Following is the unofficial transcript of an excerpt from a CNBC EXCLUSIVE interview with Preet Bharara, United States Attorney – Southern District of New York, live from the CNBC Institutional Investor Delivering Alpha conference in New York City on Wednesday, July 18th at 2:30PM ET.

Following is a link to the video of the interview on

Mandatory credit: CNBC Institutional Investor Delivering Alpha conference.


JIM CRAMER: Given your history with the securities industry, including arguably the most successful prosecutor in the history of insider trading -- 65 and 6 is your record. I don't know of anyone who has had that kind of record -- what percentage of the people in this room, besides you and I, are wearing a wire?

PREET BHARARA: That's your first question?


PREET BHARARA: Okay. Could I just to take a second to say it's great to be here -- to say that it's really interesting, because I've never been interviewed by somebody – you are probably the only person in the country who is more caffeinated than I am. Let me also say that I know that you told me there were going to be a lot of people here from the hedge fund industry and other folks. I didn't quite appreciate how many people, so I just want to apologize in advance that I don't have enough subpoenas for all of you.

Obviously, I'm kidding. I do have enough.

What was your question again?

JIM CRAMER: Okay. How prevalent is it, insider trading, that we can even make a joke that there are—I mean think about it, you're making a joke about subpoenas and the answer is you have to have a lot of them because it certainly is much more systemic than we ever thought.

PREET BHARARA: Look, when we began looking at securities fraud cases in particular, insider trading cases, which were being looked at, a lot of the cases that we brought, the investigations began with the FBI and the SEC and career prosecutors at my office before I got there three years ago, and we continued many of them and began many new ones.

I think about a year and a half ago I made it a point to say that, given everything we had seen and given how casual people were based on the evidence that we had seen and how arrogant some people seem to be acting based on the evidence that we had seen, that it was rampant.

I think that was proven by the number of cases that we brought. And just to be clear, we brought 71 cases, and we have 65 convictions, and six are still pending. It's disheartening to have the level of insider trading that we have now proven beyond a reasonable doubt in dozens and dozens of cases, for a lot of reasons. Because I think people need to believe that the markets are fair and the same rules apply to everyone.

And every time you have a case of insider trading that is proven beyond a reasonable doubt, you're showing that people's confidence in that belief is misplaced. It's especially disheartening, given the variety of cases that not only have been brought by my office, but other U.S. Attorney's offices around the country, that it's not limited to one industry; it's not limited to one type of person; it's not limited to one area of geography.

You have it in the pharmaceutical industry, you have it in the hedge fund industry, you have it in the technology industry, you have it in the healthcare industry. And when you see the kind of insider trading cases we've been bringing of late, which is a little bit different from the kind of classic insider trading cases that you've seen before where they were one-offs, you get concerned about culture, not only at trading entities, but also at companies.

Because what we have shown in cases that have been developed and proven in court, that there are literally people who are developing networks of sources, so that if they don't get the information from one source at a particular tech company, they might get it from another source. And if they can't get it from that source, they have a stable of other sources from sometimes places that are called "expert networking firms."

So the problem and the concern you have about culture and about this problem, it's far beyond the fact of a single insider trading case or act, because we're bringing in individual cases, cases against individuals, multiple-count prosecutions. I think in the old days you would not quite see that level of pervasiveness.

JIM CRAMER: Well why in the heck should we ever buy a stock again?

I listened to what you just said. I've read your cases, I've read your speeches. I don't want to buy stock, because I got a feeling that someone knows more than I do. And I do my homework, I try really, really hard on the show. It doesn't matter. You are telling me about a world where someone has it a day before I do.

PREET BHARARA: I don't think you're allowed to buy a stock.

JIM CRAMER: Recommend.

PREET BHARARA: Look, part of our job is in exposing these cases and showing we can have a deterrent effect is to bring people back to a level of confidence in the market.

I was once asked at a forum, something like this, except there were no screens, “You know isn’t it the case, Preet, that these cases you are bringing are undermining people's confidence in the market?”

I said that's an odd question, because I think it's the conduct that we're uncovering is what should be bringing people's confidence to a lower level.

