Confessions of a Wall Street Insider

by Michael Kimelman

  Having to deal with Zvi was the worst part of prison—but probably also the most fitting. It was my partnership with him that had been my undoing. I’d ignored the aspects of his personality that had always pointed toward evil and psychopathy. The confirmation that I had been a very poor judge of character was something that confronted me daily.

  And then, when I thought I might have seen the worst, seven months before my release, Lisa served me with divorce papers. This was connected to the threats from Zvi because of the way it came to my attention.

  A Pennsylvania state trooper arrived at the prison and I was summoned over the loudspeaker to the “Bubble,” the guard office where you never wanted to be called. Of course, I expected the worst—that Zvi had indeed been able to orchestrate something horrible happening to one of my kids.

  The trooper asked me to confirm that I was Michael Kimelman, then handed me a blue-backed envelope. It was about the size and shape of the menu for a Chinese food restaurant. I opened it and immediately realized what it was.

  Thinking like a lawyer, I asked the trooper what would happen if I refused to accept it. The nearest CO said, “That’s easy; I’ll put you in the hole until you beg to accept it” and flashed a sadistic smile. I should have expected no less.

  It turned out that Lisa had prepped the kids several months earlier, telling them that I wasn’t going to be coming back home to stay with them. To her credit, she told them I would have my own house nearby, that we both still loved them, and that I would always be their dad. I’m sure it was horrible for them to hear, and for her to say. (The next time my parents brought my children to visit, Cam asked point-blank why I couldn’t come home to them when I was done serving my time. I had had weeks to think about it, and still had no answer for him.)

  Talk about feeling trapped and powerless. I couldn’t understand why Lisa needed to do this now. I couldn’t help wondering why the hell her friends, brother, even her father hadn’t tried to convince her otherwise. I was heading home soon enough, and a sober man to boot. A different world and life lay before us. My head would be clear for the first time in almost twenty-five years. Was it a second chance with her I wanted and thought I deserved? Maybe. Maybe it was a third chance, or even a fourth. Maybe we’d both lost count of what we felt we owed each other. But with the future of three little ones—our three little ones—on the line, was one more chance too much to ask?

  I asked her to wait until I got home. If it didn’t work once I was back then fine, I wouldn’t contest a thing and move on—while also telling her that if she did this now, by abandoning me in this hellhole with nothing to think about but this pain for the next seven months, then I doubted that I could forgive her. Our marriage would be over.

  In the days after being served with my divorce papers, I felt genuinely abandoned, lost and alone, drifting inside my cage. The feeling did not ease. I simply learned to maintain. I focused on my release, which was growing nearer and nearer, and was soon right around the corner.

  Then, at the last moment, another twist.

  Just a few days before my release, Lisa got in touch to say she had had a change of heart. She wanted to pick me up with the kids, and to try and reconcile. I was skeptical. Heartbroken. I did not really respond.

  When she did come to pick me up with the children (no running into one another’s arms like in a movie, just me slowly walking out the prison door to the car and never looking back), I still couldn’t commit. Communication was hard. I told her I wouldn’t rule anything out, but it had to be different. I wasn’t going back to what we had before. She had to understand that. Our previous style of togetherness was over forever. This would be something entirely new.

  Despite losing almost everything in life, I fought to remain positive after my release. I wanted to be an optimist, who understood he had a second lease on life. I couldn’t spend my new life on the outside with someone who saw the glass as half empty—or with a defeated, depressed person. I did not hesitate to remind Lisa that she had abandoned me at my lowest point, when I needed help the most. I made her understand that such an act could never be immediately forgiven.

  We tried for a while.

  Every time it seemed like there might be a chance of making it work, some small tiff would set off our massive geysers of resentment. It didn’t take much for the old, angry Lisa to come out (or the old, angry Michael). I couldn’t handle the Jekyll and Hyde of it.

  In the end, if I’m being honest, I was never able to fully forgive her for abandoning me in prison, for not visiting me, and for not keeping the faith that things would one day get better.

  I ended up moving into a small two-bedroom apartment in Mamaroneck, New York. And that, as they say, was that.

