The cold fusion horizon

Is cold fusion truly impossible, or is it just that no respectable scientist can risk their reputation working on it?

by Huw Price AEON

Demonstration being carried out of the E-Cat (Energy Catalyzer) cold fusion system, designed by Italian inventor Andrea Rossi. Photo by Massimo Brega/SPL

Huw Price

is Bertrand Russell Professor of Philosophy and a fellow of Trinity College at the University of Cambridge. He is also Academic Director of the Centre for the Study of Existential Risk. His most recent book is Expressivism, Pragmatism and Representationalism (2013).

Should scientists risk their reputations by working on controversial questions such as cold fusion?

A few years ago, a physicist friend of mine made a joke on Facebook about the laws of physics being broken in Italy. He had two pieces of news in mind. One was a claim by a team at the Oscillation Project with Emulsion-tRacking Apparatus (OPERA) in Gran Sasso, who said they’d discovered superluminal neutrinos. The other concerned Andrea Rossi, an engineer from Bologna, who claimed to have a cold fusion reactor producing commercially useful amounts of heat.

Why were these claims so improbable? The neutrinos challenged a fundamental principle of Albert Einstein’s theory of special relativity, which says that nothing can travel faster than light. Meanwhile cold fusion (or LENR, for ‘low-energy nuclear reaction’) is the controversial idea that nuclear reactions similar to those in the Sun could, under certain conditions, also occur close to room temperature.

The latter was popularised in 1989 by Martin Fleischmann and Stanley Pons, who claimed to have found evidence that such processes could take place in palladium loaded with deuterium (an isotope of hydrogen). A few other physicists, including the late Sergio Focardi at Bologna, claimed similar effects with nickel and ordinary hydrogen. But most were highly skeptical, and the field subsequently gained, as Wikipedia puts it, ‘a reputation as pathological science’.

It turned out that my physicist friend and I disagreed about which of these unlikely claims was most credible. He thought it was the neutrinos, because the work had been done by respectable scientists rather than a lone engineer with a somewhat chequered past. I favoured Rossi, on grounds of the physics. Superluminal neutrinos would overturn a fundamental tenet of relativity, but all Rossi needed was a previously unnoticed channel to a reservoir of energy whose existence is not in doubt. We know that huge amounts of energy are locked up in metastable nuclear configurations, trapped like water behind a dam. There’s no known way to get useful access to it at low temperatures. But – so far as I knew – there was no ‘watertight’ argument that such methods were impossible.

My friend agreed with me about the physics. (So has every other physicist I’ve asked about it since.) But he still put more weight on the sociological factors – reputation, as it were. So we agreed to bet a dinner on the issue. My friend would pay if Rossi turned out to have something genuine, and I would pay if the neutrinos came up trumps. We’d split the bill if, as then seemed highly likely, both claims turned out to be false.

It soon became clear that I wasn’t going to lose. The neutrinos were scratched from the race, when it became apparent that someone on OPERA’s team of respectable scientists had failed to tighten an optical lead correctly.

Rossi, however, has been going from strength to strength. While it is fair to say that the jury is still out, there has been a lot of good news for my hopes of a free dinner in the past couple of years. There were two reports (in 2013 and 2014) on tests of Rossi’s device by teams of Swedish and Italian physicists whose scientific credentials are not in doubt, and who had access to one of his devices for extended periods (a month for the second test). Both reports claimed levels of excess heat far beyond anything explicable in chemical terms, in the testers’ view. (The second report also claimed isotopic shifts in the composition of the fuel.) Since then, there have been several reports of duplications by experimenters in Russia and China, guided by details in the 2014 report.

More recently, Rossi was granted a US patent for one of his devices, previously refused on the grounds that insufficient evidence had been provided that the technique worked as claimed. There are credible reports that a 1MW version of his device, producing many times the energy that it consumes, has been on trial in an industrial plant in North Carolina for months, with good results so far. And Rossi’s US backer and licensee, Tom Darden – who has a long track record of investment in pollution-reducing industries – has been increasingly willing to speak out in support of the LENR technology field. (Another investor, the UK-based Woodford Funds, reports that it conducted ‘a rigorous due-diligence process that has taken two and half years’.)

Finally, very recently, there’s a paper by two senior Swedish physicists, Rickard Lundin and Hans Lidgren, proposing a mechanism for Rossi’s results, inspired in part by the second of two test reports mentioned above. Lundin and Lidgren say that the ‘experimental results by Rossi and co-workers and their E-Cat reactor provide the best experimental verification’ of the process they propose.

As I say, I don’t claim that this evidence is conclusive, even collectively. It’s still conceivable that there is fraud involved, as many skeptics have claimed; or some large and persistent measurement error. Yet these alternatives are becoming increasingly unlikely. Rossi is not even the only person claiming commercially relevant results from LENR. Another prominent example is Robert Godes, of the California-based Brillouin Energy.

As several people have noticed, a new clean source of energy would be really, really useful right about now

You can see why I’ve been salivating at the thought of my dinner. And it is not only my stomach that has been increasingly preoccupied with this fascinating story. I’m a philosopher of science, and my brain has been finding it engrossing, too.

Imagine that someone had a working hot-fusion reactor in Florida – assembled, as Rossi’s 1MW device is reported to be, in a couple of shipping containers, and producing several hundred kilowatts of excess power, month after month, in apparent safety. That would be huge news. As several people have noticed, a new clean source of energy would be really, really useful right about now.

But if the potential news is this big, why haven’t most of you heard about Rossi, or Godes, or any of the other people who have been working in the area (for many years, in some cases)? This is where, from a philosopher of science’s point of view, things get interesting.

As a question about sociology, the answer is obvious. Cold fusion is dismissed as pseudoscience, the kind of thing that respectable scientists and science journalists simply don’t talk about (unless to remind us of its disgrace). As a recent Fortune piece puts it, the Fleischmann and Pons experiment ‘was eventually debunked and since then the term cold fusion has become almost synonymous with scientific chicanery’. In this case, the author of the article is blithely reproducing the orthodox view, even in the lead-in to his interview with Darden – who tells him a completely different story, and has certainly put his money where his mouth is.

Ever since 1989, in fact, the whole subject has been largely off-limits in mainstream scientific circles. Authors who do put their head above the parapet are ignored or rebuked. Most recently, Lundin and Lidgren reported that they had submitted their paper to the journal Plasma Physics and Controlled Fusion, but that the editors declined to have it reviewed; and that even the non-reviewed preprint archive, arxiv.org, refused to accept it.

So, as a matter of sociology, it is easy to see why Rossi gets little serious attention; why an interview with Darden associates him with scientific chicanery; and why, I hope, some of you are having doubts about me for writing on the subject in a way that indicates that I am prepared to consider it seriously. (If so, hold that attitude. I want to explain why I take it to reflect a pathology in our present version of the scientific method. My task will be easier if you are still suffering from the symptoms.)

Sociology is one thing, but rational explanation another. It is very hard to extract from this history any satisfactory justification for ignoring recent work on LENR. After all, the standard line is that the rejection of cold fusion in 1989 turned on the failure to replicate the claims of Fleischmann and Pons. Yet if that were the real reason, then the rejection would have to be provisional. Failure to replicate couldn’t possibly be more than provisional – empirical science is a fallible business, as any good scientist would acknowledge. In that case, well-performed experiments claiming to overturn the failure to replicate would certainly be of great interest.

What if the failure to replicate wasn’t crucial after all? What if we already knew, on theoretical grounds alone, that cold fusion was impossible? But this would make a nonsense of the fuss over the failure to reproduce Fleischmann and Pons’ findings. And in any case, it is simply not true. As I said at the beginning, what physicists actually say (in my experience) is that although LENR is highly unlikely, we cannot say that it is impossible. We know that the energy is in there, after all.

‘If there is something scientists fear, it is to become like pariahs’

No doubt one could find some physicists who would claim it was impossible. But they might like to recall the case of the great nuclear physicist Lord Rutherford, who claimed in 1933 that ‘anyone who expects a source of power from transformation of… atoms is talking moonshine’ – only days before Leo Szilard, prompted by newspaper reports of Rutherford’s remarks, figured out the principles of the chain reaction that makes nuclear fission useable as an energy source, peaceful or otherwise.

This is not to deny that there is truth in the principle popularised by Carl Sagan, that extraordinary claims require extraordinary evidence. We should certainly be very cautious about such surprising claims, unless and until we amass a great deal of evidence. But this is not a good reason for ignoring such evidence in the first place, or refusing to contemplate the possibility that it might exist. (As Godes said recently: ‘It is sad that such people say that science should be driven by data and results, but at the same time refuse to look at the actual results.’)

Again, there’s a sociological explanation why few people are willing to look at the evidence. They put their reputations at risk by doing so. Cold fusion is tainted, and the taint is contagious – anyone seen to take it seriously risks contamination. So the subject is stuck in a place that is largely inaccessible to reason – a reputation trap, we might call it. People outside the trap won’t go near it, for fear of falling in. ‘If there is something scientists fear, it is to become like pariahs,’ as Lundin puts it. People inside the trap are already regarded as disreputable, an attitude that trumps any efforts that they might make to argue their way out, by reason and evidence.

Outsiders might be surprised to learn how well-populated the trap actually is, in the case of cold fusion and LENR. The field never entirely went away, nor vanished from the laboratories of respected institutions. (Rossi’s own background is not in these laboratories, but he acknowledges that his methods owe much to those who are, or were – especially to the late Sergio Focardi, one of the pioneers of the field.) To anyone willing to listen, the community will say that they have amassed a great deal of evidence of excess heat, not explicable in chemical terms, and of various markers of nuclear processes. Some, including a team at one of Italy’s leading research centres, say that they have many replications of the Fleischmann and Pons results.

Again, the explanation for ignoring these claims cannot be that other attempts failed 25 years ago. That makes no sense at all. Rather, it’s the reputation trap. The results are ignored because they concern cold fusion, which we ‘know’ to be pseudoscience – we know it because attempts to replicate these experiments failed 25 years ago! The reasoning is still entirely circular, but the reputation trap gives its conclusion a convincing mask of respectability. That’s how the trap works.

In a case like this, there is very little cost to a false positive. But there may be a huge cost to a false negative

Fifty years ago, Thomas Kuhn taught us that this is the usual way for science to deal with paradigm-threatening anomalies. The borders of dominant paradigms are often protected by reputation traps, which deter all but the most reckless or brilliant critics. If LENR were an ordinary piece of science (or proposed science), the challenge posed by Rossi and others would promise fascinating spectator sport for philosophers and historians of science – a Kuhnian revolution waiting to happen, perhaps, with threats to the stability of the reputation trap now clearly in view. We could take our seats on the sidelines and wait to see whether walls fall – whether distinguished skeptics end up with egg on their faces. ‘Pleasant is it to behold great encounters of warfare arrayed over the plains, with no part of yours in the peril,’ as Lucretius put it.

This alone would be enough to explain why I’ve been finding Rossi’s apparent progress so stimulating. But there’s more, much more. None of us, not even philosophers, are mere spectators in this case. We all have skin in the game, and parts, indeed a planet, quite seriously in peril. We are like a thirsty town, desperate for a new water supply. What we drink now is slowly killing us. We know that there’s an abundant supply of clean, cheap water, trapped behind the dam. The problem is to find a way to tap it. A couple of engineers thought that they had found a way 25 years ago, but they couldn’t make it work reliably, and the profession turned against them. Since then, there’s been a big reputation cost to any engineer who takes up the issue.

Put this way, it is easy to see an argument that we’ve been shooting ourselves in the foot. In a case like this, there is very little cost to a false positive – to investing some time and money in an avenue that in the end turns out to go nowhere. But there may be a huge cost to a false negative. If Rossi, Godes, Lundin, Lidgren and others do turn out to have something useful – something that can make some useful contribution to meeting our desperate need for clean, cheap energy – we will have wasted a generation of progress. What we should have done instead is to have engineered the exact opposite of a reputation trap – perhaps an X Prize-like reward for the first reliable replication of the Fleischmann and Pons results, above some commercial bar.

At last I can explain what I meant earlier, when I asked you to hold on to the thought that I must be a bit flaky myself, if that was your reaction to my willingness to take cold fusion seriously. If you do think that – at least, if you think it without having studied the evidence for yourself – then your reaction is a symptom of the reputation trap. But now I’ve suggested that the trap itself might be an irrational pathology, in a special case such as this, in which the cost of a false negative is very high. If I’m right, then in a more rational world, we would fix our scientific norms to escape it. In a more rational world, you wouldn’t think I’m flaky.