And I think if you have open and aggressive and fair and proper and proved cases that you bring, and you show that you're having a deterring effect, which I believe we're having, although it's impossible to measure, I think that is the thing that over time gives people more confidence and tells people they are going to get the same fair shake as everybody else.

JIM CRAMER: As someone who tried and failed to get a job in your office under Rudy Giuliani, because I didn't have the grades, Harvard law, didn't matter, they turned me down, I am continually amazed how business people believe that the U.S. Attorney's office is somehow the repository of people who couldn't get a good job in private practice, and they don't fear you because they think you're not sophisticated enough to spot their strategies.

PREET BHARARA: Do these people actually say that?

Look, the kind of people who come to my office are -- and I'm blessed to inherit a tradition of excellence in the office, I mean this is the same office whose heads included former secretaries of state and people who ran for governor and people whose names are endowed on law school buildings, some of the smartest and most integrity filled lawyers and prosecutors that the country has ever seen.

And I don't think that they are a second tier to anybody. And I have also seen very, very many people who are incredibly privileged and incredibly smart in the financial sector and other sectors, quite frankly, and lawyers as well who are now sitting in jail cells because they thought they were too smart for public servants who engage in law enforcement.

But the other thing I will say about your question is, it is true that some people in our office don't have a business background, and we appreciate that. In the same way that there are members of boards of directors who do not have subject matter expertise about companies that they're supposed to be overseeing and monitoring.

And the same is true when you read about CEOs going from one industry to another industry. But we take great care at all times to make sure that we understand the facts. We have a lot of discussion with counsel for companies. I have sat in the library at my office, in the conference rooms of my office, on a number of occasions when we're talking about the state of play with respect to a business organization, whether it's a financial institution or otherwise, and the CEO comes or the CFO comes and the General Counsel comes, and we have a discussion, and we have experts and consult with experts and we talk a lot about what the business model is.

And if people say to us, "We don't understand what you're talking about; you don't understand what business is about," we say, "Well, prove us wrong.” Because you know what? Cheating is cheating, and lying is lying, and whether it's masked behind 17 pages of PowerPoint presentations about why this particular tax shelter is okay, at the end of the day I think our folks and our investigators and the FBI and the SEC are smart enough to see through them.

JIM CRAMER: Let's talk about business models. You bring it up. In this room, I'm sure we have a lot of people who are worried. All day today, I've been listening to all of Delivering Alpha and it has been fabulous. I hear people worried so much about fiscal cliff, worried what it could do to their firm. They worry about what the breakup of the euro could mean. They worry about the collapse of the Italian bond market.

But there is a systemic risk that they seem to be not worried about, which is the franchise risk of you rolling that grenade into their office. Why don't they put it in there along with the euro and the fiscal cliff?

PREET BHARARA: So, I think you're right. I'm agreeing with you a lot today. I spent some time not only talking to groups like this, but going to business schools and talking to boards of directors and not just talking to lawyers and securities lawyers about this very issue; that people spent a lot of time thinking about external things, they spend a lot of time thinking about the bottom line, as they should, and they spend a lot of time thinking about the business model, and I think they sometimes forget about culture in a firm.

Culture is important, not just in a U.S. attorney's office, not just in government, not just in Congress. Not just at a school, at an institution. It's also important at a business organization and, in particular at financial institutions. I'm shocked and amazed at how few people I think think about that. I mean you have a conference, and it's terrific, called Delivering Alpha. But I wonder and worry sometimes, based on my conversations with actual business people, not sitting behind my desk reviewing indictments that others have written, but conversations with people like you and others, that they're not spending enough time thinking about the kinds of people that they're hiring, thinking about the culture that they're creating in their firm. The thing that happens to me a lot, and you and I talked about this a few minutes before we came out here, is a penchant in many, many places, not just in the business community, but in too many institutions, but we're here to talk about the business community, I think, of people wanting to come as close to the line as possible.

And they think my job and the job that my corporate counsel should have should be to tell me how close to the line I can get so I can maximize my profit without going over the line. So I don't have to worry about the SEC or the FBI or Preet Bharara's office. The problem with that is it's a dangerous game to play.