  * While I was never sent to solitary, I heard from those that had been that it was, even in a minimum security prison, nothing short of torture. Yes, actual torture, like the UN/CIA definition of torture: huge fluorescent lights shining on you 24/7, the heat turned up beyond bearable, or else ice cold. There was food and sleep deprivation, and only sporadic showers. You had no contact with others, and could only leave your cell for an hour a day, tops.

  * A few of the more entrepreneurial inmates had once used a contraband cellphone and Facebook account to meet a local prostitute whom they smuggled into the prison (don’t ask how). The pro ended up getting angry and going to the authorities after several inmates demanded unpaid freebies. That was the only way we found out it had even happened.

  ** And it paid off: along with an additional three months taken off for good behavior, I was able to “walk” in twenty-one months, as opposed to serving the thirty months Sullivan had sentenced me to.

  CHAPTER TWENTY-ONE

  REHABILITATION

  ______________

  CAN YOU REHABILITATE A MAN WHO considers himself unjustly convicted? What does “success” look like in that situation? What is the system supposed to do?

  When it comes to my case, I still believe any respectable journalist, judge, or legal scholar examining the facts will conclude that I got a bum rap. My mistake was trusting people. I trusted the people I went into business with. I trusted that presiding judges would be impartial and fair. Even after the FBI stormed my home during a pre-dawn raid, I still trusted that this was all just a big, strange mistake and that justice would prevail.

  Truth, justice, and the American way. Cut to the Stars and Stripes billowing in the breeze. Boy, did I misread that one. To me the preamble of our Constitution now reads, to use an appropriate British expression, like a bunch of cock and bull.

  Spend any time in prison—even in a minimum security prison—and you will regret not doing whatever might have been in your power to prevent those circumstances from happening. You will regret that decision every single morning when you wake up on that cramped bunk with a half-inch slab of foam between you and the steel planks—sore and knowing you’ll be just as sore each night you lie back down and try to sleep. You will regret it in the shower, or hovering over a rust-stained toilet, or watching your back.

  I didn’t have to be here. Fuck me and my stupid pride.

  But it will be too late.

  You will regret it long after you’re released. You will regret it when you see how your children have grown without you, and how your actions have damaged what should have been an era of innocence in their lives.

  And yet …

  Even now, as a divorced man struggling day by day to rebuild my life, some part of me still believes that the time will come when my friends and family will tell me that, despite it all, I did the right thing. I even dare to dream that, someday, my beloved children might tell me that as well.

  Or if they disagree, that they at least forgive me.

  One day they will read this book and understand their father, warts and all. They will see me for who I was: someone who worked too hard to give his kids and his wife a “better life,” who drank too much, who thrived on risk and competition, but most of all, someone who cherish
ed the time he spent with them and tried to live a life by example. They will see their father as flawed—as all children come to see their parents when they grow up. I dare to dream that, when this happens, my children will conclude that I was, in fact, caught in a maelstrom, unfairly tried and unjustly convicted.

  That if I had, in the end, taken the government’s offer and pled guilty, everything I would have said to my kids, or myself, about my fundamental innocence would have been compromised, forever tainted. My word would have meant nothing—to them, who mean everything to me.

  In June of 2014, I sat down and wrote an angry but lucid letter about my plight. I considered submitting it to the Wall Street Journal or the New York Times as an editorial. But then I thought twice. The ugly truth is when you’re on probation, you’re still a prisoner. The “system” can still snap its fingers and send you back to hell.

  So instead, I sent it to Walter Pavlo, a journalist at Forbes who focuses on white collar crime. He asked if he could publish it, and I said sure, as long as it was anonymous. He prefaced my piece as follows:*

  Recently, I received a submission from a defendant who had faced U.S. prosecutors in court, lost the case and completed his/her prison term. The person, who wishes to remain anonymous (supervised release and exercising free speech can be at odds), gave me permission to share their views here on my blog. Like all of you, this person is now just an observer, except that they have the experience of having been on the front lines of a federal courtroom.

