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September 9, 2008 8:47 pm
A short walk from Wall Street, the US justice department’s southern district of New York office in Manhattan has long been a dominant force in the world of white-collar criminal prosecution.
Often referred to as the “sovereign district” for its pre-eminence, it has brought some of the biggest white- collar cases in recent memory, including prosecutions of insider trader Ivan Boesky, junk bond king Michael Milken, executives at WorldCom and Adelphia, and lifestyle media mogul Martha Stewart.
But now the southern district is being challenged for prominence by federal prosecutors in the eastern district, the scrappy Brooklyn outpost that used to be known more for busting penny-stock boiler-room operations than for bagging high-profile corporate defendants.
The credit crisis has produced two known criminal indictments, both from the Brooklyn office. Last week, its prosecutors indicted two former Credit Suisse brokers for allegedly lying to clients about what kind of auction-rate securities they were being sold.
It indicted two former Bear Stearns hedge fund managers in June on charges that they intentionally misled investors about the financial conditions of the funds that collapsed last year.
Brooklyn also recently formed a task force – comprising more than a dozen government agencies, including the US Securities and Exchange Commission and the Federal Bureau of Investigation – to look into potential crimes leading to the meltdown of the subprime mortgage market.
“When you form a task force, you have accountability. It means they will make cases,” one former prosecutor says.
Although the southern and eastern offices have separate jurisdictions, many white-collar crime cases can often be brought in either district.
The eastern district has been building its expertise in white-collar cases since the early part of the decade, after the Bush administration formed the Corporate Fraud Task Force, which included both Brooklyn and Manhattan offices, in 2002.
“It is really important for recruitment and spirit to make sure you have white- collar crime cases. It is important to do white-collar cases and be seen doing white-collar cases,” says Daniel Richman, former prosecutor in the southern district, now a professor of law at Columbia University.
Over the years there has been competition between the two offices.
“The fact that there are turf battles sometimes is the dirty secret of law enforcement, but competition is good and can prevent complacency,” says Steven Peikin, former prosecutor at the southern district and now a partner at Sullivan & Cromwell.
Wall Street is in a unique position of having numerous federal and state law enforcement officials keeping a watch over its activities and vying for potential cases. The US Securities and Exchange Commission, which has authority to bring only civil cases, often works with federal prosecutors.
Andrew Cuomo, the New York state attorney general – who also has the power to bring criminal charges – and William Galvin, the Massachusetts secretary of state, have been investigating dozens of firms over the collapse of the auction-rate securities market. Manhattan district attorney Robert Morgenthau also conducts white-collar investigations.
Mr Richman says: “Every once in a while you get a rubbing of elbows. But there is plenty of crime to go around. The bigger story is how few cases there are compared to how many there could be. ”
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