Confessions of a Wall Street Insider Read online

  PRAISE FOR

  CONFESSIONS OF A WALL STREET INSIDER

  ______________

  “Kimelman is guilty of one thing: writing a helluva book. If you want a front row seat to a Wall Street witch-hunt—read this.”

  —Turney Duff, bestselling author of The Buy Side and Consultant on the Showtime Original Series Billions

  “Kimelman delivers a taut page-turner that gives readers an inside seat at the real life Billions that are a daily part of the cutthroat world of proprietary traders. He also exposes a criminal justice system in which prosecutors will do anything to win a case and questions of innocence are far less important than notching a victory. In this disturbing and cautionary tale from the inner sanctums of Wall Street to Federal prison, Kimelman ultimately tells a singular and riveting tale of survival and endurance.”

  —Gerald Posner, author of God’s Bankers: A History of Money and Power at the Vatican

  “Kimelman’s account as a defendant in the federal criminal justice system provides insights into just how broken and frightening that system has become.”

  —Walt Pavlo, Jr., Forbes columnist and co-author of Stolen Without a Gun

  “If you like wild rides, you’ll love Confessions of a Wall Street Insider, Michael Kimelman’s gripping, well-written memoir of his incredible journey from an associate at the tony law firm Sullivan & Cromwell to the lunacy of day trading, and into the great beyond of Wall Street hedge funds. When he’s arrested for insider trading in 2009, the adventure really begins.”

  —William D. Cohan, best-selling author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

  “When prosecutors place a political agenda and career ambition over truth and justice, people inevitably get trampled. Michael Kimelman is a perfect example of that collateral damage.”

  —Joe Tacopina, celebrity criminal defense lawyer and owner of the Venezia FC Soccer team

  Copyright © 2017 by Michael Kimelman

  All rights reserved. No part of this book may be reproduced in any manner without the express written consent of the publisher, except in the case of brief excerpts in critical reviews or articles. All inquiries should be addressed to Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018.

  Skyhorse Publishing books may be purchased in bulk at special discounts for sales promotion, corporate gifts, fund-raising, or educational purposes. Special editions can also be created to specifications. For details, contact the Special Sales Department, Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 or [email protected].

  Skyhorse® and Skyhorse Publishing® are registered trademarks of Skyhorse Publishing, Inc.®, a Delaware corporation.

  Visit our website at www.skyhorsepublishing.com.

  10 9 8 7 6 5 4 3 2 1

  Library of Congress Cataloging-in-Publication Data is available on file.

  Cover design by Rain Saukas

  Cover photo credit: iPhoto

  Print ISBN: 978-1-5107-1337-6

  Ebook ISBN: 978-1-5107-1338-3

  Printed in the United States of America

  DEDICATION

  ______________

  For my Mom and Dad, Barbara, and Charles, whose love and courage never wavered. I can’t thank you enough or ever repay you for what you gave me. If I am half the parent to my three children that you were to me, I’ll know I did all right.

  ACKNOWLEDGEMENTS

  ______________

  PETER BOGART WAS MY INVALUABLE PARTNER in editing and structuring this book. His brilliant acumen and generosity helped captain this project to the finish line. Everyone should be lucky enough to have a friend like Pete in their lives.

  To Sharon Lord, Allison Oakes, Melissa Kotlen, Eileen Fischer, Claudia Borg, Turney Duff, Walt Pavlo, Ashley Parrish, Meredith Morton, Ilana Kuznick, Dave Fogel, Whitney Korchun, Jason Goldfarb, Jeff Wylde, Darren Lampert, Andrew Herrmann, John Goldman, Kareem Biggs Burke, and others who lent a sharp eye and a kind pen to the manuscript, and whose friendship blessed my life.

  To my ride or dies, Stan Horowitz, Randy Oser, Moe Fodeman, Dino Capuano, Phil Berkeley, Pete Izmirly, Brian Hutchison, Chris Johnson, Igor Velikov, Keith Sutton, Mike Borzello, Adam Zutler, Brian Zeft, and anyone else I missed. You know who you are—people whose friendship I measure in decades and would gladly take a bullet for.

  To my Lburg crew. I’ll take good people in horrible conditions over the opposite every time. Funny how humanity thrives even under the most inhumane circumstances.

  To the Skyhorse team, Tony Lyons, Scott Kenemore, Mike Lewis, and Mark Gompertz, who believed in the story and brought it to fruition.

  To my brother Andy, who has always been a champion. Big brothers aren’t supposed to look up to younger brothers, but I have from day one.

  To Lisa, who I have a lot of love for and, with perfect knowledge, would still do it all over again.

  And finally, to those who make my heart sing the loudest, my three children, Sylvie, Cameron, and Phineas. When faced with an impossible situation, I tried to make the least worst choice, and to keep my chin up and never forget to smile and be grateful. I hope you can understand one day, and do the same.