I analogize it to a person who's trying to figure out the way to have as much to drink as possible at a bar, but not get pulled over for a DUI, not blow the DUI limit. I guess if you're really cleaver and you’re really smart and you’re good about body weights and you're good about figuring out what you've eaten and you're good about figuring out how much alcohol is in the drink, and you can do all that calculation in your head, and you're smarter than all the people in this room, I suppose you can do that for a while. But just think to yourself how long it's going to be before you blow the limit, before you're pulled over on the highway, and worse, before you kill someone on the highway.

I go to these business schools and these meetings and people -- after making points like that, and I get a question that's often asked seriously, which kind of amazes me, and it goes something like this: Mr. Bharara, you talk about how important it is not to cross that line and be careful of that line between criminality and non-criminality. So my question to you is, how far from the line do you recommend that we stay?

I say, you know, 3-1/2 feet is a good distance. The SEC, 4-1/2. Us, 3-1/2. It's obviously the wrong question, because if you're focused at every moment on where the line is and getting as close to the line as possible, maybe you won't be convicted of a crime. But what ends up happening is that generates smoke and when smoke is generated, as happens in real life, firefighters show up. And firefighters, just like prosecutors in my office and other regulators, they are conditioned and they're trained to make sure that you don't do undue damage. But you’ve got to figure out whether or not there's a fire. And firefighters sometimes will go into a building to make sure they're saving lives and putting out the fire, and it turns out it was just smoke, but damage occurs to the building.

And damage occurs, as I understand it, and as people in my office are sensitized to understanding it, to business organizations, even from the mere opening of an investigation. And we know that. The grenade analogy you mentioned before, just so people understand the context of that, is when I go to business groups and I talk to CEOs and members of boards of directors, I say: Look, you have to understand when you're assessing risk, when you're talking about what risk -- at what cost you're delivering your alpha. If you consider the risk, the catastrophic risk not just of prosecution and conviction, but of a mere investigation.

People understand in our office that the mere opening of investigation or discovery that we're investigating, whether it's a hedge fund or financial institution or any kind of business, can have a devastating collateral effect on the business even before there's a proven charge.

So on the one hand, we need to be very sensitive to that and make sure we're not doing anything undue and anything improper and that we're not over-reaching. But at the same time, we have a duty and obligation to uphold the law, because no one is above the law, and if we see things that may be going on, if we see smoke, we have an obligation to go and investigate.

The correlator to that is, if you're a financial institution and you're sensitive to that kind of an investigation, and the mere opening of an investigation or the mere execution of a search warrant is such that it's going to ruin your business or cause people not to invest with you or cause creditors not to have anything to do with you or cause you reputational damage, then it's your obligation, if that's the kind of business you're in, to be that much more above board and that much farther away from the line as is possible.

Not only should the CEO think that. Not only should the CFO think that, but everybody else in the company needs to think that also. It's not enough -- I see over, over and over again, very smart people and very smart lawyers who are good and well-intentioned and have integrity and are ethical and they ask the wrong question. They say: How much time should we be spending on compliance issues? I don't know. As long as is required.

Somebody asked me once at the New York Stock Exchange, "Preet, what percentage of time should boards of directors be spending on ethical issues?"

I almost fell off my chair. As much time as is required. If you are working -- if you're a member of the board at a corrupt company and you have reason to believe it's corrupt, then you should be spending a lot of time on it. If you think it's pretty honest and you've asked a lot of questions and satisfied yourself that they have a plan in place and it's an honest place and everybody understands that integrity is important and honesty is important and candor is important and whistle blowers will be taken seriously and things will be investigated, then you can spend less time on it.

The other example I give, no business person would think to ask and think it would be an intelligent question to ask -- I'm getting a little bit out of my wheelhouse here -- would think that it was an intelligent question to ask how much time should RIM, the BlackBerry manufacturer, spend or have spent thinking about the iPhone as competition? As much time as it takes.

If it's a business question, people understand that you have to tailor the amount of time you spend on an issue, depending on what the problem is and understanding what the catastrophic risk is.

People seem to understand catastrophic -- although not always, given the example I just mentioned -- seem to understand what catastrophic risk is as a business matter.

But boards of directors and CEOs and CFOs and general counsel and outside counsels need to think seriously about the kinds of things that can happen to a company if they don't take seriously this issue of not just technical compliance, but really from within the marrow of the company, a culture of integrity and doing the best that you can.

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