White-Collar Prosecution is About Priorities

A little reality check on the insider-trading convictions against hedge-fund manager Raj Rajaratnam:

1) Most Main Street Americans who read the headlines will say, "Raj who?"

2) Most Wall Street traders needn't worry about the Feds tapping their phones.

3) Most white-collar ne'er-do-wells will remain unprosecuted. And even the case against Rajaratnam's once-$7-billion Galleon Group isn't likely to expand far beyond the cluster of related defendants it has already snared.

I gathered this much after talking to Cliff Stricklin, who successfully prosecuted executives at Enron and Qwest and has since moved on to private practice at Holme Roberts & Owen LLP in Denver.

"I think it's done right now," Stricklin said of the prosecution effort surrounding Galleon. "They're going to move on to something else.

"The government hasn't been aggressive in prosecuting white-collar crime since the recession started," Stricklin said. "They keep talking about it. But there's been very little action on it.

"It may be they've investigated and haven't found any criminal wrongdoing," he said. "Or it may be the government is still not sophisticated enough to keep up with our world of investments. And that's usually the case."

Anthony Accetta, who successfully prosecuted mortgage fraud in the 1970s as an assistant U.S. attorney in New York state, is so frustrated at the lack of prosecutions he's self-published a book and blogs at http://www.djnewsplus.com/article/0,,www.wallstreetmortgagefraud.com.,00.html?mod=.

"The Justice Department is desperate to hang up trophies," he said. "It's valuable to go after an individual like this who commits a crime. But to tout this as vigilance against financial fraud is completely misleading while they've really ignored all of the institutions and individuals who should have been prosecuted for mortgage fraud."

At least they just reeled in one big fish.

Federal prosecutors started out with 37 felony counts against Rajaratnam, but narrowed their case to 14. They won on each of them, yet incredibly Rajaratnam's attorney declared victory.

"We started out with 37 stocks," John Dowd said outside a Manhattan courtroom Wednesday, vowing an appeal. "We're down to 14. So the score is, you know, 23 to 14 in favor of the defense. We'll see you in the second circuit. Thank you."

His billionaire client then rolled away in a silver Mercedes.

OK, first, Dowd should know that whenever a client is being prosecuted for his insatiable greed, and the cameras are rolling, the client should drive off in a Toyota or a Chevy or even a cab. And second, Dowd should learn how to tell when he's badly lost a case.

"It's not about scorekeeping," Stricklin said. "It's about whether you're keeping the client out of prison."

Rajaratnam will be wearing an ankle bracelet until his July 29 sentencing, and it's not likely he'll be reclining in fine leather seats after that.

Given the realities of law-enforcement resources when it comes to white-collar crime, Rajaratnam was extremely unlucky. Or perhaps he was so brazen, prosecutors couldn't resist making him a priority in a world of scant prosecutorial resources.

He goes down in history as the first federal white-collar defendant nailed in a wiretap. Wiretaps -- usually reserved for organized-crime figures and violent offenders -- are incredibly time-intensive. It's not just manning the phone lines 24/7, but cataloging each recording and filing regular documentation required by courts. "A lot of times they're not worth the trouble," Stricklin said.

In this case, though, wiretaps dismantled Rajaratnam's defense that he only traded on publicly available information.

"He said, 'Yeah, we've got deep research.' Well, research sounded like calling a buddy and getting a tip," Stricklin said.

"You can always put someone on the stand -- a co-defendant who has pled guilty and is trying to get a good deal from the government -- to say what someone told them. But when you hear it in [a defendant's] own words, it's very compelling evidence."

Some mark the Galleon case as federal prosecutors' biggest white-collar victory since Enron.

Stricklin was a key member of the Enron Task Force that convicted Jeff Skilling and Ken Lay. He also prosecuted Qwest CEO Joe Nacchio, who is now serving a six-year prison sentence.

Every big case that a prosecution team picks is to the exclusion of other cases, Stricklin said.

"You have to direct your personnel where they provide the best value or return," he said. "Having enough prosecutors is one thing. You still have to have agents with the skills necessary to investigate these crimes. And, as you know, the country's biggest focus is on anti-terrorism efforts."

In the end, a few high-profile convictions haven't satisfied Americans' growing sense of injustice regarding the crimes of the super rich. Prosecutors can only hope their few hard-fought victories send a message. For, in a competitive marketplace, even they have to keep moving.

Stricklin said the biggest white-collar victory since Enron doesn't make him long for his glory days.

"Representing people who are not guilty, and explaining to the jury that they're not guilty, that's what I like most, now."

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at al.lewis@dowjones.com or tellittoal.com)