  CONTENTS

  ______________

  Preface

  ONE · Danger at the Door

  TWO · The Human Shredder

  THREE · Sunday with Moe

  FOUR · Into the Lawyer’s Den

  FIVE · Enter the Datek

  SIX · The Trading Game …

  SEVEN · A Star is Born: The Advent of Zvi

  EIGHT · Here Today, in Limbo

  NINE · Leap of Faith

  TEN · Million Dollar Checks

  ELEVEN · Fitty

  TWELVE · The Undiscovered Country

  THIRTEEN · Of Banks and Royalty

  FOURTEEN · MERCS and the Galleon Duo

  FIFTEEN · The King is Dead

  SIXTEEN · A Tale of Two Trials

  SEVENTEEN · Pissing Out of the Tent

  EIGHTEEN · And Justice For All

  NINETEEN · Guilty

  TWENTY · Surrender

  TWENTY-ONE · Rehabilitation

  EPILOGUE

  PUBLISHER’S NOTE

  About the Author

  PREFACE

  ______________

  WHEN YOU DECIDED TO PICK UP this book, chances are the one thing you knew about me was that I’m a convicted felon.

  In America, we’re careful to repeat the adage that someone charged with a crime is innocent until proven guilty. But let’s be honest. Let’s be frank. This is you and me talking here. Most of the time, when someone is indicted and brought to trial for a financial crime, we assume that he (or she, but usually he) is likely to have done something wrong. And if that defendant is found guilty by a jury of his peers? Then the assumption becomes an accepted fact. The jury heard all the facts and made an educated pronouncement. The system worked.

  Or did it?

  It was alleged that on August 8 of 2007, I bought shares of stock in a company called 3Com six weeks before a large takeover deal for that company was announced. It was further alleged that I bought this stock because I had illegal information about the trade. When I was arrested, it was along with several other traders from more than one firm. Some of these men—when convicted—would see prison terms that set new records for sentences given in insider trading cases. These men were charged with making multiple illegal trades and perpetrating a vast conspiracy of illegal insider information.

  I was, again, charged with making one illegal trade. (And, later on, with “conspiring”.) The case against me was so illusory that the government off
ered me an unprecedented non-cooperation probation/no jail plea deal the day after my indictment, which I later turned down.

  It is not my project, here, to convince you of my innocence. What I do hope to convey is exactly what it feels like when a routine work decision made years before—which you don’t even remember very well—becomes the sole focus of your existence, and the linchpin of your fate and your family’s future. What it feels like when the crushing pressure of a federal indictment comes down with all its force on what had been an enduring marriage. What it feels like when you begin to realize that those whom you have trusted are ready to betray you completely.

  You probably know that the law prohibits “insider trading.” What you may not realize is that there is no clear definition of what “insider trading” actually is. None. Go check. Google away, I’ll wait. No statute spells it out. No law book provides a comprehensive accounting of its parameters. (When it came to my case, even the judge got confused.)

  In the United States, the law avoids criminalizing conduct that is not clearly defined … but securities fraud is an exception. In some quarters, there’s a debate over whether it even makes economic sense to criminalize trading on inside information. The market is awash in rumors and insights from all sides, all the time. The line between good information and tainted information is not always clear. The flow of information—of all kinds and qualities—is constant. I was not charged with any pattern of illegal trading. I was charged with a single trade so unremarkable that I could barely remember it.

  And it still destroyed my life.

  If you are reading this, you are probably curious about what I went through. Well, I went through hell. But what does a man want when he is going through hell? When he is in hell, and sees only more hell ahead of him? When there is no foreseeable course except to continue forward through the fire and brimstone?

  That one, I can tell you for sure.

  He wants to keep on going.

  —Michael Kimelman, Fall 2016

  CHAPTER ONE

  DANGER AT THE DOOR

  ______________

  BEFORE DAWN, NOVEMBER 5, 2009, I was shaken from a deep sleep by a deafening bang with no discernible source. I sat bolt upright in bed, heart in my throat. My first thought was that it must be some sort of mechanical explosion. Maybe that rebellious boiler in our basement had finally had too much. Within seconds, it came again. And then a third time. It became rhythmic.

  BANG! … BANG, BANG, BANG!!!

  I jumped out of bed.

  Our front door was being beaten on. Or in. Given the intensity of the blows, it was hard for me to believe the hinges were still holding. I looked over and saw that my wife Lisa was also out of bed, white with fear and cradling our terrified toddler, Phineas. Still in the dazed throes of Ambien and red wine, I half-wondered if this wasn’t some sort of bizarre nightmare—the product of stress, drugs, and an overactive subconscious. An hour earlier, I had been floating in a warm nothingness, thanks largely to the sleep meds and several glasses of a mid-priced California Cab.

  But now this. Whatever this was.

  “Oh my God, Michael!” Lisa shouted, instinctively squeezing Phinnie a bit tighter than he was accustomed to. He squirmed uncomfortably. Lisa ran to the window and pulled back the curtain. There, we both saw half a dozen FBI agents in blue and yellow windbreakers fanning out across our front lawn. Each had a holstered firearm. One of them had a K-9 police dog, straining on its leash. I had been attacked by a German shepherd as a kid, and knew precisely what they were capable of.

