation.
On the day of the raid, the Government provided Ganek’s attorney with a copy of the warrant, but not the Affidavit.
Level Global’s Closure
On December 20, 2010, Level Global representatives met with Zabel, Chief of the Criminal Division, and AUSA Leibowitz to express concern about unnecessary damage inflicted on the firm. Zabel and Leibowitz informed Level Global that the likely commercial consequences of the raid “had been carefully considered at the highest levels” before it was initiated. In the wake of that rebuff, Ganek commissioned an independent investigation by outside counsel.
In January 2011, the investigation concluded that Ganek did not engage in insider trading.
Nevertheless, Level Global’s investors were unnerved, and continued to have questions regarding the scope of the Government’s investigation that Ganek could not answer because the Affidavit remained sealed.
In a last-ditch effort to save his business, Ganek had one of his attorneys — a former AUSA in the Southern District of New York—reach out directly to Bharara.
On February 3, 2011 one or more of the FBI Defendants drafted a report about the November 2, 2010 Meeting (the “Report”). The Report reiterated the fabricated information: that Adondakis informed the agents that Ganek was “interested in the Dell information when Adondakis told [him] because the information came directly from contacts at Dell.”
On February 4, 2011, Ganek’s attorney informed Bharara that Level Global would close if the Government failed to clarify publicly that Ganek was not a target of the insider trading investigation. Although Bharara promised to look into the matter, none of the Defendants followed up with Adondakis.
Three days later, Bharara explained to Ganek’s attorney that although Bharara and his team understood that Level Global might be forced to close its doors, he would not intervene.
With his options exhausted, Ganek shut down Level Global on February 11, 2011.
On the same day that Level Global closed, AUSA Leibowitz and others met with Adondakis for the first time since the November 2, 2010 Meeting. At that February 11, 2011 meeting, Adondakis reiterated that he never informed Ganek about his sources.
Ganek alleges that these facts were relayed to the Supervisor Defendants, who failed to take any ameliorative action.
The Newman Trial
In January 2012, Bharara announced that the US Attorney’s Office had filed charges against seven individuals, only one of whom had been employed by Level Global. Bharara also unsealed an Information against Adondakis, who, unbeknownst to Ganek, had already pled guilty. Ganek was not mentioned— much less indicted—in connection with any of the charges.
In March 2012, the district judge presiding over a criminal case relating to four of the charged individuals entered a protective order permitting disclosure of the Affidavit to the defendants, their counsel, and prospective witnesses and their counsel. Through that protective order, Ganek’s counsel obtained access to the Affidavit.
In November 2012, two of those charged individuals went to trial (“the Newman Trial”). Both Adondakis and Agent Makol testified at the Newman Trial regarding the November 2, 2010 Meeting. Specifically, Adondakis testified that he “never told [Ganek]” about [his source within Dell].” Cross-examination elicited similar testimony: Q. Let’s refer to Mr. Ganek specifically. I’d like to read [from the Report], if I may. “Chiasson and Ganek were both interested in the Dell information when Adondakis told them because the information came directly from contacts at Dell.” Is that true as to Mr. Ganek or not true? A. No, it’s not true.
On December 10, 2012, Defendant Makol took the stand, corroborated Adondakis’ trial testimony, and disclaimed responsibility for the Report’s contents. In particular, Makol testified: I recall from that meeting specifically at that meeting that there was confusion about this paragraph [of the Report] because I know coming away from that meeting that I didn’t write the report. I was certain that Mr. Adondakis was not saying that he specifically told Mr. Ganek that the information was coming from someone at Dell, so it was confusing. And on subsequent questioning by the Government about the November 2, 2010 Meeting, Makol gave the following testimony: Q. Separate and apart from that, what’s written there, do you have a recollection of what Mr. Adondakis said during the initial proffer about what he told Mr. Ganek about the source of the inside information? A. Yes. Q. And what is that recollection? A. Mr. Adondakis did not say that he told Mr. Ganek that the Dell information was coming from a source inside Dell.
Until this trial testimony, Ganek alleges that Defendants’ misconduct was not fully revealed.
Ganek filed this action on February 26, 2015.
Defendants assert that the statute of limitations bars Ganek’s claims and that his Complaint fails to state a claim.
I. Statute of Limitations: Defendants argue that Ganek’s claims accrued on November 22, 2010—the day Level Global was raided. Ganek counters that they did not accrue until late 2012 — when Adondakis and Agent Makol testified at the Newman Trial. “The statute of limitations for Bivens actions arising in New York is three years.” In support of their statute-of-limitations argument, Defendants rely principally on Triestman v. Probst, 897 F. Supp. 48 (N.D.N.Y. 1995). Triestman is unpersuasive for several reasons [which the Judge then discusses at length]. …
II. Failure to State a Claim: … Defendants’ proffered approach would [be] … turning a statute of limitations into a strict statute of repose running from the date of an allegedly unlawful search. Generally, plaintiffs should not face the “Hobson’s choice” of either prematurely bringing claims or forfeiting their legal rights. While Ganek may have first been injured on the date the search warrant was executed, it was not until after the Affidavit was unsealed that Ganek reasonably became aware of any Bivens claims. Accordingly, this lawsuit is timely. …
[There then follow almost fifteen pages of discussion of the defendants’ arguments to dismiss Ganek’s case, and of Ganek’s claims that his Fourth and Fifth Amendment rights were violated and that illegal procedures were used by the defendants. Only a few points from that will be included in this shortened version.]