I don’t need to deny that your reaction is an appropriate one, by the standards of science as we currently practice it, or that those standards work pretty well in general. Reputation traps have a useful purpose in the Kuhnian picture. They help to maintain the stability important to what Kuhn called normal science – the ordinary, useful kind of science when paradigms are not under threat. But this is compatible with the claim that they can be harmful in special cases (of which cold fusion might be one) – and that we could do better if we were better at identifying those cases in advance.

I suspect it’s too late to dismantle the trap for LENR – the horse might already be in the process of bolting. If Rossi and Godes et al are actually on to something, then the field is going to be mainstream soon anyway. But we could try to learn from our mistakes. There might be other potential cases with a similar payoff structure (a high cost for false negatives, with a low cost for false positives). I suspect there are some in the area of emerging extreme risks, another field in which I have some interest.

I’ve met scientists employed as technology forecasters for a very large enterprise, who were frustrated at their inability to persuade their organisation to list LENR as a technology of possible strategic interest, even with low probability. Once again, it was the reputation trap at work. This attitude could be disastrous in other cases, if the ideas stuck in the trap happened to be the key to addressing some potentially catastrophic risk. (Indeed, as my physicist friend rightly points out, it might be disastrous in the case of LENR itself, if it turns out to generate its own extreme risks.)

Darden’s attitude displays the cautious open-mindedness that has been lacking in reactions to the field for most of its history

There are big issues here. Would it be possible to avoid these counterproductive cases of the reputation trap without erring too far in the other direction – without opening the floodgates, so to speak? I’m not sure, but I think it is important to put the question on the table. If LENR does develop in the direction I now think likely, we might be able to salvage something useful from mistakes in this case.

I’ll close with some words from Darden, from a speech at ICCF-19, the international meeting of the LENR community held in Padua, Italy this April. (A full transcript is accessible here.) If the field is indeed in the process of digging itself out of the reputation trap, then Darden deserves much of the credit. Either way, his attitude displays the kind of cautious open-mindedness that has been so lacking in reactions to the field for most of its history.

Darden describes how he came to invest in LENR. Until quite recently, he says, he shared the conventional view that ‘the subject was dead’. But several independent enquiries about LENR within a matter of weeks convinced him that there was something worth investigating:

We believed LENR technology was worth pursuing, even if we turn out to be unsuccessful ultimately. We were willing to invest time and resources to see if this might be an area of useful research in our quest to eliminate pollution. At the time, we were not especially optimistic, but the global benefits were compelling.

He reports that things have been going very well. ‘We’ve had some success, and we’re expanding our work… and believe that we may be, at last, on the verge of a new paradigm shift.’ Finally, he expresses his appreciation to his audience, the LENR community themselves, and recalls another controversial piece of Italian science:

I would like to say how truly sorry I am that society has attacked you for the last three decades. The treatment of Fleischmann and Pons, and the treatment of many of you, by mainstream institutions and the media will go down in history as one more example of scientific infanticide, where entrenched interests kill off their divergent progeny. This seems to be a dark component of human nature, and I note the irony of it – we are in Padova, Galileo’s home.

It would be easy to overstate the analogy between mainstream institutions and the Inquisition, but it isn’t entirely empty. If we refuse to acknowledge the possibility that existing scientific institutions are not working as well as they might, we do something to reinforce it. If the reputation trap makes it impossible to question the role of the reputation trap, then the Cardinals are winning.

I am grateful for comments from Martin Rees, Seán Ó hÉigeartaigh, Adrian Kent, Tim Lewens, Shahar Avin, Ken Wharton and Andrew Briggs. This piece was made possible in part through the support of a grant on Managing Extreme Technological Risk, from the Templeton World Charity Foundation. The opinions expressed here are my own and do not necessarily reflect the views of TWCF.

North Korea’s Abduction Project

BY ROBERT S. BOYNTON The New Yorker

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On the evening of July 31, 1978, Kaoru Hasuike and his girlfriend, Yukiko Okudo, rode bikes to the summer fireworks festival at the Kashiwazaki town beach. They whisked down the winding lanes of their coastal farming village, a hundred and forty miles north of Tokyo. Then they parked their bikes and made their way past a crowd of spectators to a remote stretch of sand. As the first plumes rose in the sky, Kaoru noticed four men approaching. Cigarette in hand, one of them asked him for a light. As he reached into his pocket, the men attacked, gagging the couple, binding their hands and legs. “Keep quiet and we won’t hurt you,” one of the assailants said. Kaoru and Yukiko were thrown into separate sacks and loaded onto an inflatable raft. Peering through the sack’s netting, Kaoru saw the warm, bright lights of Kashiwazaki City fading into the background.

An hour later, he was transferred to a ship idling offshore and forced to swallow several pills: antibiotics to prevent his injuries from becoming infected, a sedative to put him to sleep, and medicine to relieve seasickness. Two nights later, he arrived in Chongjin, North Korea. Yukiko was nowhere in sight, and Kaoru’s captors told him that she had been left behind in Japan.

Kaoru, who was twenty, had fashionably shaggy hair and a ready smile. Cocky and intelligent, he was studying at Tokyo’s prestigious Chuo University. Still, like much of his generation in Japan, he wasn’t interested in politics, and knew almost nothing about Korea, North or South. Yukiko, twenty-two, the daughter of a local rice farmer, was a beautician for Kanebo, one of Japan’s leading cosmetics companies. She and Kaoru had been dating for a year, and he planned to propose to her once he finished his law degree.

The overnight train from Chongjin to Pyongyang was bumpy, and by the time Kaoru arrived the next morning he was furious. “This is a violation of human rights and international law!” he shouted. “You must return me to Japan immediately!” His abductor watched his tirade calmly. Kaoru, seeing that confrontation wasn’t getting any response, tried evoking sympathy. “You have to understand that my parents are in ill health,” he explained. Their condition would worsen if they worried about him.

“You know,” his abductor said, “if you want to die, this is a good way to do it.” He told Kaoru that the reason he had been kidnapped was to help reunify the Korean Peninsula, the sacred duty of every North Korean citizen. After all the pain his Japanese forefathers had inflicted on Korea, the man continued, it was the least that Kaoru, who had benefitted from his country’s rapacious colonial exploits, could do. Precisely how he would hasten reunification was left ambiguous. The abductor hinted that he would train Korean spies to pass as Japanese, and perhaps become a spy himself.

“You see, once the Peninsula is unified under the command of General Kim Il-sung, a beautiful new era will begin,” he went on. North Korean socialism would spread throughout Asia, including Japan. “And when that glorious day comes, we Koreans will live in peace. And when you go home at that time you’ll have an excellent position at the top of the regime!”

Kaoru was placed in an apartment in Pyongyang. Escape was virtually impossible; three minders monitored him twenty-four hours a day, each taking an eight-hour shift. Although he didn’t have a religious background, he tried praying, placing his palms together and pressing them to his eyes. This display of piety elicited ridicule from his captors. In North Korean movies, the only characters who prayed were the cowardly Japanese prisoners begging for mercy.

Kaoru was given access to a restricted library with Japanese-language books about the history of North Korea. Japan demobilized the Korean Army in 1907, and officially annexed Korea on August 29, 1910. The Japanese were careful to distinguish between Korean leaders (inept, corrupt) and the Korean people (proto-Japanese, full of potential), and predicted that Korea would thrive now that it was part of the Japanese Empire. From the late thirties through 1945, Japan pushed Koreans to assimilate, requiring them to speak Japanese, take Japanese names, and worship at Shinto shrines. Men were forced to labor in Japanese factories and mines, and some women were dragooned into sexual slavery. Roughly two hundred and thirteen thousand Koreans fought in the Japanese Imperial Army and Navy.

By the end of the Second World War, four million Koreans were living outside Korea, and more than seven hundred thousand Japanese civilians and troops were living inside Korea. But the loss of the Japanese Empire meant that a new theory of Japanese identity was required. In postwar Korea and Japan, a rhetoric of racial purity thrived. Within the Korean Peninsula, the newly independent North and South competed to see which could more thoroughly eradicate Japan’s influence, in an effort to become the Korean people’s legitimate homeland.

In January, 1980, after eighteen months in North Korea, Kaoru was summoned to his minder’s office. Several officials were waiting for him. They announced that Yukiko, his girlfriend, was in North Korea after all. In fact, she was in the next room. It turned out that the story about her being left behind in Japan had been a ruse designed to force Kaoru to cut all emotional ties to Japan. The couple had been undergoing the same pedagogical routine: learning Korean, studying the regime’s ideology, wondering whether they could survive in this strange country. Like much else in North Korea, their isolation had been staged.

Kaoru and Yukiko married three days after they were reunited. “I would have done it that morning,” Kaoru said. “I didn’t want to wait.” The groom received a haircut and was outfitted with a new white shirt and a necktie; the bride wore a simple flower-patterned dress. The ceremony was officiated by the most senior official present, who opened by invoking the blessings of the Great Leader, Kim Il-sung.

The most important wedding present a North Korean newlywed couple can receive is a home in which to start their new life. (Because there is virtually no private property, the gift is from the state, and can be withdrawn at any time.) Hasuikes’ first home was a traditional one-story cinder-block house an hour south of Pyongyang. Painted white, it had a wooden roof with ceramic tile shingles and five rooms: a kitchen, two bedrooms, a living room, and a bathroom. In the back was a small garden where Kaoru grew vegetables. He got seed and fertilizer by trading cigarettes with farmers from a nearby food coöperative, and arranged for a cow to till the field at the beginning of the growing season. He became fond of kimchi, and started making it for himself in the traditional manner, stuffing cabbage and hot red peppers into clay pots and burying them in the yard to ferment.

Their house was situated in one of the many guarded “invitation-only zones” that dot suburban Pyongyang. The area, a square mile, limited its inhabitants’ freedom while warning outsiders that only those “invited” to enter were welcome. All North Koreans develop a heightened sensitivity to coded language, and they knew well enough to avoid it. The development was a well-tended prison inside the secretive state. Still, the housing and food were better than what most North Koreans had. Kaoru saw the place as a gilded cage.

Hasuikes’ neighbors were an odd assortment: other abductees, North Korean spies, foreign-language experts—anyone whose access to outside information made them a threat to the regime’s carefully crafted official narrative. With small clusters of houses fanning out from a central building, each separated from the others by densely wooded, artificial hills, the invitation-only zone was designed to discourage private contact among residents. At its center, the roads converged on a large guest house, which had spaces for meetings and classes. As part of the government’s attempt to control the flow of information into the country, the North grants few long-term visas to foreign visitors, so this cluster of Japanese abductees provided a rare educational opportunity for spies, many of whom would be sent to infiltrate Japan.

The Hasuikes were given jobs translating articles from Japanese into Korean. (The task, oddly, could have been performed by any one of the millions of North Koreans who had been forced to learn Japanese during the colonial era.) At the start of every week, they would receive a stack of Japanese magazines and newspapers, with sections blacked out by a censor and specific articles circled for translation.

The newlyweds fell into a routine. Each morning, after being woken up by an announcement from the radio loudspeaker that is installed in every North Korean house and workplace, Yukiko would prepare a traditional Korean breakfast of rice, eggs, and kimchi. Afterwards, Kaoru would go for a run, taking a route past identical small white cottages, down paths that cut through the hills and trees. After a few thousand yards, he would see barbed-wire fence peeking above the trees.

Kaoru did what he could to make their house feel like a home. “In the same way that, as a child, I made up games without toys or playmates, I found time to play by myself in the invitation zone,” he wrote. He carved a mahjong set out of wood and taught his wife to play. Although he hadn’t played golf in Japan, he spent several weeks clearing a nearby area to create a five-hole golf course. He drew on his memories of watching the game on television to come up with something approximating the rules, and played obsessively, using balls made by sticking cotton swabs together. “As idiotic as it may seem,” he wrote, “as someone starved of play this course was great fun.”

Kim Il-sung, in his 1946 decree “On Transporting Intellectuals from South Korea,” explained his desire to bring five hundred thousand people to the North to compensate for the mass exodus in the years leading up to the war. He envisioned an ambitious abduction project that would serve his regime while destabilizing other countries. It began with the South. An estimated eighty-four thousand South Koreans were kidnapped during the Korean War. For the first two decades after the 1953 armistice, the abductees were primarily South Korean fishermen whose boats had drifted too far up the coast. South Korea has confirmed that just under five hundred of its citizens are still held in the North.

