Good afternoon. Thank you for joining us. So, preet, giveren that part of your job involved prosecuting companies and occasionally ceos, what are you doing talking to a room full of ceos . Over time, ive come to really love the sound of nervous laughter. Thank you. You talk about the importance of culture in companies. Why is it so important . Feels like a rather people understand that in addition to being chief officer in manhattan and of my office, more than a lawyer, im the ceo of my institution. We have 450 employees. I have to make decisions every day about how we allocate resources, who we promote, what our priorities are, more in line of being head of an institution rather than just being a lawyer. I think from my office, for an institution to succeed and do well, what its prime mission is, which is not to make widgets but make sure justice is done, i have to care about culture a lot. No ceo worth his or her salt would think otherwise. For us it is actually required by Justice Department policy to take into account things like pervasiveness of criminal conduct at company before you decide to charge a company, take into account issues of recidivism, take into account what compliance policies are. All those things make up a culture of a case. Turns out we bring a lot of cases, inside trader, accounting, ponzi schemes, public corruption. Some companies have a lot of bad apples and some have fewer. My armchair judgment has been after doing this seven years, theres something about the culture of this someplace that is keeps corruption and misconduct more in check than other places. The difference is not necessarily what people get paid. It has to do with something in the ether of the place and culture of the place and leadership that cares you have a culture of integrity in place. Every company has compliance, rules, all sorts of best practices. What is a specific role of a ceo. What does ceo need to be telling to the organization. Its a cliche for everyone in the room to talk about the top. There is a reason some things are cliches, because they matter. I often say its incredibly important given my line of work that cop appliance policy is important. You need to have a Compliance Department in the same way that the country has title 18, basically criminal code, lots and lots of rules and regulations and you need them more or less depending on your perspective. As a country we need a charter and we call it the constitution, which is much shorter. It sets out fundamental principals on how the company should conduct itself. I think the company should have the same mindset. You have compliance policy. In some cases they run 100 pages or longer. They are by a million lawyers. Also need a charter for the place so people understand not just that youre supposed to follow these particular rules, the ftc or whoever cares about them but there is a general principle that has to come from the top. Im very impressed when people tell me as they do at forums like this and others, a new employee comes bo a hedge fund or trading company, General Council said, compliance policy. I wanted to ask does someone say to those people as they come in particularly in the midst of prosecutions, does swab say, like the ceo, you should understand separate and apart from regulations we have like compliance policy, we dont lie, we dont chief, we dont steal. If you do, youre out. We dont care what your book of business is, those things make a difference. I asked once at a meeting where a company that you may have heard of was pleading for leniency. As part of the consideration again, there are many other considerations. We asked the question, could you give me an example, because person after person after person had been indicted and convicted at the company. I said, can you give me an example of one time the ceo of the company in an email and a speech, in a talk, in a phone conference said, i care that people do their job honestly and with integrity and there was deafening silence. Thats not dispositive but that tells you something. It was not a shock to me the culture of that place was terrible. Was that s. E. C. Capital . Could be. I wanted to ask the audience a question before i asked about the importance of General Councils if we could call it up here. How worried are you about corruption within your company . Very worried, somewhat concerned, not at all . You just mentioned General Councils. What is the importance in a company . Do you look for someone to be a truth to power presence . Yeah. I think it depends on the nature of the industry, the nature of the company. Generally speaking the General Council is the conscious of the firm. If the conscious of the firm doesnt have juice or power or respect from the rank and file people at the company but more importantly from the ceo, its not going to matter much. Ill give you another story about that same Company Whose initials you mention add moment ago. In the indictment against s. E. C. Capital, we actually alleged that one of the things that went wrong was they were planning to hire a guy known to be suspecting of someone Insider Trading at the firm. That was vetted and known. The General Councils office of the hedge fund opposed the hiring of the person. That was overruled. Its not shocking that shortly thereafter that person began to engage in Insider Trading at the company and was convicted and pled guilty. So i think you need i think people need to have good counsel generally speaking. I have a chief counsel in my office. It wouldnt matter if i had one or not if i didnt Pay Attention to her advice. So i think the person, i think its true when the cfo are in positions of counselling on the law, not compliance, but other kinds of risk and competition and finances and everything else, i think you want to surround i think generally leadership involves surrounding your selves with people who can talk to you like a peer does and thats true especially of the general counsel. What is your impression of the result under the circumstances from our polling question. 