  I called the piece “The Wheel of Misfortune.” I present it here, in a slightly edited form.

  There has been a growing and long overdue realization that the US mass incarceration policy is an economic and human tragedy. The New York Times recently ran a long front page story for two straight days, along with an editorial* (“End Mass Incarceration Now,” May 25, 2014) calling into question a system that subjects first time nonviolent offenders to disproportionately harsh sentences, and compels innocent defendants to plead guilty to avoid those same life-destroying sentences. We as a society spend four times more to imprison than to educate our citizens, an unsustainable trajectory with a total tab well north of $60B. The statistics are haunting and familiar. The US imprisons 25% of the world’s incarcerated, despite having less than 5% of its population. The government puts up a head-scratching conviction rate of 98%, year in, year out. Heavily encumbered by widespread institutional racism and deep structural biases in favor of the government, arguably the system itself is a gross distortion of our Constitutional rights and traditions.

  Closer to home, US Attorney for the Southern District of NY Preet Bharara has put together an 80-0 record in insider trading cases. As if widespread structural bias and a 98% guilty conviction rate wasn’t enough, a new and rarely discussed trend has emerged. One of the most vital determinants in the outcome of a criminal case tends to be which judge the defendant “draws,” or rather what judge is “wheeled out,” as they like to say in New York. That’s right, if you weren’t aware of this, the Southern District of New York, the preeminent Federal Court in the country, still alleges to use an actual wooden wheel covered in index cards in order to determine which cases will be assigned to which judges. A wheel like you might find in an Atlantic City casino or on the popular game show Wheel of Fortune. The major difference, of course, is the currency being wagered here: it is the very life and liberty of the defendants themselves, as opposed to mere dollars and cents. Now it appears that the “wheel” may be rigged, or rather, never really spun at all.

  One might ask, what’s the big deal? Well, as the 2nd Circuit Court of Appeals recently voiced, it might be a very big deal indeed. In the cases of Anthony Chiasson and Todd Newman, two hedge fund analysts convicted of insider trading, the stratagem by the United States Attorney’s Office (USAO) to place key cases before a specific judge may blow up in their face and tarnish their perfect record. During recent oral arguments, 2nd Circuit Judge Ralph K. Winter was critical of the government’s apparent manipulation of the system to steer cases before a judge named Richard Sullivan, which he viewed as potentially paramount to “judge shopping.” Why would the government want to do this? The answer is simple, obvious, and inexcusable—to make their jobs easier. Most judges have spent the majority of their careers as former prosecutors, and the government perspective has been heavily imprinted upon their psyche. It’s like asking Bill Belichick to referee a New England Patriots game. While most judges are deemed pro-government, some are considered so friendly to the government, that I’ve personally heard stories about normally stoic AUSAs actually high-fiving each other on learning their cases have been assigned to a certain judge. Judge Sullivan just happens to be one of those judges.

  In the recent 2nd Circuit hearing, AUSA Antonia Apps stuttered when challenged by Judge Winter as to how a disproportionate number of these cases ended up with Sullivan, a judge who requires a lower burden of proof by the government with regard to tippee knowledge. Statistically, there are fifty eligible judges, yet in seven major recent insider trading trials, Sullivan heard four of them, a resounding 57% ratio. That’s like spinning a Vegas roulette wheel and hitting Green-00 on four out of seven spins. A simple statistical analysis yields a probability outcome of 6,000,000 to 1 if the wheel was truly random. The next time Preet goes to Vegas, I’d like to bankroll him. Either he’s the luckiest man alive, or more likely, he’s got his thumb on the wheel. Not surprisingly, AUSA Apps could only muster a weak argument, claiming judicial efficiency in having two totally different trials with different defendants heard by the same judge, an argument quickly dismissed by the appellate court. If, in fact, judicial efficiency was the USAO’s goal, then why didn’t they look to have the case of Zvi Goffer heard before Judge Holwell, the judge in the Raj Rajaratnam case that was tried just a month earlier, and which had many of the same legal issues and parties? It seems, therefore, that the USAO only cares about judicial efficiency when it makes their job easier by being in front of one of their preferred judges.