Kim Jong-il, who would go on to take over his father’s position, expanded the program outside the Koreas. He diversified and expanded intelligence operations, abducting native teachers to train North Korean spies to navigate the languages and cultures of Malaysia, Thailand, Romania, Lebanon, France, and Holland. Japanese nationals were especially sought after, because their identities could be used to create fake passports. The Japanese government officially recognizes seventeen abductees, but estimates of their numbers run from a few dozen to several hundred. The targets tended either to be unmarried men of low social status who lived far from their families, and wouldn’t be missed, or young couples. Japan’s traditional family-registration system (koseki) had yet to be fully centralized in the nineteen-seventies, when the first Japanese people were abducted, so there was no reliable national database against which a forged passport could be compared. And a Japanese passport granted the holder access to virtually any country on Earth.

People began to disappear from Japan in 1977. A security guard vacationing at a seaside resort two hundred miles northwest of Tokyo vanished in mid-September. A thirteen-year-old girl named Megumi Yokota, walking home from badminton practice in the port city of Niigata, was last seen eight hundred feet from her family’s front door. Dozens more went missing from other parts of Asia, Eastern Europe, and the Middle East. A Thai woman living in Macau was grabbed on her way to a beauty salon. Four Lebanese women were brought from Beirut. A Romanian artist, having been promised an exhibition, was abducted. Some were lured onto airplanes by the prospect of jobs abroad; others were simply gagged, thrown into bags, and transported by boat to North Korea. Their families spent years searching for the missing, checking mortuaries, hiring private detectives and soothsayers. Only five of the Japanese abductees were ever seen again.

Beyond the wedding arrangements for Kaoru Hasuike and Yukiko Okudo, the North Korean government systematically did more matchmaking. Enter the American Sergeant Charles Robert Jenkins, who, in January, 1965, was stationed at the demilitarized zone between North and South Korea. Part of a four-man “hunter-killer” team, Jenkins was tasked with drawing fire from North Korean troops during daytime patrols. He had grown depressed and drank heavily, and he concocted an escape plan. “I was going to walk north across the DMZ and into North Korea,” he wrote in his memoir, “The Reluctant Communist” (2008). “Once there, I would ask to be handed over to the Russians, and request a diplomatic exchange for passage back to the United States.” In the early hours one morning, Jenkins informed his squad that he was going to check the road, but instead he tied a white T-shirt to his M-14 rifle and crossed into the D.M.Z., taking “high, slow, deliberate steps” to avoid trip wires that would set off a mine, he recalled. “It was the stupidest thing I’ve ever done,” he told me. Three weeks later, one of the North’s propaganda loudspeakers announced the news of his arrival. “The Republic that is the Eternal Paradise will protect with hospitality the brave Sergeant Jenkins!”

The U.S. military tried to keep Jenkins’s defection quiet, for fear that more soldiers might follow. A few others had done so already, under similarly hapless circumstances. After being debriefed by the North Koreans, Jenkins was assigned to live with them in a tiny house, where they slept on mats on the floor. “We four who willingly walked across the DMZ were Cold War trophies, which is why I think we were never treated like POWs. As the stars of several propaganda pamphlets—and later movies—we had to look like we were happy, or at least healthy,” he wrote. They were cast whenever a North Korean film or television show called for Western villains. But their primary job was to teach English. He said, “We just wouldn’t correct the students’ mistakes, or we’d purposely teach them nonsense words.”

The regime began pairing the defectors with women who had been abducted from foreign countries. In the summer of 1980, Jenkins was introduced to a woman who the regime wanted to learn English. Her name was Hitomi Soga, and she was from Japan. “I had never seen anybody so beautiful in my life,” he wrote. For several months, they would smoke, talk, and play cards. One night, Jenkins ventured that he had heard of a number of Japanese people who had been brought to North Korea against their will. She looked frightened and remained silent, but pointed to her nose to indicate that she was one of them. At dusk on August 12, 1978, Soga had gone shopping with her mother, Miyoshi, at the general store near their home on Sado Island. Three men followed them, and on a quiet stretch of road pulled them behind a tree and bound and gagged them. They dragged them a few hundred feet down the road to the Kono River, where a small skiff was hidden beneath a bridge. When Soga arrived in North Korea, her mother was gone.

A minder urged Jenkins to marry her. “You and she don’t seem like it, but you are actually the same. You both have nothing here. Together, you would each at least have something,” he said. Jenkins soon started proposing almost every day. After several weeks, she relented, and they were married on August 8, 1980. They had two daughters, Mika, in 1983, and Brinda, in 1985.

Perhaps the most significant instances of the North Korean regime acting as a romantic facilitator involved the Red Army Faction, a group of young radicals from Japan who hijacked an airplane in 1970 to receive combat training in North Korea. Once inside the country, the men were schooled in juche, North Korea’s official philosophy, commonly translated as “self-reliance,” and guided by the collective unconscious embodied in Kim Il-sung. When Kim judged that the group had been successfully reëducated, he called a press conference. “Their ideological state seems to have improved,” he said, as the members of the Red Army sat stiffly at a conference table. He took to calling the men his “golden eggs,” and planned to use them to spread North Korea’s revolutionary ideas around the world. The only problem was that there weren’t enough of them.

It was decided that the members of the Red Army needed wives. Because North Korean law forbids marriage between its citizens and foreigners, the group’s North Korean overseers suggested that spies recruit suitable Japanese women from Europe and Japan and bring them to North Korea to serve as brides. It is unclear exactly how all the wives got to North Korea, or whether they were aware of the reason for their recruitment. One of them was told that she would be going to study in North Korea but had to keep it a secret; she was directed to tell her parents that she was going to Europe, and the day before she left she signed half a dozen postcards, pre-stamped and addressed to them, filled with banalities (“The weather here is beautiful”). The Marriage Project, as the matchmaking scheme came to be known, culminated in May, 1977, when the entire group got married, one by one, in the course of a week. Kim Il-sung visited the Revolutionary Village to celebrate the weddings, and told the Red Army that now they must “continue the revolution by giving birth to the next generation.”

I asked Sergeant Jenkins what he considered the point of all the abductions. He answered by telling me about a visit that two North Korean cadres paid to his home in 1995. Such a visit was unusual, so he was nervous. The conversation turned to his daughters. “Thanks to the great benevolence of Kim Jong-il,” they said, the girls would be sent to the Pyongyang University of Foreign Studies. The college is one of the most prestigious in North Korea, but it also feeds into the country’s intelligence service. “That’s when I knew they were planning to turn Brinda and Mika into spies,” he recalled. “Think about it. They would be perfect raw material for North Korean spies, because they looked nothing like what someone would expect a North Korean spy to look like.” Mixed-race children are common in South Korea and Japan, but they are unheard of in the North. Jenkins believes the abduction project was a long-term breeding program. That could explain why most of the Japanese were abducted in pairs, usually a girlfriend and boyfriend out for a romantic evening, and why the North Koreans had no use for Jenkins’s wife’s mother.

He may have been on to something. The North Korean defector Jang Jin-sung, in his 2014 book, “Dear Leader,” describes a program instituted after it became clear that abductees would never become spies. The “seed-bearing strategy” involved sending attractive North Korean women to seduce foreign diplomats, journalists, and businessmen. The resulting children gave the regime leverage over the fathers—who would be manipulated into aiding the North through favorable news coverage, business deals, or government aid—and the children could be trained as spies. When I met Jang, he connected the abduction project to the seed-bearing program. “They were essentially the same project, just using different methods,” he said. “They went from kidnapping people to kidnapping eggs.”

Kaoru Hasuike and Yukiko Okudo had a daughter and a son, born in 1981 and 1985. The couple gave them secret Japanese names, Shigeyo and Katsuya. Every day, a minder would ferry the children back and forth to day care outside the invitation-only zone, and, like kids growing up anywhere, they perceived their lives to be normal. For native North Koreans, secrets and omnipresent surveillance were as common as air. When each child turned eight, the regime sent them to a boarding school a hundred and twenty miles north of Pyongyang. They would be allowed to visit home for three months, during winter and summer holidays; there were no parents’-day visits or phone calls, and care packages took a month to arrive, if they were delivered at all. None of the students knew precisely where their peers were from. The Hasuike children passed as North Korean, and they believed they were.

Because the locations of the kidnappings were scattered, and because the number of disappearances was relatively small, few people in Japan drew a connection among the incidents, or even identified them as abductions. A local paper slyly described a couple as having been “burned up” by their passion, the implication being that they eloped after the woman became pregnant. When the families of the missing went to the police, they were told that, with no evidence of foul play, there was nothing to investigate. Gradually, a few members of the Japanese government became aware of the abductions; not every operation went according to plan, and the police occasionally found North Korean military artifacts in spy boats that washed up on remote beaches. A Japanese couple was discovered with their hands tied, bags over their heads, after their would-be abductors had abandoned them and fled. But Japan avoided acknowledging the abductions officially. What could have been done? Japan had neither diplomatic relations with North Korea nor a military that could take unilateral action, and its mutual-security treaty with the United States wouldn’t be triggered by a handful of kidnappings. If a Japanese official made the matter public, North Korea might hide the evidence by killing the abductees. “It can’t be helped” (shikata ga nai) is a phrase commonly used in Japan to rationalize inaction. And so dozens of people languished in North Korea for a quarter century.

The most dramatic proof of the abductions came in 1987, when two North Korean terrorists tucked explosives, planted inside a Panasonic radio, into an overhead luggage compartment on a South Korean airliner. They bailed on the flight in Abu Dhabi, before the bomb killed everyone on board. One of the terrorists later confessed that she had been taught Japanese by an abductee. North Korea never took responsibility, but after several years it opened diplomatic discussions with Japan. Finally, at a meeting in 1997, Japanese negotiators substituted the phrase “missing people” for “abductees,” and the North agreed to investigate.

On September 17, 2002, the Japanese Prime Minister, Junichiro Koizumi, flew from Tokyo across the D.M.Z. in order to begin the process of normalizing diplomatic relations—a condition of which was accounting for the Japanese citizens who had been held in Korean custody. North Korea waited until the last possible moment to hand over the list of surviving and deceased abductees: the North admitted to kidnapping thirteen people, eight of whom the regime claimed were dead, all under suspicious circumstances. Only five were said to be alive.

Kim Jong-il entered the negotiation room wearing his signature khaki-colored military jacket. “As the host, I regret that we had to make the Prime Minister of Japan come to Pyongyang so early in the morning in order to open a new chapter in the D.P.R.K.-Japan relationship,” Kim said. Reading from a memo pad, Kim explained to Koizumi that he wanted to initiate “a truly neighborly relationship” with Japan. “I, too, hope that the opportunity that this meeting presents will greatly advance bilateral relations between our two countries,” Koizumi replied. But then his tone grew stern. “I was utterly distressed by the information that was provided,” he began. “I ask that you arrange a meeting for us with the surviving abductees. And I would like you to make an outright apology.” Kim listened in silence, looking uncomfortable. After a long pause, he suggested, “Shall we take a break now?”

When the negotiations resumed, Kim got right to the point. “We have thoroughly investigated this matter,” he read to the room. “Decades of adversarial relations between our two countries provided the background of this incident. It was, nevertheless, an appalling incident.” Kim continued, “It is my understanding that this incident was initiated by special-mission organizations in the nineteen-seventies and eighties, driven by blindly motivated patriotism and misguided heroism.” He explained that the purpose of the abductions was to find people to teach its agents Japanese, and to steal identities with which to infiltrate the South. “As soon as their scheme and deeds were brought to my attention, those who were responsible were punished.” The North Koreans claimed that the two people responsible for the abduction of Megumi Yokota, whose kidnapping was highly publicized, had been tried and found guilty in 1998. One was executed and the other was serving a fifteen-year sentence. “I would like to take this opportunity to apologize straightforwardly for the regrettable conduct of those people. I will not allow that to happen again,” Kim promised.

It was inconceivable to Koizumi that a program like this could have existed without Kim’s knowledge, especially since he was in charge of espionage operations during the years that most of the abductions occurred. Despite his misgivings, Koizumi signed the Pyongyang Declaration at a ceremony at five-thirty that afternoon. The event was immortalized on a North Korean postage stamp.