9 very worried, 60 very concerned, 30 not at all. Are 30 in denial. The 9 that are very worried, if you could come see me afterwards, leave your number. I dont know who the not at all people are. Its interesting you would vote not at all even if you didnt think there was a problem. I think off people hedge. You cant always know. There are some companies, its great. If thats what your view is, must mean reputationally youre doing something correct because it does turn out to be often the case in my experience when we investigate people at Certain Companies sometimes theres a lot of surprise and sometimes theres no surprise at all. In the instances where we charge somebody where there was no surprise at all, reputationally in the industry, galleon group, for example, the case was finished so i can talk about it, theres not a lot of surprise there was a lot of bad conduct going on there. He got convict and spending more time in prison. More surprise when we arrested gupta who had a different kind of reputation. Im assuming the people around him at the time would have answered the question, what do you think is the level of corruption or misconduct involving the head of mckenzie a lot of people might have said not at all and they would be rock. Youve raised Insider Trading, youve raised criticism for overreaching on insider cases, also a sense of prosecuting some of them in the media. First the vast majority of Insider Trading cases we brought have resulted in convictions and convictions being upheld on appeal including the most highprofile including what i mentioned, s. E. C. Capital, roger gupta and any number of others. Matthew martoma, a small subset the Appeals Court in new york changed the law and got wrong. Theres now a case pending before Supreme Court, ninth circuit Supreme Court, i was at the Supreme Court argument some weeks ago and ill say theres cautious optimism the Supreme Court, which is no huge fan necessarily of impressive prosecution if you think of virginia, cautious optimism Supreme Court going to correct Insider Trading. So they will actually reverse it . Cautious optimism that that will happen based on the question. The current Supreme Court. The current Supreme Court. Thats the sense one got from im not prejudging, making a prediction, wagering money on it but there was clearly a deep sense of concern based on the questions you heard from the lawyers at the Supreme Court argument that it didnt seem to be right or reasonable that you could be, for example, the ceo of a company. If youre not expecting any concrete financial gain in return, financial gain in remember, you could three days before releasing your earnings bequeath it as a gift on your son, daughter, College Roommate knowing they are going to trade and make 10, 20, 30 million in the trade. That didnt seem to strike people as prudent. What about trying cases in the press. We dont do that. Looks i think its incredibly important in my job to talk about problems you see. Obviously first responsibility is to make sure anybody you charge gets a free trial. I havent spoken anywhere outside of the four corners of the complaint, indictment. When you have a spate of problems, a gang problem in new york, i talk about it. When you have a prescription pill problem that is killing more people than traffic accidents and guns these days, more people oding from prescription bills and dying and cocaine and heroin combined, then you talk about that problem. When you have assemblymen and senators in my state going to prison its also to deter, raise Public Awareness with Public Health or corruption problem. That i do. I talk about it. I get invited part of the reason presumably i get invited to speak to prestigious groups like this and wall street traders but also doctors and business students is because people have some interest in knowing what we think about prosecution, what the problems are, how the good people can solve those problems. I speak at every Business School around. Ive been doing it for a number of years. Im particularly proud of the fact i go to harvard Business School and every february for five or six years running i speak to the entire first year class. I say were going to talk about Insider Trading but more broadly ethics and how they should conduct themselves to avoid problems. Im here. Its not just a scared Straight Program for white collar people, although its a little bit that, and im not just directing my words to the ears of the two or three of you at harvard Business School who statistically speaking are likely to commit serious securities fraud, although i know who you are, its more to direct my words to the ears of the vast majority of people, perhaps everyone, who has integrity, honest, wants to do the right thing, wants to make money or change the world in some way in the correct way, in an upstanding way. The problem is getting to my basic point i like to make in front of groups like this is the bad people in your organizations, other people tend to know about them. Like i said, it wasnt a surprise when we started arresting people s. E. C. Capital, people in the know. There wasnt a surprise what was going on at deepwater horizon, wasnt a surprise at the galleon group, wasnt a surprise what was going on at madoff. If you can just figure out a way going back to your culture question earlier, if leaders of an organization can figure out a way putting the right Team Together and develop the right culture, you can nab these problems much earlier than when the fbi gets involved. When the fbi gets involved, generally its too late for you. For your favorite question about your future. There is a role for you, would you be interested in a position in the Trump Administration carrying on your current role. I was bog to put in for secretary of state but some guy last night beat me to it. But seriously, your interests, could they be aligned . I do my job. I love my job. Its the best job ill ever have, probably the best job ill ever have. I serve at the pleasure of the president. Thats true with president obama and will be true with president trump. If a president decides they want to replace me, ill ride off into the sunset. The work separate and apart from me and whoever leads the office, weve been around since 1979. The office itself is an apolitical office. I dont serve i said this to my office last week. I dont get paid to serve the president , i get paid to serve the public, in the interest of justice, no matter who the president is. Thats what we do in our office. As for kind of work weve been doing, which is very aggressive policing of a lot of things including albany and wall street, it seems to me that part of the election on both sides was about whether systems are rigged. I can tell you from cases we have brought theres a lot thats rigged on the street and in politics and the people in my office in an apolitical way, democrat and republican, who work there, democrat and republican who get prosecuted, they spend day after day after day doing those kinds of cases. I would like to think that the level of aggressiveness in Law Enforcement will remain the same when youre talking about things like keeping the markets fair and keeping government honest. I