Confessions of a Wall Street Insider

by Michael Kimelman

  The same day those convictions were overturned, my buddy Peter Bogart published the following on his Facebook page:

  My close friend and former colleague Michael Kimelman lost his insider trading case in 2011. He had turned down probation because there was no credible evidence against him. Evidence did not matter. The Government was on an insider trading crusade and Mike was road kill: he lost and went to federal prison. The jury was clueless. Mike lost his reputation, his law license, his CFA license, his money, his marriage, years of seeing his 3 young children, and 3 years of his life. Today they finally figure out that he did absolutely nothing wrong under the law, and that his jury was wrongly instructed on the law. I professed his innocence then, and I do so again today. Where is the justice for Mike?

  Choked up, I thanked Pete for his unwavering support—from the moment of my arrest until that day—and added: “Same facts, same judge, same incorrect jury instruction. I guess I didn’t need to go to prison after all …”

  But it all felt bittersweet.

  When Judge Sullivan’s peers are questioning his tactics, and when Bharara is being soundly defeated, it signals that the times they are a changin’. Yet for me it was too little too late. Knowing full well that the charges against me were measures weaker than those leveled against Rengan, Chiasson, and Newman, and even Steinberg, did not fix my family or reverse my time in prison. That makes for a hollow victory from where I’m sitting.

  I had still been vilified in the press and made a poster child of the “corrupt culture of Wall Street.”

  I had still lost everything.

  Occupy Wall Street wanted blood, and they had gotten mine—the blood of a proprietary trader. But what about the big guns? The Goldman Sachs and JP Morgans, the Wells Fargos and the Banks of America? What happened to them? Were Jaime Dimon’s Park Avenue digs raided? Was he handcuffed and perp-walked, fingerprinted and tried before a jury of his peers? We know the answer to that one. In fact, his stature and power, and that of Morgan—and all the big banks, really—seem only to have to have increased since the initial crash that triggered the Great Recession. America has always been about amusing the sheep, rather than shooting the elephants in the room, as Lewis Lapham once famously observed.

  The culture of corruption and collusion between the Federal Reserve and the biggest banks—once the domain of eccentric conspiracy theorists—further came to light in a big way with the revelations of Carmen Segarra, a brilliant lawyer who dug too deep into the matter, under the original request of her bosses at the Federal Reserve of New York, whose offices are also on Wall Street. When Segarra raised a red flag about how Goldman Sachs seemed to run roughshod over the Fed, she was summarily fired.* She fought back, filing a lawsuit, which a judge dismissed. But then Segarra revealed tapes that she had made during her investigation—tapes that now demonstrate her claims with dazzling clarity.*

  And consider too the “settlements” with Bank of America, Morgan, and others, $16 billion and counting in the case of Bank of America and Countrywide, due directly to the sleazy subprime mortgage scam that caused millions of Americans to lose their life savings, their homes, and often their futures. There is no doubt, no doubt at all, that laws were broken by these banks, by entities but also by individuals at the highest levels. Yet no arrests were made, no careers or lives destroyed among those at the top.** In the Morgan settlement, because the firm was not required to admit guilt, they were able to write off part of the settlement as legitimate losses. What this means is that the US taxpayers had the honor of picking up part of the tab. It boggles the fucking mind. To add insult to injury, there was the Washington bailout of Wall Street that we’ve all had to pay for as well in one way or another.** (Or will have to pay for, given the federal government’s ever growing $19 trillion debt and market distortions from zero interest rate policy.) The phrase “too big to fail” has become part of the average American’s financial lexicon. I would humbly submit that “too big to be held accountable” belongs there too. No entity should be too large or important to answer for what it has done. Simply put, that is a luxury that we as a country simply cannot afford.

  So how did it end for us? For those of us were not too big to prosecute?

  Raj is still in prison, and his appeals have failed. However, prison may have literally saved his life. Formerly, he was massively overweight and had health issues. His outrageous appetites cannot be indulged where he is today. But will his reformed behavior extend his life long enough that he will ever see the outside of a prison cell again? That remains the question.

  Nu, like me, has now been released. I haven’t heard a peep from him and I don’t ever expect to. I believe he’s living off of his wife, who is still a lawyer. In prison, Nu kept himself going by talking about all his big plans for the future. When he got out, he was going to go back into business and do it right this time. He was going to raise millions, and do X, Y, and Z with it. These were pipe dreams. If you’re a felon convicted of a financial crime, the only way you might get a job on Wall Street again is by being so brilliant and charismatic that a firm would decide you were worth the added risk. And that’s just not him. Nu is lucky if he’s working construction.

  And then Zvi. Fucking Zvi. The human shredder himself.