On October 16, 2002, a photograph of five middle-aged Japanese people—two couples and a single woman, all wearing boxy nineteen-fifties-era suits, ties, and skirts—seen descending from a Boeing 767 at Tokyo’s Haneda Airport appeared in newspapers across the globe. The New York Times headline read: “Tears and Hugs as 5 Abducted Japanese Go Home to Visit.” Kaoru Hasuike and Yukiko Okudo, Hitomi Soga, and two others returned to Japan twenty-four years after they had been abducted. Soga’s husband, Jenkins, remained in Pyongyang with their daughters. The major Japanese television stations ran specials and live coverage all day, devoting thirty hours to the homecoming. It would take nineteen more months of negotiations, and several hundred thousand tons of rice, before the abductees’ children were allowed to reunite with their parents in Japan.

The return left the public feeling simultaneously aghast at North Korea’s treachery and patronized by the Japanese government’s incompetence. Within a week, national support for normalizing relations with North Korea, which Koizumi had championed, plunged from eighty-one per cent to forty-four per cent. Soon, every major political party included dealing with the abductions in its official election agenda. When Shinzō Abe became Prime Minister, in 2006, one of his first acts was to establish the Headquarters for the Abduction Issue, a cabinet-level office with an enormous budget to coördinate the government’s abduction-related efforts. It produced films, comic books, and cartoons about the kidnappings. Abe also ordered NHK, the government-funded broadcaster, to increase its already extensive coverage of the abductions.

Some Japanese activists have continued pushing for more, driven by the conviction that the abductees claimed dead by the North Korean regime were still alive. An abduction support group held press conferences and raised money for a reconnaissance mission to infiltrate North Korea and locate the remaining abductees. (It failed.) Another organization, the Investigation Commission on Missing Japanese Probably Related to North Korea, has, since 2005, beamed a shortwave broadcast called “Shiokaze” twice a day into North Korea. Segments are announced in Japanese, English, Chinese, and Korean; they include some international news items and messages to individual abductees, often read by friends and relatives. Soothing piano music plays in the background. A repeating message tells the abductees to keep the faith, because “it will not be long until we rescue you.”

I met Kaoru Hasuike on a warm April afternoon. His shaggy haircut and taut, angular face made him appear a decade younger than he is. The only evidence of his time in North Korea are his discolored, uneven teeth. In 2010, Kaoru completed his undergraduate degree at Chuo University through a correspondence course, and he is now working toward a graduate degree in Korean studies at Niigata University. He recently informed the Japanese government that he no longer needs the monthly stipend offered to abductees. He and Yukiko found part-time work at the Kashiwazaki city hall during the year and a half it took for their children to be freed. Now Kaoru earns a living translating books from Korean; he also writes his own. Yukiko is a cook in a local kindergarten.

Having spent half his life as a Korean among Koreans, it would be odd if he were able to shed his experience easily. Japanese culture has difficulty with elements that don’t fit precise categories, and the suspicion that Kaoru was ambivalent about returning to Japan, that he was somehow both Korean and Japanese, drove some people crazy. But Kaoru seems to have survived his North Korean ordeal by living as normally as possible—a life with more than its share of oppression, fear, and misery, of course, but a life nonetheless. He married, had children, and, to an extent, formed friendships. What was the alternative?

Kaoru told me that the time he spent waiting for North Korea to release his children was the most difficult. The regime had made it clear that it was monitoring his every move, so Kaoru had to be careful not to say or do anything that would offend North Korea, and perhaps keep him from seeing his children again. During this period, the North Koreans prepared the children for the shock of learning the truth both about their parents and themselves. “Once the North Korean authorities came to the conclusion that they would have to return the kids, they told them that they were Japanese and that their mother and father were in Japan, although they didn’t mention the abduction part,” Kaoru said. “The North Korean authorities couldn’t release them into a P.R. storm where they were traumatized, which would leave a negative impact on North Korea’s reputation. In order to have the proper promotional value, they had to be prepared bit by bit.”

In Kaoru’s first interaction with his son after he was sent over from North Korea, he could sense the uncertainty. On May 22, 2004, once the children’s plane took off, a Japanese official handed Katsuya a cell phone with his father on the other end. “Your Korean is strange,” the boy said. “This isn’t really my father, is it?” Kaoru had been giving Korean lessons since he returned, and the South Korean language tapes he used had changed his accent slightly.

“The first couple of days, we didn’t say much, we just let time pass,” he recalled. Knowing that their Japanese was poor, Kaoru bought his kids a few Korean DVDs. The family spent its first night together in Kashiwazaki watching “Winter Sonata,” a popular South Korean soap opera. When stories about North Korean defectors appeared on the television news, Kaoru noticed the children’s concentration intensify as they tried to sort out what was true and what was propaganda. Once they learned that the country they had been taught to love had abducted and imprisoned their parents, they realized they would have no future in North Korea. After learning Japanese, their greatest challenge was handling their newfound freedom. It was scary to suddenly not be told what to do. “Today, when I speak with my children, I never lie about anything,” Kaoru said. “That is the rule. Once you open the door and are honest, you have to continue to speak truthfully and be completely open.”

Katsuya earned a degree in computer science from Waseda University and works for a bank in Seoul. Kaoru’s daughter, Shigeyo, is pursuing a doctorate in education. Brinda Jenkins studied bridal and wedding services at a Niigata trade school, got a sales job at a sake distillery, and in 2014 married the son of a cement manufacturer whom she met at the sake factory. Her sister, Mika, teaches at a day care and lives at home with her mother and father, who still communicate in Korean, their only common language.

A Reporter at Large: A Dirty Business

New York City’s top prosecutor takes on Wall Street crime.

BY GEORGE PACKER The New Yorker

In the Galleon case, both the prosecutor, Preet Bharara, and the defendant, Raj Rajaratnam, were immigrants from the subcontinent.

In the fall of 2003, Anil Kumar, a senior executive with the consulting firm McKinsey, and Raj Rajaratnam, the head of a multibillion-dollar hedge fund called Galleon, attended a charity event in Manhattan. They had known each other since the early eighties, when, as recent immigrants, they were classmates at the Wharton School of Business, in Philadelphia. Their friendship, intermittent over the years, was based on self-interest rather than on intimacy. Kumar, born in Chennai, formerly Madras, India, was fastidious and morose, travelling at least thirty thousand miles a month for work, and seldom socializing. Rajaratnam, a Tamil from Colombo, Sri Lanka, was fleshy and dark-skinned, with a charming gap-toothed smile and a sports fan’s appetite for competition and conquest. Kumar was not among the group whom Rajaratnam took on his private plane to the Super Bowl every year for a weekend of partying. “I’m a consultant at heart,” Kumar liked to say. “I’m a rogue,” Rajaratnam once said. Kumar had the more precise diction and was better educated, but Rajaratnam was one of the world’s new billionaires and therefore a luminary among businessmen from the subcontinent. In an earlier generation of immigrant financiers, Kumar would have been the German Jew, Rajaratnam the Russian. Kumar might have felt some disdain for Rajaratnam, but Rajaratnam’s fortune made him irresistible.

McKinsey executives, in an attempt to cash in on the explosive growth of hedge funds, had recently sent Rajaratnam several e-mails proposing that Galleon hire the company to provide expert advice. Rajaratnam had ignored them. Leaving the charity event, Kumar expressed annoyance about the unanswered e-mails, he later recalled. Rajaratnam pulled him aside. “I’d much rather have you as a consultant than McKinsey,” he explained. “And I am willing to pay you half a million dollars a year.” Kumar replied that McKinsey forbade outside consulting, but Rajaratnam persisted, appealing to Kumar’s pride: “You work very, very hard, you travel a lot, you are underpaid. People have made fortunes while you were away in India, and you deserve more.” He noted that Kumar, who provided strategic advice to Silicon Valley technology companies—one of Rajaratnam’s investing specialties—possessed knowledge that was worth a lot of money. Kumar had only to keep a list of “ideas,” and to call him once a month or so. “I know you will do that if you get money from me,” Rajaratnam said. “And I know you will not remember to keep a list if you don’t get money from me.”

Kumar agreed to be paid a quarterly sum of a hundred and twenty thousand dollars. To evade the scrutiny of McKinsey and of the government, he followed Rajaratnam’s instructions and set up a Swiss bank account for a shell company in Geneva called Pecos Trading, which transferred the quarterly payments, through offshore banks, to a Galleon account under the name Manju Das. This was Kumar’s housekeeper in Saratoga, California, who also cared for his ill son. “Lots of people set up offshore companies,” Rajaratnam said, trying to alleviate Kumar’s squeamishness.

Pulling off the subterfuge required a false mailing address, signatures obtained under false pretenses, backdated investment documents, and phony doctor’s bills. Yet Kumar initially believed that he was going to pass information to Rajaratnam legally. He soon realized that Rajaratnam wanted tips that he could convert into profitable stock trades. Once the flow of money created an obligation, Rajaratnam began asking for financial details about companies that Kumar advised. Soon, Kumar was breaking both McKinsey’s confidentiality rules and the securities laws that forbid such exchanges.

His offerings were never good enough for Rajaratnam, who kept pressing for more. As an incentive, Rajaratnam offered to pay Kumar a percentage of the profits from trades made on his tips. Kumar recoiled: the paper trail documenting such trades would put him at risk of exposure, and receiving Galleon trading profits would bring him too close to Rajaratnam’s illegal business. He didn’t want to know what Rajaratnam did with his secrets. As long as he was paid as a consultant, Kumar felt sufficiently sheltered from the truth. So he secured a different arrangement: at the end of each year, Rajaratnam would give him whatever he thought his information had been worth, a common practice at McKinsey. In 2006, it was worth a lot.

Early that year, the microprocessor-maker Advanced Micro Devices decided to acquire a graphics-chip company called A.T.I. Hardly anybody on Wall Street anticipated the deal except Rajaratnam, who knew exactly what was going to happen because Kumar was A.M.D.’s consultant at McKinsey, guiding its strategic decisions. His tips allowed Rajaratnam to time a trade perfectly, and Galleon—betting long on A.T.I.—cleared twenty-three million dollars. After the deal was announced, in July, 2006, Rajaratnam called Kumar at home from Galleon’s offices and said, “Thank you. We’re all cheering you. You’re a hero.” At the end of the year, he called Kumar again: “I’ve had a fabulous year. I’m handing out huge bonuses.” Kumar’s was a million dollars. “Tell me where to send it,” Rajaratnam said.

In the language of hedge funds, Galleon’s strategy was to “arbitrage reality” with the consensus on the Street—to find information about a given company that diverged from Wall Street’s view, allowing Galleon to cash in when the company’s stock price rose or fell. At Galleon, this was known as “getting an edge.” The analyst or portfolio manager with the best read on a company was called the “axe” on that stock. The surest way to become the axe was to have a source who passed on information about a company’s earnings, upcoming deals, and other confidential matters. The ultimate edge was insider trading—the acquisition of nonpublic information about a company—and Rajaratnam was the king axe. At Galleon’s daily 8:30 A.M. meeting, he always had more information than his employees and didn’t hesitate to let them know it. By the mid-aughts, hedge funds accounted for nearly half of all stock trades, and there was ferocious competition for wealthy investors and the business of investment banks. Lightly regulated and nearly opaque, hedge funds played a central role in the creation of credit-default swaps and other financial exotica that led to the economic collapse of 2008.

Rajaratnam’s goal was to be running a ten-billion-dollar fund by the end of 2009. In seducing Kumar, he made a valuable addition to the network that he had built up over the years. Some of Rajaratnam’s informants were his subordinates at Galleon, such as Adam Smith, a graduate of Harvard and of Harvard Business School, whom Rajaratnam hired in 2002. Clean-cut and calculating, Smith was the sort of ambitious financier who worked hard, did his homework, and cheated, too. In 2004, in the class notes for his ten-year college reunion, he wrote about working at Galleon: “It’s the first job I’ve truly loved, and I find the challenge of the stock market exhilarating.” By then, Smith had become a reliable conduit of illegal tips to Rajaratnam. Some of the biggest ones came from Kamal Ahmed, at Morgan Stanley in Menlo Park, California, where Smith had worked. To throw off potential investigators, Smith used code names and adopted one of his boss’s favorite techniques, creating false e-mail trails. (The merger of two companies whose names began with “I” became “the two eyes.”) Rajaratnam soon promoted Smith from analyst to portfolio manager.