dont see any i dont foresee any departure unless im missing something big. You think there could be dangers politicizing the role of prosecutions. Everyone has to be careful about that. Im not saying that will happen. Im saying if the way we conduct ourselves in the office has always been apolitical and you go after the facts and go after whoever the targets are, no matter who they are, how much money they have, who they are connected to, i think we have a very, very strong i dont want to call it bipartisan or nonpartisan record of going after folks who violated oath of office. Separate and apart from financial institutions, we do a lot of big things but one of the big thing that gets attention is public corruption prosecutions. We simultaneously charged convicted Senate Majority leader who was republican and Assembly Speaker who was democrat. Were blind to what party they are from. Nondenominational. Can we have a couple of minutes for questions. Anybody from the 9 from the chart want to speak up . Right here. Do we have to give our name and company for this segment . Yes, you do. I know who you are. Your last five years of tax returns. So preet, when you started, you talked about being ceo of your organization. I think thats absolutely right and the top that matters. Its also measurement that matters, what metric you measure. Sometimes too much focus you get too much activity. Sometimes too much sales you get activity you dont like. I was regulator for treasury, oversaw irs, know how to measure people in government. A lot of times youre measured on how many convictions you get, how much money and fines. Your job bring to financial mark, not how many you prosecute, how many you get done. How do you balance that message to your self, not your people saying go and get as much as you can rather than bring trust and confidence and results not how many you convict and how much revenue you bring in. Thats a good question. Its very, very difficult. You have to be careful about metrics. We talk about that all the time. I do in my office, maybe you do versions, state of the office presentation, hour long power point and talk about things. Some of what i do is talk about the number of trials, how much the level of criminal fines has been and how many convictions weve had in particular areas but then i caution them. I say were putting up metrics. No metric can measure how well were doing when youre in the business of something these supposed to be pure and about doing justice. Also you absolutely have this problem, any business book you read or Business Leader you talk to, if you start having quotas of how we want people to perform, people are going to gain the system in a way to give you what you want. Police commissioner talked about this all the time. Ray kelly and bill bradley. If you start saying there have to be a certain number of arrests out of a precinct, they start manufacturing things. So i dont have a great answer to that other than to talk a lot about how we care about how we do things in the office, to not have overemphasis on numbers. I do say if in one year we had 100 public corruption prosecutions and the next year we had 30, well, then youve got to look at that and see what went wrong. One year 20, the next year 30 and look at general trends. We dont have profit loss numbers. The one thing i do like to say when people try to take away our budget and dont appreciate some parts of government that work really well. My budget for that office, 450 employees is 50 million. Adoption on the year between Asset Forfeiture and criminal penalties and losses avoided we bring in 50 to 60 to 80 times that, which is better than any hedge fund ive heard of. One more question. I have one. Right here. Mine is a my favorite. I want to know if you watch billions. Thats a highly fictionalized show in many, many ways. But i think hes a great actor. So one last question for me. Weve had waves of Insider Trading prosecutions. 80s, 90s. Recently. Are we Getting Better at Corporate Governance in general over the last 20, 30 years. A lot of concern been shown Corporate Governance laws been passed . Are we any better or not . Thats a broad question. Are we Getting Better generally . History tends to teach people get better at one thing and bad people figure out how to screw it up in another way. What i feel and understand anecdotally, some of what our cases have done and regulatory Enforcement Actions have done have not necessarily eradicated bad people from places but general counsels and good ceos of companies to look at their fellow folks in the same industry, banks or otherwise and say there but for the grace of god go i. What can i do to make sure this doesnt happen here. How do we have better screening and hiring, better Early Warning systems to see if people are engaging in bad activity and conduct. My sense of things is based on the interest in events that i go to and the kinds of things people say to me, the people have gotten better. For example we have this issue with Expert Networks when we first started bringing Insider Trading cases. I think peoples use of Expert Networks and what they meant has gotten better. That doesnt mean other people arent figuring out ways to undermine the system and do bad things. I dont know if i can proclaim everything better over the last 30 years, i do think a lot of folks have done a better job of trying to get on the ball. Thank you very much. [ applause ] while congress is on break this week, were taking the opportunity to show you American History tv programs normally seen only on weekends. We continue tonight with a look at what happened after the end of world war ii. Starting at 8 00 eastern with the fate of o nazi and war criminals after the war, followed by how the war changed the u. S. And rest of the world. American history tv prime time all this week at 8 00 p. M. Eastern. Sunday, in depth will feature a live discussion on the presidency barack obama. Were taking your phone call, tweets and facebook b questions after the program. And radio networks. Princeton university eddie clout author of democracy and and associate editor of the washington post, david maranis, barack obama, the story. Watch live from noon to 3 00 p. M. Eastern on sunday on book tv on cspan 2. The Hudson Institute hosted an event with military experts to discuss the u. S. Japan relationship in the emerging role science and technology can play in national security. And Defense Strategy cooperation. This is about a half hour. My opening raush, i mentioned the third off set strategy and mentioned also my own firm
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