  When this book is published, Zvi will have another year or so left on his sentence. He’s the only guy in all of this that I still have any residual anger toward. Looking back, there were so many good things he could have done. So many opportunities to be a decent human being. He could have walked forward and said this was on him. He could have given me a deferred prosecution. He could have put his family first. He could have decided not to gamble with other people lives, in addition to his own.

  But he did none of these things.

  Prison’s a horrendous place as it is. It might have been just tolerable for me to be there without him. Instead, he took a bad situation and made it unbearable.

  These days I’m a pretty Zen-like guy and I try to forgive everyone. But I haven’t been able to forgive Zvi.

  I don’t know what will happen when he gets out, but I hope he chooses to just disappear. Gets smart and chooses to form a new life somewhere far away. And while that’s a pleasant fantasy, that may be all it is. A fantasy.

  This is a man whose memory runs deep, and who has threatened me and threatened my children. Will Zvi try something one day? I’d like to say “no,” but I know his stupidity all too well.

  My dream is I never think of or hear from him again.

  But instead, I keep tabs.

  Just before dropping dead of a massive coronary (at around the same age as I am now), F. Scott Fitzgerald famously wrote that there are no second acts in American lives. It’s a poetic, powerful turn of phrase. Sometimes I think about how it applied to Fitzgerald himself. He became a celebrated, best-selling writer in his twenties, and then spent the next two decades unable to recapture that initial success. Does it come as any surprise that he basically smoked and drank himself into an early grave?

  As a nation, we tend to forget quickly, and we turn our eyes to the present and the promise of the future. Yet aphorisms are not always correct, even famous ones about second acts. Some things, some people, do change. I plan on being one of them.

  I can honestly say that, following all of this—my arrest, trial, incarceration, and release and divorce—I am beginning a “second life.” As an innocent man, this second life is not exactly an act of humble contrition. Though I’m still plenty humbled. For the foreseeable future, it’s an uphill battle. I’m a forty-two-year-old man who once helped create a $40 million company from scratch in eighteen months. Now a friend is on the lease to my apartment and my brother is on my electric bill. I can’t get a credit card, or open a bank account, so I use a prepaid debit card like the “unbanked” or “unbankable.” I am technically both. I continue to send out my résumé and get called in for interviews, only to return home and agonize over the results of the background check. But I’m har
dly waiting on others to make something happen for me, and my status hasn’t stopped me from grinding, pushing forward, and trying to do better for myself and my family. I am motivated to keep trying in part by the knowledge that I am now sober. Even in the midst of the incalculable stress, depression, fear, and emptiness of prison, I knew in my heart that I had been operating for the last twenty years at a 60 percent capacity, at best. The saddest regret of all is what might have been. How would my life have been different if I hadn’t leapt into a black hole of vodka at so many different turns?

  I didn’t know the answer to that question. But what I did know is that the past is the past and the present is the present, so I doubled down on the present and got busy.

  Coming out of prison, I hit the ground running. I was eventually able to get some work from a guy sympathetic to those within the clutches of the System. I started writing more and developed a TV show called Coming Home. It has landed a development agreement from a heavily respected NY production company. There were LA firms that wanted it too, but because my travel was limited to midtown Manhattan, NYC it was. We shot a sizzle reel and the initial success led to two follow-up offers for other shows, including a scripted episodic series based on the life of a client. (I started a management firm to complement the production company and handle some of the talent I met while “away.” There is a whole well of pent-up literary, entertainment, and entrepreneurial talent that’s been bottled up in the System for years just waiting to prosper if given the shot.)

  I still need permission to go anywhere. I can’t go to Brooklyn, New Jersey, or even Connecticut, which is ten minutes from my apartment, without advance permission. Luckily probation isn’t permanent, although it’s a definite pain in the ass.

  Worse though, may be the distance that has grown between me and those who knew me before this chapter in my life. They try. They mean well. But they can never truly understand. To them, my claims seem exaggerated, unlikely, or mistaken.

  Upon her return from Oz, Dorothy had this to say to those who thought she was delusional: But it wasn’t a dream! This was a real, truly live place. And I remember some of it wasn’t very nice.

  I hear you, Dorothy. I hear you loud and clear.

  * http://www.forbes.com/sites/walterpavlo/2014/06/11/a-former-defendants-view-on-judge-selection-the-wheel-of-misfortune/

  * http://www.nytimes.com/2014/05/25/opinion/sunday/end-mass-incarceration-now.html&assetType=nyt_now?_r=0

  * Gupta was a man of immense power and wealth, a chairman at McKinsey, on the board of Goldman and a confidante of the Clintons, getting only two years, even though the tapes were damning, while Zvi was a comparative nobody, hustling and cheating for a comparative pittance.