At the heart of Rajaratnam’s informant network was a group consisting largely of Indian-born businessmen. They included Krish Panu, a board member of the outsourcing company PeopleSupport; Kris Chellam, an executive at Xilinx, a Silicon Valley semiconductor company; and Rajiv Goel, a manager at Intel, who was, in a comically assertive and bumbling fashion, one of Rajaratnam’s close friends. The most illustrious was Rajat Gupta, the former worldwide head of McKinsey; the onetime chair of the Global Fund to Fight AIDS, Tuberculosis, and Malaria; and a board member of several prominent business schools and companies, including Goldman Sachs. All these men had investments that were tied to Galleon, and therefore benefitted from the trades that they helped Rajaratnam make. Rajaratnam tried to keep each source unaware of the others so that their trails of information led only to him.

Rajaratnam’s sources revered him, except Kumar, who viewed him with condescension, and Gupta, who was on friendly terms with heads of state and didn’t need Rajaratnam’s approval—only his money. In August, 2008, when Gupta was considering a position with the private-equity firm Kohlberg Kravis Roberts, Rajaratnam and Kumar exchanged gibes on the phone about Gupta’s greed. Rajaratnam said, “Here he sees an opportunity to make a hundred million dollars over the next five years, or ten years, without doing a lot of work.” Two weeks earlier, Rajaratnam had disparaged Kumar to Gupta, saying that he was trying to be “a mini-Rajat” without “bringing anything new to the party.” He added, “I’m giving him a million dollars a year for doing literally nothing.” Worse, Kumar had never thanked him. “I’ve never seen him laugh and be really happy, you know? He is constantly . . . not scheming—it’s not the right word—but constantly trying to figure out what other people’s angles are.”

One of Rajaratnam’s most enthusiastic informants was Danielle Chiesi, a former teen beauty queen from upstate New York. She worked at a hedge fund called New Castle, which was owned by Bear Stearns. A bottle blonde in her early forties, Chiesi lived alone in midtown and slept with men who gave her stock tips. She said that when she profited from such tips she felt “mentally fabulous.” By 2008, Chiesi had entered a relationship with Hector Ruiz, the chief executive of A.M.D. (Ruiz has denied that it was intimate.) Rajaratnam, hearing of Chiesi’s highly placed source, told Kumar that he had established a new inroad at the company, noting, “Your value to me is a bit diminished.”

In October, 2008, Kieran Taylor, an executive with Akamai, an Internet-services company, told Chiesi over the phone, “Danielle, I have a major present for you.”

“Drugs?” she asked. “I hope not.”

“Information, information.”

“I love you for that. When am I going to see you?”

After another phone conversation with Taylor, Chiesi told Rajaratnam, “I played him like a finely tuned piano.” She was eager to impress Rajaratnam, flirting with him as if by reflex, and passing him secrets without expecting much in return. Rajaratnam kept his distance, and declined to tell her when her information confirmed tips from other sources. After receiving one tip, he warned, “We got to keep this radio silence.”

“That is my pleasure,” Chiesi said.

“Not even to your little boyfriends, you know?”

“Believe me, I don’t have any friends.”

Rajaratnam’s view of human nature was not so different from that of Willie Stark, in “All the King’s Men”: “Man is conceived in sin and born in corruption and he passeth from the stink of the didie to the stench of the shroud.” If there are examples of people whom Rajaratnam unsuccessfully tried to corrupt, they have not surfaced in the voluminous public record on Galleon. Once, his brash younger brother, Rengan, put out a feeler for inside information to a friend from Stanford’s business school who had become Kumar’s protégé at McKinsey. Rengan gleefully relayed to his brother that the young associate was “a little dirty.” When Rajaratnam shared this assessment with Kumar, Kumar asked him to lay off the associate, not wanting his protégé to be sucked into Galleon’s corruption. Later, Rajaratnam laughed with his brother over the episode. “I just wanted to show how your friend is—”

“Scumbag!” Rengan said. “Everybody is a scumbag!”

In October, 2009, Rajaratnam and Kumar flew to Trinidad with their wives to attend a wedding. On their way home, they stopped in Miami to spend two days at Rajaratnam’s beachfront condominium. On the evening of October 6th, the men went out in Rajaratnam’s boat, then returned to shore and took a swim. They were lounging on deck chairs, reading and chatting, when Rajaratnam’s phone rang. Excusing himself, he walked down the beach to talk. Five minutes later, he came back, excited. “That was a Cisco executive,” he said. “Cisco is buying Starent”—an information-technology company. Kumar had never heard of Starent, and he wondered which Cisco executive was calling Rajaratnam.

Rajaratnam then gave Kumar a warning: a man named Ali Far, who had worked at Galleon, was rumored to be wearing a wire. “I have to be really careful,” Rajaratnam said. “I can’t believe he’s doing that and betraying me.” He instructed Kumar to start using unregistered prepaid cell phones for their calls. When they returned to the condominium, Kumar opened his laptop, went into his Charles Schwab brokerage account, and bought three hundred shares of Starent, worth about eight thousand dollars. The deal was announced a week later. It was Rajaratnam’s last known inside trade.

Early on the morning of October 16th, F.B.I. agents converged on Rajaratnam’s town house, on Sutton Place, on Manhattan’s East Side, where he lived with his wife, Asha, his two younger children, and his parents. The agents arrested him on charges of conspiracy and securities fraud, and released him on a hundred-million-dollar bond. Within hours, Adam Smith and Rengan Rajaratnam had removed evidence from the Galleon offices. At six that same morning, Danielle Chiesi was roused from bed in her apartment on East Fifty-ninth Street by the knocks of four agents wearing bulletproof vests. The agents spent an hour showing Chiesi a file of evidence before concluding that she wouldn’t coöperate. She refused to place a monitored call to someone on the West Coast—probably Hector Ruiz.

At the same hour, agents appeared at Anil Kumar’s Manhattan apartment, at the Time Warner Center. When they put him in handcuffs, Kumar’s long struggle to separate himself from what he had become ended. He fainted, hitting his head against a wall. He had to be treated at a local hospital before he could be brought in for booking.

Two of Chiesi’s co-conspirators and Rajaratnam’s friend Rajiv Goel were also arrested. Later that day, Asha Rajaratnam sent a text message to Kumar’s wife, Malvika. It said, “I’m sorry.”

Three years earlier, in October, 2006, a thirty-one-year-old lawyer from Weston, Connecticut, named Andrew Michaelson started working at the New York office of the Securities and Exchange Commission, at 3 World Financial Center, just west of Ground Zero. Michaelson, a graduate of Harvard Law School, had wanted to work in government in order to help fight corporate fraud and abuse. When the S.E.C. lifted a hiring freeze, he jumped at the chance.

In the seventies and eighties, the S.E.C. had been a powerful regulator, led by ambitious attorneys; it handled important cases like the insider trading of Ivan Boesky and Michael Milken. But by the mid-aughts the commission was languishing. Its chairman, a former California congressman named Christopher Cox, exuded blithe faith that the financial markets would regulate themselves. The S.E.C. ignored warnings when Wall Street inflated the credit bubble with dubious “synthetic” securities known as collateralized debt obligations. After the Enron scandal, in 2001, the S.E.C. began attracting promising lawyers like Michaelson, but it was still a largely impotent institution. Wall Street regarded it with disdain, and when companies under investigation were called to give testimony their executives may have felt little reluctance to lie, which carried far less risk than admitting to a crime under oath in a civil action.

Michaelson’s first assignment was a month-old case involving a small hedge fund called Sedna Capital, which was run by Rengan Rajaratnam. A tip from a source in the banking world had alerted the S.E.C. to a pattern of “cherry picking” at Sedna—reserving the biggest profits for a fund in which all the investors were family members and friends. In its first month of operation, the favored fund executed ten trades, all winners, and doubled its capital. Some of the trades seemed to involve inside information, including on A.M.D. The S.E.C. soon shifted its focus to Galleon, the much bigger firm of Raj Rajaratnam, where most of the trades were duplicated.

In March, 2007, the S.E.C. briefed the F.B.I. and the United States Attorney’s Office for the Southern District of New York, which opened a criminal case. That same month, an anonymous letter arrived at the S.E.C.’s offices, postmarked Queens, March 13, 2007. “It is hedge funds like Galleon Group that create wealth for their shareholders and themselves at the expense of innocent investors,” the letter began. “Insider trading word in this fund should be changed to insider partnership and prostitution. . . . Prostitution is rampant for executives visiting Galleon. You will find that the Super Bowl parties for the executives, paid for by Galleon Group, include prostitutes and other forms of illegal entertainment. In return, the executives provide Galleon the unfair edge that the fund leverages so well.” The letter was signed “Seeking integrity in business.” The writer sounded knowledgeable about Galleon and the industry, but it was impossible to track him down.

In 2006, Galleon had registered with the government as a “regulated investment adviser.” In order to obtain this title, which conveys to potential clients the impression that a business is soundly run, Galleon had to agree to preserve its electronic correspondence. Rajaratnam, aware of this requirement, instructed his subordinates to move key dealings off the Internet and onto the phone. Nevertheless, a few electronic records gave hints of widespread insider trading at Galleon. In February, 2007, an S.E.C. examination team began going through the company’s electronic correspondence, and after several months of meticulous work they found enough suspicious fragments to issue Rajaratnam a subpoena. On June 7, 2007, Rajaratnam arrived at 3 World Financial Center for an all-day session of giving testimony. That morning, a member of the exam team told Michaelson’s supervisor—a New Delhi-born former corporate tax lawyer named Sanjay Wadhwa—that there was “definitely some interesting chatter” in a batch of cryptic I.M.s from a person using the handle roomy81. Wadhwa and Michaelson hastily formulated a way to ask Rajaratnam about roomy81 without raising his suspicion.

The session took place in Testimony Room 416, which had scuffed yellow walls, a stained beige carpet, and windows overlooking the World Financial Center’s Winter Garden. The session lasted seven hours, and Rajaratnam, relaxed and fluent, spent a good part of it telling lies. After Rajaratnam’s lawyer, Jerry Isenberg, requested a midafternoon break, Michaelson looked up from his papers on the conference table, as if he had just remembered something.

“A couple quick questions before break,” he said. “Are you familiar with a roomy81 instant-message address?”

“Yes.”

“Who is that?”

“She worked at Galleon and then she left Galleon to start her own fund. I think she primarily manages her own money.”

“What is her name?”

“Roomy Khan,” Rajaratnam said, spelling out the surname.

“Do you know where she works now?”

“From home.”

Michaelson asked, “Did you ever talk with Roomy about A.M.D.?”

“She may have given me information, but I can’t recall.”

“We can take a break.”

Five days after Rajaratnam’s deposition, the investigators turned up an I.M. exchange, dated January 9, 2006, between rajatgalleon and roomy81:

IM Administrator: The Galleon Group archives and reviews incoming and outgoing instant messages.

rajatgalleon: hey

rajatgalleon: u back

roomy81: i am here

roomy81: did not go any where

rajatgalleon: call me..just got back today

roomy81: please let me know on JNPR

roomy81: donot buy plcm till i het guidance

roomy81: want to make sure guidance OK

PLCM was the ticker symbol for Polycom, a manufacturer of voice and video equipment. JNPR was Juniper, a company that made switching routers. But what jumped off the screen was “till I [get] guidance . . . want to make sure guidance OK.” The term “guidance” refers to the direction of a company’s quarterly earnings, up or down. Roomy Khan seemed to have an inside track on Polycom’s financial information. Without this I.M., the case would probably have died.

In the months after Rajaratnam testified, the S.E.C. investigators stayed away from Galleon, wanting to make him think that they had moved on. In fact, Michaelson went back and scoured all of Rajaratnam’s I.M. correspondence from 2006—thousands of pages. The S.E.C. issued subpoenas to phone companies, and when the records finally came in, a new member of the team, Jason Friedman, combed through the call histories of Rajaratnam and Khan. By comparing I.M.s, phone calls, and trading records, the investigators determined that Rajaratnam and Khan, in the days after their January 9, 2006, I.M. exchange, had called each other frequently and begun trading heavily in Polycom stock. At the end of January, 2006, when Polycom announced record quarterly earnings, Khan made three hundred thousand dollars, and Galleon cleared at least twice that. One of Khan’s phone contacts was a Polycom vice-president named Sunil Bhalla, who lived near Khan in Silicon Valley and, like Khan, was Punjabi. The investigators guessed that he was Khan’s source.

In July, 2007, another S.E.C. lawyer noticed that there had just been several large purchases of stock options in Hilton Hotels immediately preceding an announcement of the chain’s takeover by the Blackstone Group. One of the prescient traders was Rajaratnam; another was Khan. The lawyer went to Michaelson and asked, “Isn’t this the woman you were talking about?”