Here, the Defendants are not low-level employees who engaged in a “random and unauthorized” seizure of Ganek’s property; they were highly trusted government agents and attorneys operating within the framework of a multi-year investigation touted by Bharara as a “top criminal priority” for his office.Moreover, Ganek alleges that Defendants not only foresaw the potential consequences of their actions, but that they affirmatively acknowledged the harms and disregarded them. Further, it is of no moment that the authorities cited by the parties analyze deprivations of liberty rather than property, as the Fifth Amendment does not distinguish between these constitutionally protected interests. In short, based on the allegations in the Complaint, this Court cannot conclude that Rule 41(g) forecloses Ganek’s procedural due process claims. Because Ganek adequately pleads that the seizure of his personal items was premised on fabricated evidence, he states a Fifth Amendment procedural due process claim. …
Failure to Intercede: Ganek brings failure to intercede (or failure to intervene) claims against all Defendants. “It is widely recognized that all law enforcement officials have an affirmative duty to intervene to protect the constitutional rights of citizens from infringement by other law enforcement officers in their presence.” …
This Court sees no reason to dismiss Ganek’s failure to intercede claims against the non-Supervisor Defendants at this stage. …
Ganek’s general premise resonates with this Court. … Certainly, government attorneys are ethically obligated to limit the collateral damage resulting from government investigations. … Indeed, the U.S. Attorney’s Manual commands that prosecutors consider “collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable” when contemplating the prosecution of business organizations. …
Defendants challenge Ganek’s proposed remedy, arguing that there is no “clearly established constitutional right” to public exoneration and therefore Defendants are entitled to qualified immunity. But as Ganek points out, courts have recognized a constitutional obligation to protect an individual when a “governmental entity itself has created or increased the danger to the individual.” At the pleadings stage, it would be premature for this Court to address the manner in which government agents should have intervened. And Defendants cite no authority to the contrary. Whether the Supervisor Defendants are entitled to qualified immunity on such grounds is a better question for summary judgment. Accordingly, the Supervisor Defendants’ motion to dismiss the failure to intercede claim is denied. …
Certainly, the Supreme Court has been reluctant to permit claims against high-level government officials, and the Defendants deftly argue that Turkmen should be limited to its facts. But the fundamental question before this Court is whether it is plausible (i.e., more than just possible but less than probable) that the Supervisor Defendants were involved with the allegedly false or misleading information in the Affidavit before it was submitted to the magistrate. And while Ganek does not have the benefit of Turkmen’s OIG Report to bolster his claims, there are obvious parallels in Ganek’s allegations. Namely, Ganek pleads that the Supervisor Defendants were kept abreast of developments, prioritized the prosecution of high-level executives, and tipped the Wall Street Journal. Moreover, the Complaint contains thorough allegations establishing the high priority placed by the Supervisor Defendants on the insider trading investigation. These allegations include specific facts establishing the plausibility of the Supervisor Defendants’ involvement prior to the raid, including admissions by certain defendants that the raid’s consequences “had been carefully considered at the highest levels,” and DOJ policy indicating that any decision to tip the press required supervisory approval. In short, given the high-profile nature of the investigation and involvement of the Supervisor Defendants, as alleged in great detail in the Complaint, it is plausible that some of the Supervisor Defendants would have learned details of the November 2, 2010 Meeting and, at the very least, “entertained serious doubts as to the truth of [the allegations] in the Affidavit.” As recognized by the Supreme Court, a “well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” That said, in a case alleging unconstitutional overreach, it would be ironic to permit Plaintiff to unnecessarily embroil each of the nine Supervisor Defendants in time-consuming discovery given the possibility (and perhaps probability) that not all of the Supervisor Defendants were directly involved with the allegedly false Affidavit. Indeed, this concern is tacitly recognized by Ganek. The parties should account for that reality by formulating an equitable and proportional discovery plan consistent with the recent revisions to the Federal Rules of Civil Procedure.
CONCLUSION For the foregoing reasons, Defendants’ motion to dismiss is granted in part and denied in part. Specifically, Defendants’ motion is granted only with respect to Plaintiff’s Fifth Amendment claim (Count 1) to the extent it relies on stigma-plus and substantive due process theories of liability, and Plaintiff’s Fourth Amendment claim (Count II), to the extent it challenges the “reasonableness” of the manner in which the search was conducted. All other aspects of Plaintiff’s Fifth and Fourth Amendment claims survive. Defendants’ motion to dismiss is denied with respect to Plaintiff’s claims for failure to intercede (Count III) and supervisory liability (Count IV). Discovery is now appropriate to ascertain whether this case is about a simple misunderstanding or whether something more troubling was afoot. A status conference is scheduled for March 30, 2016 at 11: a.m. in Courtroom 20B. The parties should meet and confer and submit a joint letter by March 25, 2016 outlining their respective positions on how discovery should proceed. The Clerk of Court is directed to terminate the motion pending at ECF No. 43.
Dated: March 10, 2016
New York, New York
WILLIAM H. PAULEY III
Copies via ECF to all counsel of record.
Investigative historian Eric Zuesse is the author, most recently, of They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.