  * The sad truth is had Sullivan recused himself, even with the correct legal jury instructions, these guys probably still would have all been convicted. Juries want blood. Your “average Joe” is still struggling, and there remains no easier target or scapegoat than a seemingly smug rich guy who allegedly “cheated.”

  * Judge Richard Sullivan was actually Preet Bharara’s boss for a time and the two were friends. During Sullivan’s confirmation hearings, Preet is the aide to Senator Schumer who welcomes Sullivan and they have a verbal lovefest on the record prior to his testimony. “I should note that while Mr. Sullivan was with the Southern District of New York, he supervised my chief counsel, Preet Bharara, right here. You probably read his glowing article in Time Magazine. His mother enjoyed it very much, he informed me. But Preet has only had wonderful things to say about Rich Sullivan. I guess that is why it says “Rich.’’

  ** “Accordingly, we conclude that a tippee’s knowledge of the insider’s breach necessarily requires knowledge that the insider disclosed confidential information in exchange for personal benefit. In reaching this conclusion, we join every other district court to our knowledge—apart from Judge Sullivan–that has confronted this question.”—2nd Circuit Court of Appeals in U.S. v. Newman.

  * One exchange has Segarra’s boss literally begging her, “Why do you have to say there’s no policy?” and then demanding she change a report that embarrassingly noted that Goldman had no “conflicts of interest” firm-wide policy. The “oversight” and evident regulatory capture came to light in the NY Fed’s investigation of the Kinder-El Paso deal which featured Goldman wearing far too many hats (advisor, principal, shareholder) without disclosure in a supposedly arms-length transaction.

  ** See Michael Lewis’s The Big Short and the resultant Adam McKay movie for an excellent narrative of this travesty.

  EPILOGUE

  ______________

  ON DEC. 10, 2014, THE 2ND Circuit Court of Appeals ruled in U.S. v. Newman that insider trading requires that insiders who passed confidential tips did so in exchange for personal benefits of some consequence. Essentially, the ruling forces the government to prove that the tippee had knowledge that the tipper breached his fiduciary duty in providing the material nonpublic information.

  The ruling overturned the convictions of hedge fund managers Todd Newman and Anthony Chiasson, whose trial was also overseen by Sullivan. The appeals court said Sullivan instructed jurors incorrectly on the law.

  The Newman case also resulted in the overturn of the conviction of Michael Steinberg, who was tried and convicted in front of Judge Sullivan. An additional seven defendants also had their convictions overturned.

  In March of 2015, Michael Kimelman filed a motion to have his conviction overturned as well. Citing the similar facts of his case and the incorrect jury instructions provided by the same Judge Sullivan, Kimelman asked that his conviction also be set aside. Under the law, the motion must be made to the same judge that originally ruled on his case—Judge Sullivan. The motion has sat on Judge Sullivan’s desk for almost two years and has not been ruled on as of the time of this writing.

  PUBLISHER’S NOTE

  ______________

  DURING THIS BOOK’S FINAL PRODUCTION PROCESS, the motion that had sat idly in Judge Sullivan’s chambers for almost two years was finally addressed. On January 17, 2017, Judge Sullivan denied Kimelman’s motion.

  What is surprising is not the denial (what judge wants to overrule himself?), but that Judge Sullivan chose to rule on procedural grounds and inexplicably wait two years to give a ruling he could have given in thirty days. In refusing to address the motion on its merits, Sullivan claimed that Kimelman’s attorneys could have appealed his admittedly improper jury instructions and elected not to.

  Kimelman’s attorney, confident of ultimate victory after appeal, insisted that Judge Sullivan’s reading of US v. Newman was too narrow, and noted that, “Mr. Kimelman is actually innocent under the proper legal standard and has every intention of pursuing an appeal.”

  The ruling hardly came as a surprise, as this is the same notoriously pro-government judge who, against all mathematical odds, had been “randomly selected” by Preet Bahara to hear Kimelman’s case, along with a handful of others, during the height of the “Occupy Wall Street” frenzy. We believe Judge Sullivan’s opinion is biased, inaccurate, and shall be exposed as such and vacated on appeal.

  ABOUT THE AUTHOR

  ______________

  Michael Kimelman is a graduate of Lafayette College and the University of Southern California Law School. Formerly an associate at Sullivan & Cromwell, he was the founder and managing partner of Incremental Capital, a New York-based hedge fund with over $250 million in assets, which closed shortly after his arrest. A serial entrepreneur, he is currently consulting and launching new ventures in the technology, retail, and entertainment spaces. He actively volunteers his time to several causes, including prison and education reform. He lives in Mamaroneck, New York.

 

 

 
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