The S.E.C. gave Khan’s name to B. J. Kang, the F.B.I. special agent assigned to the case. On July 10th, a background check revealed that Khan had a criminal history, and that it involved Rajaratnam.

Khan was married to a wealthy Indian entrepreneur and lived in Atherton, California, in a mansion with a tennis court. In 1998, she had been caught on a security camera faxing to Galleon confidential documents from the offices of Intel, where she worked at the time. Khan pleaded guilty and received three years’ probation, but the case against Rajaratnam was too hard to make—the volume and the complexity of hedge-fund trading makes pinpointing the source of just one trade almost impossible. The Rajaratnam file was sealed in 2002.

The investigators believed that the evidence on the Polycom trade was also too circumstantial to bring a criminal charge against Rajaratnam. To break the case open, they needed a source in Rajaratnam’s inner circle to flip and give direct evidence of providing Rajaratnam inside information. Anil Kumar, the McKinsey consultant, and Rajiv Goel, the Intel executive, came up frequently in Rajaratnam’s phone records. But there was no sign that Kumar was making trades on inside information. Then investigators discovered that Galleon had been given the password to Goel’s Schwab account, which it was using to make profitable trades on his behalf. Goel’s account was like a road map to insider trading—but Goel was considered too close a friend of Rajaratnam’s to be approached without irrefutable evidence. The F.B.I. would have only one chance to flip someone; if it failed, Rajaratnam would know that he was the target of a criminal investigation and take precautionary measures. The best shot was Roomy Khan, who had already pleaded guilty once, and who had said a little too much in an I.M. before Rajaratnam could nudge her onto the phone.

On November 28, 2007, Kang and another agent rang the bell at the gate of Khan’s house. Khan, a dishevelled, overweight woman of forty-nine, allowed the F.B.I. inside. She was in distress, having recently lost a lot of money on trades. She had sold her jewelry through Sotheby’s; her house was on the market for eighteen million dollars; and her marriage was in trouble. Khan told Kang that she was in contact with Rajaratnam only because she was hoping to get a job with Galleon, and that he talked to her only to be nice. She said that she knew Sunil Bhalla, of Polycom, because he had dated one of her friends. For more than an hour, she blizzarded the agents with lies. Then Kang brought out a file with the roomy81 I.M.s and other incriminating evidence. Khan retreated to one of her seven bathrooms, cried, and emerged with a new understanding of her situation. “If I don’t coöperate this time,” she told Kang, “I’ll go to jail.”

After meeting with Kang, Michaelson, and prosecutors in New York, Khan agreed to coöperate with the investigation. She gave up a new source: Shammara Hussain, a young employee of an investor-relations firm in San Francisco, who, in mid-2007, had tipped Khan about Google’s poor quarterly earnings. Khan had passed the news to Rajaratnam, who made eighteen million dollars by shorting Google stock. But for months Khan continued to lie about the Hilton trades. Finally, in April, 2008, she revealed that her source was Deep Shah, a young analyst at Moody’s, the rating agency, who had been assigned to Hilton and who called Khan the day before the acquisition was announced. (Shah, whom Khan paid ten thousand dollars for the information, is now a fugitive in India.) Khan had met Shah through a relative, and she had lied about the Hilton trades because she hadn’t wanted to implicate a family member. This was Roomy Khan’s notion of honor.

As part of her coöperation, Khan began recording her calls with Rajaratnam. She caught him on enough “dirty” calls that, in March, 2008, Judge Gerard E. Lynch, of the Southern District, approved the government’s application for a thirty-day wiretap on Rajaratnam’s cell phone. The order was renewed through the rest of the year. The Rajaratnam recordings led to taps on other phones, including Chiesi’s, and identified other conspirators, harvesting a huge crop of direct evidence. By the time of the October, 2009, arrests, the government had taped thousands of calls. The S.E.C. had issued more than two hundred and thirty subpoenas for phone numbers and reviewed at least eight thousand call records. Over the course of the investigation, the agency gathered nearly ten million documents.

By law, the S.E.C.’s lawyers were kept in the dark about the wiretaps. In late 2008, the financial crisis and the Bernard Madoff scandal exposed the S.E.C. to unprecedented criticism, and higher-ups at the agency pressured the New York office to bring the Galleon case early and score a quick victory. But New York refused to jump the gun. By that time, it had become clear that the criminal authorities were building the biggest insider-trading case in history.

Preet Bharara, the United States Attorney for the Southern District of New York, is, like so many others in the Galleon story, a Punjabi. He was born in 1968, in Firozpur, India. When Bharara was still a toddler, his father, a pediatrician, moved the family to Monmouth County, New Jersey, and Preet grew up in the suburbs, a thoroughly Americanized striver. His parents drove him pretty hard—“The Tiger Mom actually made my dad look good,” he joked to me—and he was the kind of schoolboy who bought how-to books on getting an A-plus in math. After graduating as his high-school valedictorian, in 1986, he attended Harvard, then Columbia Law. Bharara is the son of a Sikh father and a Hindu mother who moved from Pakistan to India after partition; he is married to the daughter of a Muslim father who moved from India to Pakistan after partition and a Jewish mother who was born in Israel. The Bhararas have three young children, religious affiliation unknown.

After law school, Bharara worked at private firms; in 2000, he was hired as an assistant U.S. Attorney, in the Southern District. He wasn’t a star prosecutor, but his intelligence, wit, and skill at navigating the politics of a large and competitive institution caught the attention of Senator Charles Schumer, of New York, who, in 2005, named Bharara his chief counsel. The next year, Bharara helped lead the investigation into the Bush Administration’s firing of eight U.S. Attorneys for political reasons, and stood out as a sharp, nonpartisan interrogator of witnesses who were to testify before the Judiciary Committee. After President Barack Obama took office, Schumer put Bharara’s name forward to lead the premier U.S. Attorney’s office in the country.

The prominent curve of Bharara’s nose and his striking pale-green eyes give him an unsettling falconine gaze. As a Democrat from New Jersey in his forties, Bharara inevitably loves Bruce Springsteen and watches “The Daily Show.” When Bharara was interviewed at the White House for the U.S. Attorney’s job, he was asked if he had been born in India. Yes, Bharara replied. But was he a citizen of the United States? “Damn,” Bharara said. “You’ve got to be a citizen for this job?”

He started in the position in August, 2009, and his short tenure has been crowded with aggressive prosecutions of terrorism, Medicare fraud, illegal tax shelters, and public corruption. But the arrest of Rajaratnam, on October 16, 2009, gave Bharara his highest-profile case. From the start, Bharara made it clear that he would go after Wall Street crime. “Greed, sometimes, is not good,” he said in announcing the arrests.

A month after Rajaratnam’s arrest, Bharara gave an unusually dark speech at N.Y.U.’s law school, speaking of “epic frauds surfacing with increasing frequency.” He noted, “There is a lack of faith in the economic system; a lack of belief in the markets; and a lack of trust that the playing field is level.” He made no apologies for ferreting out insider trading by using wiretaps, a practice that was unpopular on Wall Street. “When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such,” he said.

Bharara spends a surprising amount of time speaking off the record at business schools, companies, and financial institutions. It’s like a D.A. who visits schools where crime and drug use are widespread and explains to the students, “Look, this is why this is happening to you.” A key purpose of the insider-trading prosecutions is deterrence. As Daniel Richman, a Columbia law professor and a former Southern District prosecutor, told me, “The average hedge-fund guy who’s lawyered up and a serious reader of the relevant publications is going to be more deterred by prosecution than the average dope dealer.”

In May, Bharara met with me in his office, on the eighth floor of 1 St. Andrew’s Plaza, a brutalist concrete structure near the federal courthouse in lower Manhattan. His windows face south, and through the murky light of a damp late afternoon the towers of Wall Street were barely visible. “There are often two categories of reasons to do the right thing,” he said. Category 1 is a sense of right and wrong. “But if that doesn’t work for you—and it doesn’t for a lot of people—then there’s the Category 2 reason: you’re going to get caught, your business is going to go down the tubes, you’re going to go to jail. For a lot of these people, maybe Category 1 doesn’t work but Category 2 should. But maybe there was not enough enforcement, such that they thought, What’s the big deal?” Insider trading, Bharara observed, was unlike other federal crimes—it wasn’t committed by people with a violent outlook or a bad upbringing, or by serial lawbreakers who knew no other life. “These folks seem not to have been of that type,” he said.

The insider-trading type was someone like Adam Smith, the Galleon portfolio manager from Harvard. After the public announcement of a deal on which he’d given Rajaratnam inside information, Smith had a sinking feeling, a flush of worry. But no one spoke to him about the deal, so he moved on. Smith was a Category 2 guy. So, apparently, were a lot of traders. Bharara referred me to a 2007 poll in which twenty-five hundred Wall Street professionals were asked if they would use inside information to make ten million dollars if the chances of getting caught were fifty per cent. Seven per cent said yes. But, if there was zero chance of getting caught, fifty-eight per cent said that they would break the law.

Some Wall Street observers have called the Galleon case a sideshow. When Charles Ferguson, the filmmaker, won an Oscar, earlier this year, for “Inside Job,” a scathing documentary account of the Wall Street meltdown, he began his acceptance speech by saying, “Three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail, and that’s wrong.” Ferguson told me that Bharara’s focus on an insider-trading scandal was misplaced, given that the financial crisis was caused primarily by shoddy mortgages and the cynical trading of those irresponsible loans. Last month, the Times columnist Joe Nocera accused Bharara of displaying phony toughness while sending a message to Wall Street’s élites that “crime pays.” Matt Taibbi, of Rolling Stone, has taken the even harsher view that prosecutors have given bankers a pass because they covet lucrative jobs in the private sector.

At the other extreme is the argument that the crisis was caused simply by greed and stupidity, which remain legal under federal law. In February, this was Nocera’s stance: he published a column on why there had been no prosecution of Angelo Mozilo, the disgraced head of Countrywide Financial, which was at the center of the mortgage crisis. “Delusion is an iron-clad defense,” Nocera wrote.

Eliot Spitzer, who brought dozens of suits against financial institutions between 1999 and 2006, when he was New York’s Attorney General, told me that it wouldn’t be easy to build prosecutions directly tied to the financial crisis. Top bank executives, with the assistance of lawyers and accountants, took care to insulate themselves from the fraudulent activities of mortgage lenders and other low-level players. But, he added, “I’ve always believed you start at the bottom, the credit department of the bank—that’s where the guys with green eyeshades, who don’t get the bonuses, write down what is honest and truthful about their critiques of the loans being made.” As in the Galleon investigation, prosecutors could amass a document trail allowing them to flip someone down below; they could then work their way to the top. Spitzer referred me to a set of documents produced by Clayton Holdings, a company hired by investment banks to evaluate the loans that they were securitizing and selling to investors. In some cases, thirty per cent of the loans were found to be bad, if not fraudulent, yet the banks packaged and traded them anyway. “Just track this,” Spitzer said, “and you’ll be able to make the case that people were willfully blind.”

Fraud abetted the financial crisis, from the marketing of deceitful financial products to the banks’ concealment of losses after the housing market collapsed. Then why are no executives in jail? One reason is that criminal law often founders in what prosecutors call a “dead-body case.” During the mortgage bubble, the possible crimes were committed before any investigations had begun. By the time the government could have gathered enough evidence to obtain wiretaps, any incriminating conversations would have long since taken place.

The Department of Justice also played a role in inhibiting vigorous prosecutions. In 2008, the department, under President George W. Bush’s Attorney General, Michael Mukasey, distributed the major new investigations across different offices. Countrywide went to the U.S. Attorney’s office in Los Angeles; Washington Mutual was claimed by Seattle; A.I.G. was pursued out of Washington, D.C., with the coöperation of New York’s Eastern District, in Brooklyn. Lehman Brothers was split among New Jersey and the Eastern and Southern Districts of New York. The Southern District, with its superior experience and expertise in accounting fraud, was largely cut out. Neil Barofsky, a former Southern District prosecutor who left the office in December, 2008, to become the first inspector general of the Troubled Asset Relief Program, considers this a mistake. “The Department of Justice made a decision that decreased the probability that those cases are going to get made,” he said. He suggested that the attorneys in the Southern District weren’t happy about missing the chance. “Getting the C.E.O. of a major bank is not a career killer,” he said. “It’s a career maker.”