  Judge assignment not only has serious repercussions for defendants who exert their constitutional right to a trial—it similarly affects those who plead guilty or cooperate with the government during the sentencing phase. The discrepancy in sentencing in the Southern District of NY is huge. As history has proven, defendants receive very different sentences based on which judge they draw (for instance, Rajat Gupta got two years from Judge Rakoff, while Zvi Goffer received ten years from Judge Sullivan).* Now it seems that a defendant cannot blame their fate on a bad spin of the wheel but, rather, on a rigged system allowing the government to steer cases to their preferred judges. Isn’t this the type of gaming of the system that the USAO is supposed to despise and look to prosecute? Haven’t they paid repeated lip service to a “fair playing field” as the justification for the recent round of insider trading prosecutions? Is there no shame, no sense of decency?

  With SAC Management’s Michael Steinberg sentenced last month, this topic once again climbs to the forefront. Steinberg’s attorney, Barry Berke, focused on this travesty at the indictment stage, asking Judge Sullivan to allow the case to be randomly assigned to a new judge. Berke claimed Sullivan had given prosecutors an easier burden to meet in past insider trading cases compared to rulings by two other judges. He rightly identified this as a “significant legal issue,” and claimed the government’s indictment gamesmanship “violates the letter and spirit of the district’s rules, due process and basic fairness, and creates the appearance of impropriety.” Sullivan said he would “consider” letting Steinberg’s case be reassigned, telling Mr. Steinberg “Don’t believe Mr. Berke, I’m not as bad as he says.” However, Judge Sullivan refused to allow random assignment of the case. Will there be any punishment for the prosecutors who potentially broke the law? At least an outside investigation? Will Sullivan only get a slap on the wrist? Preet’s focus is now on corruption in Albany, so maybe some angry state politicians will take the lead.

  Sullivan’s refusal to rec
use himself may have a silver lining for Steinberg. If the 2nd Circuit’s oral arguments in the Chaisson-Newman cases are any indication of things to come, Judge Sullivan’s stubbornness to allow a random assignment of his case may have gift-wrapped a new trial for Steinberg, and Messrs. Chiasson and Newman as well. Only time will tell.*

  So the next time Mr. Preet Bharara touts his perfect record, and an overall conviction rate of about 98%, perhaps take a step back and ask yourself how, in an allegedly fair and impartial adversarial system, could something be so close to perfect? Perhaps because the government was stacking the deck all along?

  Pavlo published this almost verbatim. Not only did my article allege something unholy in Preet’s unseemly judge shopping—a pure desecration of the enshrined, “Justice is Blind” tenet that allegedly upholds our system—but it showed that evidence of bad behavior was everywhere, and it could be unearthed with even perfunctory research.*

  One month later, in July, Preet suffered his first real defeat, after eighty-one straight convictions, when a jury acquitted Rengan Rajaratnam, Raj’s younger brother and protégé. Rengan had worked for Raj at Galleon. He had originally been charged on five counts, with two dismissed before the trial and two quite serious fraud charges dismissed mid-trial. And no, Sullivan was not presiding. No surprise there. After four hours of deliberation, the jury found Rengan not guilty of the lone conspiracy charge, citing that the entire trial seemed to be all about Raj, and that nothing seemed to stick to Rengan specifically. All poor Preet could do was take it on the chin, and as of the fall of 2014, he has moved on from insider trading cases.

  I dared to hope the tide was turning.

  When it came to my case, this was only the beginning. On December 10, 2014, the Second Circuit Appellate Court overturned the convictions of Anthony Chiasson and Todd Newman, traders who had been convicted by Bharara in 2013. In their decision, the same Court went out of its way to publicly slap and chastise Judge Sullivan as being the only judge in the entire circuit that refused to properly instruct juries on tippee** (e.g.: me) knowledge as required by the law. (During trial, we got the sense that Sullivan was a prosecutor in drag, donning the black robes of a judge. Now, everyone else was finally starting to also see a smidgen of what we had witnessed firsthand.)