At the time, the Southern District was between leaders, and the attorneys in its securities unit had their hands full with other cases, including Galleon. Bharara insists that the lack of charges stemming from the meltdown can’t be blamed on insufficient resources. He told me, “If the well is dry, a thousand more people aren’t going to get you water in that well.” But, given the targets in question—huge banks, well-insulated executives, intricately structured financial products, tens of millions of knotty documents—it’s unlikely that a federal prosecutor’s office, staffed by generalists and operating under standard procedure, which is to wait for cases to come in, could have made serious headway. Several financial-fraud experts told me that a task force, made up of assistant attorneys adept at financial investigations, should have been created in key districts, especially in New York’s Southern District, and given two or three years to investigate a single bank. These teams could have functioned almost like special prosecutors, with an open-ended mandate, and worked in tandem with agencies like the S.E.C. and the F.B.I., as in the Galleon case. These prosecutors might have had the time and the expertise to recognize a subtly incriminating e-mail or spreadsheet. Such a major initiative needed to come from Washington, but investigating Wall Street’s big banks seems not to have been a top priority. In November, 2009, the Obama Administration announced the creation of an interagency Financial Fraud Enforcement Task Force. Its principal accomplishments to date have been press releases claiming credit for cases that often predated the financial crisis and involve low-level Ponzi and mortgage-fraud schemes.

In the spring of 2009, Congress authorized a hundred and sixty-five million dollars to be spent on more vigilant fraud enforcement. According to a recent article in the Times, only thirty million or so was spent. In December, 2009, Senator Ted Kaufman, of Delaware, as a member of the Judicial Committee, held an oversight hearing on financial-fraud prosecutions. A Brooklyn jury had just acquitted two Bear Stearns hedge-fund managers of fraud and conspiracy, in the only criminal case related to the major players in the financial crisis. At the hearing, Kaufman urged Justice Department officials not to be deterred by the unwelcome verdict. “It is just very hard for me to understand why there haven’t been more indictments,” Kaufman, whose Senate term ended last November, told me. “I am incredibly disappointed.”

Kaufman’s chief of staff at the time, Jeff Connaughton, was even more scathing toward the Obama Administration. Attorney General Eric Holder, he noted, “said in his swearing-in that he would make it a priority. We thought we were making sure that they were doing the right thing, and they said all the right things in hearings, and nothing happened. I feel gamed by it.”

In the spring of 2010, a respected prosecutor from the Southern District named Raymond Lohier, who had been running Bharara’s securities-fraud unit, was nominated for the position of an appeals-court judge on the Second Circuit. As part of the confirmation process, he met members of the Senate Judiciary Committee, and, according to Connaughton, Kaufman asked Lohier about his priorities at the Southern District, hoping to hear about financial-fraud cases. To Kaufman’s dismay, Lohier said that his top priority was cyber-security. Lohier also expressed satisfaction that the Southern District had passed on the Bear Stearns case that had ended in acquittals. (Bharara later told Kaufman’s staff that these were not the views of his office.)

Until now, Bharara has not spoken at length about the lack of financial-crisis prosecutions. When I asked him about it, his even manner gave way to pent-up annoyance at “ideologues.” He said, “It bothers me a little bit when people suggest, without knowing anything, that we’re not even bothering to look. We have grand-jury secrecy—I don’t go out and announce my investigations. But I got to tell you something: where there’s smoke, we take a look. Do you have any idea how much people want to bring the case if it exists? So what could be the reason we haven’t? Sometimes people say, ‘It’s because you’re beholden to these guys,’ which doesn’t make any sense. Do we look like we’re afraid to prosecute anyone?”

Bharara walked me through the decisions of a prosecutor, using the example of a taxpayer filing false returns. “The question then becomes, did you have criminal intent that can be proven beyond a reasonable doubt? Two things, two hurdles, right?” If a taxpayer’s accountant wires up and his client is caught saying on tape that he intends to cheat the Internal Revenue Service, “that’s an example of where you have the actual criminal intent and you have the evidence.” At the other extreme, “you’re not going to have the evidence because you don’t actually have the criminal intent, and it may look like the person was simply negligent.” In between, there are other scenarios—for example, an accountant involved in a conspiracy won’t flip. “So now we know, if we’re omniscient, that a crime was committed, that the accountant was involved, that the taxpayer was involved. Maybe there’s a lot of smoke—now comes the proof. This guy’s going to testify, ‘My accountant’s a smart guy—I just relied on my accountant.’ The accountant’s going to say, ‘I just relied on what he gave me,’ and everyone has plausible deniability. That’s a simple example of a way in which people can get away with even criminal activity when they’re making false certifications to the government.”

I asked Bharara about the Clayton Holdings documents, and the various reports by commissions and congressional committees suggesting that laws were broken during the mortgage bubble. While he refused to comment specifically on the findings of any report, he answered generally that the damning evidence of an investigation can look very different upon closer inspection and when it comes up against the counter-evidence produced by a skilled defense in a criminal trial.

Bharara seemed equally frustrated by his inability to clear the high bars set up by criminal law and by his critics’ inability to understand why they exist. At times, he got caught in a defensive flurry: “People who did bad things, whether it’s criminal or otherwise, should get punished, there should be some comeuppance, right?” he said. “In any arc in a movie, when someone treated his or her spouse badly, you want to see that person pay for that later. Doesn’t mean it’s a criminal act. There are lots of bad people out there who I can’t charge criminally.”

Perhaps indictments couldn’t be brought against top bank executives, but Bharara could take down Rajaratnam, and he went out of his way to give the case a high profile. It was his best chance to deter the pervasive corruption of Wall Street. One former prosecutor compared the financial crisis to international narcotics trafficking, and insider trading to street-level drug dealing. Maybe a federal prosecutor couldn’t nail Scarface, but he could always go after Stringer Bell.

The trial of Raj Rajaratnam began on March 8, 2011, in the federal courthouse at 500 Pearl Street, in lower Manhattan. Prosecutors accused him of having made $63.8 million, in profits and averted losses, from insider trading. Forty-seven conspirators, in overlapping networks of insider trading, had already been charged, and twenty-three of them had pleaded guilty. One of the last to do so was Danielle Chiesi. By then, she was on the anti-anxiety drug Cymbalta and seeing a psychiatrist. She sobbed, and told the court, “I ruined a twenty-year career in my field that I truly love and I have been extremely devoted to. I brought disrepute to what is an honorable profession.” And yet, in her way, Chiesi had been more honorable than the others: to the end, she refused to turn anyone else in.

Within days of the arrests, Galleon had been shut down. Adam Smith, who had initially avoided arrest, started his own operation, managing the money of a Galleon investor. Perhaps because Smith could no longer achieve the expected results without the help of his performance-enhancing drug, he continued to use his “edge,” fully aware of the government’s extensive wiretapping efforts. In December, 2010, Smith was caught in the dragnet. F.B.I. agents told him that unless he coöperated he wouldn’t see his young sons until they were grown. Frightened, and still calculating his best position, Smith agreed to record his calls and lure a former Galleon colleague into admitting knowledge of the Cisco-Starent tip. On the phone, the colleague, a trader named Ian Horowitz, wouldn’t bite. “I feel like that you’re—the questions you are asking me are, like, you are tapping me on the phone trying to get me to say some things.”

“Are you serious? Dude, come on,” Smith said. “I’m telling you, one hundred per cent, that’s not the case.”

Having failed at entrapment, Smith proceeded to testify against Rajaratnam—the boss whose approval he had worked so assiduously to win.

After his arrest, Anil Kumar, who had been paid $2.1 million by Rajaratnam, confessed everything to his lawyer. He pleaded guilty on January 7, 2010, becoming the government’s lead witness.

Rajaratnam retained the defense attorney John Dowd, from the Washington law firm Akin Gump. The choice was surprising. Dowd, who had represented Senator John McCain in the Keating Five case and led Major League Baseball’s investigation of Pete Rose’s gambling, wasn’t a New York criminal defender, and, at seventy years old, he would be appearing at his last big trial. But Dowd was known for fighting rather than bargaining, and Rajaratnam liked that. In spite of the overwhelming evidence against him and the prospect of a twenty-five-year sentence, he never seemed to consider pleading guilty. Observers attributed this decision to the limited deal he could hope to make with prosecutors, but in fact Rajaratnam could have offered them someone who was, perhaps, even bigger than he was: Rajat Gupta, the former McKinsey head. Instead, the competitor’s code that had brought Rajaratnam to the height of his industry drove him to fight the case. “I’m a warrior,” he once told Chiesi. “They can’t kill me.”

The prosecution was led by Jonathan Streeter, a ten-year veteran of the Southern District. Streeter, a Cleveland native, was unassuming, but, in an office of cautious colleagues, the fact that he spoke his mind and owned a speedboat made him a bit of a character. His colleague Reed Brodsky, from Long Island, had slick black hair and an open face; he was ebullient and aggressive—one former colleague called him “a trial animal.” The third lawyer at the prosecution table was Andrew Michaelson, who had come over from the S.E.C. just after the wiretaps went up, in March, 2008, because he knew more about the Galleon case than anyone else. This was his first trial, but the case had already consumed almost five of his thirty-five years.

On the first day of testimony, in the courtroom of Judge Richard J. Holwell, Anil Kumar, the McKinsey consultant, walked to the witness stand, where he stood for a moment, in a dark suit and tie, and bowed his head, his hands clasped before him. He looked like a prisoner waiting to be sentenced. Rajaratnam sat not with his lawyers but, rather, on a bench behind the defense table, the shiny wave of his hair almost touching his hunched shoulders. He was not as bulky as he looked in photographs. His lower lip jutted slightly, and he stared through rimless glasses with undisguised contempt at his former friend.

As Streeter led Kumar through the story of his descent into crime, Kumar’s sombre penitence lifted and gave way to the didactic precision of a consultant. His memory was astounding, and his explanations to the jurors, whom he often addressed directly, were so smooth that they came across as almost smug. He gave crisp lectures on the difference between private-equity and hedge funds, and on the purpose of a board of directors. Kumar could not help contrasting, with a slight smile, his own interest in the long-term condition of American companies with Rajaratnam’s focus on short-term payoffs. Then a question about a breach of trust, or a lie, brought Kumar back to why he was in the courtroom, and his face sagged.

Dowd, Rajaratnam’s attorney, tried his best to undo the damage. Bald and imposing, with a phlegmy voice, he bullied Kumar, accusing him of peddling a “monstrous lie.” At one point, taking Kumar through the forgeries that had been required to set up the Manju Das account, Dowd said, “Your wife didn’t know how adept you were at faking paperwork, did she?”

Kumar was clearly offended. “Do you want an answer to that, sir?”

“I sure do.”

“Yes, my wife did not know how adept I was.” For that moment, the criminal enjoyed moral superiority.

In case the cross-examination had unsettled the jury, Streeter, in his redirect, took Kumar through the crucial events one more time. “At the very beginning,” Streeter said, “you thought he was asking for legitimate information?”

“Yes, sir.”

“And, once he started paying you, he was asking you for confidential information?”

“That’s correct, sir.”

“And, once he was paying you, you started giving it to him?”

“Yes, that is correct, sir. To my eternal regret.”

With that, Anil Kumar was excused by Judge Holwell. A verdict would not come for another eight weeks, but in a sense the trial was already over.

Rajaratnam’s defense, which cost him as much as forty million dollars, according to the Wall Street Journal, was based on the argument that there was too much information available in the marketplace for anything to be considered a secret. Moreover, Rajaratnam had too much information at his disposal for any single item to account for a given trade. Insider trading is defined as the transmission of “material, nonpublic information” in breach of a duty and for some benefit. The defense came close to arguing that, in the age of hedge funds and electronic communications, everything is public and nothing can be proved material—that insider trading cannot exist. This view was most cogently expressed by Professor Gregg Jarrell, a professional expert witness and an economist at the University of Rochester, who came out of the University of Chicago’s free-market school of thought. As the S.E.C.’s chief economist in the mid-eighties, he had argued against stronger regulation of that era’s leveraged buyouts. Rajaratnam’s spokesman, Jim McCarthy, of CounterPoint Strategies, who appeared in court every day with a carefully pressed pocket square that matched his tie, was a libertarian. For McCarthy, the wiretapping of Rajaratnam violated the Fourth Amendment’s prohibition against unreasonable search and seizure, and Preet Bharara’s crusade against Galleon posed a threat to the legitimate activities of all hedge funds.

Throughout the trial, John Dowd seemed like a great aging elephant, slow and ponderous but still capable of inflicting damage. He took extreme dislikes: to Kumar, whom he accused of being the biggest liar in the history of the Southern District federal courthouse; to Reed Brodsky, the prosecutor, whom he mocked as a crybaby; and to the reporters covering the trial. After a Wall Street Journal article suggested that the defense had been caught off guard by Brodsky’s cross-examination of one of its witnesses, Dowd shot off an e-mail to the reporter, Chad Bray:

This is the worst piece of whoring journalism I have read in a long time. How long are you going to suck Preet’s teat?

All to hurt a decent, honest witness, Brodsky could not lay a glove on.

It did not work. The jury was not impressed by the worst cross examination ever delivered.

So in the style of Preet, try to smear him by working the sycophants in the back of the Courtroom. He learned from Schumer in the Senate. . . .

Preet is scared shitless he is going to lose this case so he feeds his whores at the WSJ.

What a disgrace for an otherwise great paper.

Rajaratnam never took the stand, allowing Kumar and other witnesses to narrate the story of Galleon’s fall. He sat silent and imperturbable on the bench behind the defense table for weeks while his voice echoed in the courtroom day after day, through the static of the wiretaps. (The government played forty-six tapes.) Alongside the shallow cockiness of Rengan Rajaratnam, the pathetic insecurities of Danielle Chiesi, and the sour knowingness of Anil Kumar, Raj Rajaratnam—who never raised his voice and never let his own vanity or his interlocutors’ neuroses distract him from the business of the day—seemed like the only sound character in the bunch. Yet his every word incriminated him.

One day, in the eighth-floor cafeteria, I noticed Rajaratnam standing alone by a refrigerator case, contemplating the beverage choices. By unspoken agreement, reporters had refrained from approaching him, but it was a chance that seemed unlikely to come again. In court that day, he had been carrying a small paperback. I walked over and asked what he was reading.

Rajaratnam recoiled. “Why?”

“I saw you had a book. I just wondered what it was.”

He smiled in a shy way that seemed self-protective. “No, it was just some papers.”

In a mere ten seconds, Rajaratnam had managed to lie. I didn’t blame him. I was sorry that I’d broken the invisible barrier. He was facing the end of his freedom, and it was a kind of cruelty to make him engage.

During jury selection, Judge Holwell had passed out fifty-two questions for members of the jury pool. One question mentioned the financial crisis and went on, “This case does not have anything to do with the recession or who is to blame for the financial problems we face. . . . Does the fact that the case involves the financial industry, Wall Street executives, hedge funds, mutual funds and the like, make it difficult for anyone to render a fair verdict?”

In spite of the Judge’s caveat, the catastrophic events of 2008 haunted the proceedings. All the wiretaps had been made that year, and so the jurors heard tapes of a hedge-fund manager running his business as one investment bank after another fell. In early October, with the government scrambling to rescue the banking system, Kumar called Rajaratnam:

“Ah Raj, eBay is gonna do massive layoffs on Monday.”

“They’re gonna do what?”

“Layoffs on Monday.”

“O.K.”

“Now the problem again, as usual, is will that mean everyone will say, shit, this company is in trouble . . . or will it be good news, right?”

“Right.”

“But the only thing I do know is, I, I tried to get the percentage, I couldn’t.”

While the ocean liner was sinking, these leaders of finance and industry were focussed on keeping their chips from sliding off the lower deck’s poker table. The wiretaps, which breached the normally soundproof walls of hedge funds, told a breathtaking tale of selfish, short-term thinking.

According to the government, two of Rajaratnam’s most important conversations in 2008 occurred on his office phone, which wasn’t tapped. On the afternoon of September 23rd, Rajat Gupta, the former head of McKinsey, joined members of the Goldman Sachs board on a conference call. They discussed Warren Buffett’s proposed investment of five billion dollars in the investment bank, which had been imperilled by the crash. The conference call ended at 3:54 P.M. Sixteen seconds later, Gupta called Rajaratnam’s office. At 3:58, just two minutes before the markets closed, Rajaratnam gave an order to buy three hundred and fifty thousand shares of Goldman stock, worth forty-three million dollars. That night, the world learned of the Buffett investment. At the peak of the crisis, Gupta the Goldman board member’s first thought was to make sure that his investment partner Raj Rajaratnam could exploit the deal. A month later, the drill was repeated: as Goldman prepared to announce an unexpected quarterly loss, Gupta called Rajaratnam, and Rajaratnam sold all his Goldman stock before the announcement. Two cell-phone wiretaps caught Rajaratnam telling colleagues about his Goldman tips.

A few days before the trial started, Gupta was charged with insider trading, in an S.E.C. civil suit. Prosecutors in New York weren’t pleased—they had not yet filed criminal charges against Gupta, and civil suits complicate criminal cases. The failure to charge Gupta is a much discussed mystery, but the answer might be simple: the prosecutors, consumed with other cases and with preparation for the Rajaratnam trial, might not have realized what they had on Gupta until shortly before the proceedings began. Gupta, through a spokesman, denied any wrongdoing.

In order to introduce evidence about Rajaratnam’s Goldman trades, the government subpoenaed Lloyd Blankfein, Goldman’s chairman and chief executive, who has come to represent the face of investment banking in an age of dubious and destructive practices. In turn, the defense subpoenaed records of government investigations of Goldman Sachs, intending to argue that Blankfein might be rewarded with softer treatment if he testified against Rajaratnam. Streeter informed Dowd that there was no current investigation of the company or of Blankfein. The government formally moved to preclude Blankfein from being cross-examined on “whether Goldman Sachs bears responsibility for the 2008 financial crisis.” On the morning of Blankfein’s testimony, Dowd said in court, “It’s not something I intend to pursue.”

Neither the government nor Blankfein need have worried. His appearance in court on March 23rd was pure celebrity spectacle, and he entered the room smiling broadly. Preet Bharara, who had regularly attended the trial, was in court that day with four of his top deputies. Andrew Ross Sorkin, the Times reporter and the author of “Too Big to Fail,” showed up. Dowd’s cross-examination was marked by uncharacteristically gentle questioning and occasional banter; even the jurors seemed charmed. Under Michaelson’s direct examination, Blankfein subtly rewrote the history of the financial crisis—a phrase he never uttered. Instead, Blankfein spoke vaguely of “riskiness” and “uncertainty.” Asked what the collapse of Lehman Brothers meant for Goldman Sachs, Blankfein hedged: “Some people out—people might have drawn—some might not have, but some might have drawn the conclusion that their business was similar to our business.” As for Buffett’s five-billion-dollar investment in Goldman, Blankfein suggested that it had made an already attractive company even more so. According to “Too Big to Fail,” in September, 2008, Timothy Geithner, then the head of the New York Federal Reserve, wasn’t sure that Goldman would survive, and its stock price was plummeting so fast that Blankfein was in a state of panic. But at the Galleon trial the prosecutors’ only goal was to get Blankfein to say that Rajat Gupta had violated the company’s confidentiality rules. After a pause, Blankfein did.

During the government’s closing argument, Reed Brodsky finally spoke to what the jurors might have been feeling about all the Wall Street characters in the trial. “You don’t get on the board of Goldman Sachs without having accomplished a lot in your life and having a great reputation,” Brodsky said, his voice rising as he paced before the jury box. “But having a great reputation doesn’t give you a free pass to violate the law. Nobody is above the law, no matter how good their reputation is.” Later, Brodsky said, “The ordinary, average investor doesn’t have access to Mr. Gupta,” and added, “The laws against insider trading are designed to protect the investing public against cheating. The stock market is supposed to be an even playing field.”

The jury deliberations lasted twelve days—longer than almost anyone expected. But on the morning of May 11th the jurors pronounced Rajaratnam guilty on all fourteen counts of securities fraud and conspiracy to commit securities fraud. The room fell silent. Trials are excruciatingly slow, but when the end comes, it comes with devastating speed. “Nothing is as dramatic and sombre as when the foreperson of a jury of twelve Americans stands up and pronounces a verdict,” Bharara later told me. “It’s a really stunning thing.” Rajaratnam, seated for the first time with his lawyers at the defense table, kept his head steady. His stoicism was impressive. But when he turned to leave the courtroom his eyes were filmy. Sentencing was scheduled for July 29th. The defense team vowed to appeal.

“Everybody is a scumbag,” Rengan Rajaratnam had said. The files of the Galleon case are littered with the names of people implicated in insider trading—Rengan Rajaratnam and Kamal Ahmed among them—who have not been charged and perhaps never will be charged, in some cases simply because the government lacks the resources to try them. “It’s everywhere you look,” Bharara said. One obscure document from the case is the F.B.I.’s writeup of an interview, on April 16, 2009, with a government informant named Richard Choo-Beng Lee, who had once worked for Rajaratnam and then at S.A.C. Capital, one of the largest hedge funds. Lee told the agents that S.A.C. covered up insider trading by having different portfolio managers buy and sell a certain stock. “Entities like the Securities and Exchange Commission cannot detect trading irregularities at S.A.C. because S.A.C. trades around a position,” the F.B.I.’s writeup said. “This is what Lee meant when Lee told Danielle Chiesi to trade around Chiesi’s A.M.D. position. Lee was attempting to tell Chiesi that S.A.C. trades around a position to make it harder for the S.E.C. to detect insider trading by S.A.C.” Several former S.A.C. employees have pleaded guilty to charges of insider trading, but its founder, Steven A. Cohen, has not been charged with any crime. (A spokesman for S.A.C. said that Lee’s assertion “is completely false and reflects a deep misunderstanding of S.A.C.’s multi-portfolio-manager model.”)

In a recent speech in New York, Bharara surveyed the extensive rot of illegal activity on Wall Street and concluded, “The bigger and better question may not be whether insider trading is rampant but whether corporate corruption in general is rampant; whether ethical bankruptcy is on the rise; whether corrupt business models are becoming more common.” The Galleon case helps to answer these broader questions about the culture of the financial world: it illustrates how, over the past decade, cheating and self-dealing became the principal ways to succeed on Wall Street. Bharara’s campaign of deterrence has had a particularly strong effect at hedge funds. Several New York attorneys told me that clients have called in a panic. “There are a lot of nervous people out in the Hamptons,” one criminal lawyer said. Stanley Sporkin, a retired judge who was regarded as one of the S.E.C.’s most aggressive enforcement chiefs when he served, in the nineteen-seventies, told me, “People on Wall Street are going to be coming to work with brown pants on. It’s going to change the way they work for a long time.”

And yet, nearly three years after the financial crisis, Wall Street still relies on reckless practices to create wealth. An investment banker recently described the meltdown, with some chagrin, as “a speed bump.” The S.E.C. remains so starved of resources that its budget this year falls short of Raj Rajaratnam’s net worth at the time of his arrest. The agency lacks the technology to keep track of the enormous volume and lightning speed of algorithmic trades, like the ones that caused last May’s “flash crash” of the stock market. The market has become more of an exclusive gambling club for the very rich than a level playing field open to the ordinary investor.

As for the larger financial system, in Washington, D.C., implementation of the Dodd-Frank regulatory reform law has been slowed, if not yet sabotaged, by lobbying on the part of the big banks and a general ebbing of will among politicians. Neil Barofsky, the former inspector general of TARP, said, “Is Tim Geithner going to have the political will to take on the size and interconnectivity of the largest banks? Nothing in his previous career suggests he would.” Barofsky went on, “It is a remarkable failure of our system that we’ve not addressed the fundamental problems that brought us into the financial crisis. And it is cynical or naïve to imagine it won’t happen again.”

Two weeks after Rajaratnam was found guilty, an annual conference of hedge funds, which doubled as a fundraiser for pediatric cancer, was held in midtown Manhattan. Investors paid up to four thousand dollars to hear the views of some of the country’s most famous fund managers. The outlook was upbeat; no one mentioned the recent events downtown at the federal courthouse. The speakers took turns touting their favorite stocks: Zhongpin, the Chinese pork processor; the Home Shopping Network; Tiffany’s. A well-known fund manager, Michael Price, spoke up for financial stocks. “We like the big banks,” Price said. “Goldman Sachs, if you have the stomach. The risk/rewards today in financials in particular are very attractive.” Goldman stock, he said, is undervalued by at least a hundred dollars. “These are tremendous businesses, honest people,” he said. “These are not people who are trying to rip people off. . . . They have a long track record of doing extremely well for their clients as well as themselves.” He went on, “In 2008, all of a sudden they didn’t turn into criminals. There were some in the business who are no longer in the business, but it’s not Goldman Sachs.” ♦