  An avid viewer of shows like Law & Order and CSI: NY, Lisa initially figured that the Feds were there to hunt down a violent criminal that might be fleeing through our neighborhood. That the FBI agents were there to somehow “help us.” But this wasn’t TV Land; it was Larchmont Village, New York, as quaint and safe a spot you can find within twenty minutes of the Big Apple. Escaped convicts didn’t haunt these mansions and manicured lawns. Lawyers and bankers did.

  I was no expert, but it looked like the FBI agents were watching for movement in the windows and doors to our home. After a moment, an agent saw Lisa peeking out from behind the curtain and pointed at her face. Scared and confused, Lisa dropped the curtain and turned back to me.

  “Go check on the kids!” she yelled, gripped by a shrill, pure panic.

  I sprinted down the hallway and opened Cam’s door. Our three-year-old had just moved into his own bed. He was still scared of thunder, and my heart sank as I wondered how he would handle this sledgehammer-like crashing on the front of his home. He was wide awake and crying by the time I burst in.

  “It’s okay, sweetie. Mommy will be here in second. You are safe.”

  I quickly kissed him on his forehead. Five-year-old Sylvie was in the room adjacent. I checked on her next. She was starting to stir, but not yet upset. Only curious.

  “It’s okay, Syl. Don’t worry about the noise. Try to go back to sleep.”

  Lisa arrived in Sylvie’s room.

  “They’re fine, honey,” I said.

  Then an absurdity. I thought to myself: Someone is knocking on my door. What do you do when someone knocks on your door? You go answer it.

  “I’m going to answer the door,” I said to my wife, as calmly as if I anticipated a delivery from Amazon or neighborhood kids selling Girl Scout cookies.

  I began to walk downstairs. Through the windows of the house, I noticed several more FBI agents moving furtively across our backyard. The trees had lost enough foliage to leave the agents mostly exposed, but they were still trying their best to conceal themselves.

  I reached the door and called out, “Okay, I’m opening it.”

  I swallowed hard and prepared myself for an overzealous agent ramming the door into my face and shattering my nose, or maybe anxiously discharging a chambered round into my chest.

  It wasn’t until my hands were fiddling with the brass deadbolt that I remembered I was standing in only my Hanes boxer briefs and a dingy V-neck undershirt. I had a quick flashback to the TV lounge in college, watching COPS with my buddies and asking, “Why do these white trash criminals always get arrested in their undershirts and slippers?”

  Now, perhaps, it was no longer such a mystery.

  Heart racing, ears ringing, I undid the last latch, twisted the handle and opened the door.

  “Mr. Kimelman? Mr. Michael Kimelman?”

  The agents were right out of Central Casting. Tall. Bulletproof vests. No-bullshit expressions. One was a middle-aged white guy, wearing the traditional navy blue windbreaker with yellow FBI lettering. He was in good shape, and kept his hair meticulously short.

  His young black partner was handsome and likewise athletic, and appeared to relish sternly shining his magnum flashlight directly into my eyes.

  Squinting, trying reflexively to block the blinding beam with my hand, I said that that was indeed my name.

  “I have a warrant here for your arrest,” one of them said.

  I just stood there, blinking and squinting. In the movies, this is when the accused angrily demands to see the warrant, and then snatches it from the agent’s hands when it’s produced. But that’s the movies. In real life, your brain is like a car that won’t start. No matter how hard you pump the accelerator and twist the key in the ignition, there’s nothing. Three years of law school and several more at a fabled law firm, and all I could think of to say was: “Uh, for what?”

  “Securities fraud. This warrant gives us permission to search your house. Please step aside, sir.”

  My legs nearly buckled. So this was it. This was how it happened. This was what it looked like, what it sounded like, what it smelled like.

  This was how you became one of those guys. A bankster. The people that good folks in the Midwest somewhere—who didn’t know a thing about banking beyond their checking accounts—knew they should hate. This was how you became a bad guy, I thought.

  It was too much to begin thinking about what decisions, or what people, had
brought me here. But something in me knew. One word resounded in my brain. One word. Zvi. (It rhymed with “me” or “flea.”) One word over and over again.

  Zvi. Zvi. Zvi.

  So this was how you became one of the bad guys.

  Zvi.

  After regaining a semblance of composure, my first thought was that this was an incredible and outrageous invasion of my space. What about securities fraud could possibly give the FBI agents and a police attack dog the need to search my house full of children in the middle of the night? What the hell were they searching for, the fraudulent securities?

  It made no sense, and I said something to that effect.

  “The search is just standard procedure,” the white agent said. “We need to make sure there is no imminent danger.

  The two agents brushed past me and entered my home.

  The white one looked a little like a teacher I’d had in grade school, and the black one reminded me of a certain leading man from the movies. I silently dubbed them Teacher and Hollywood. They never gave me their names.

  Teacher sidled up to me as Hollywood began to explore my house and turn on lights.

  “So, I really hope you’ll agree to talk to us,” Teacher said, as he entered and began to look around. “This’ll be a hell of a lot easier on you, Mike, if you cooperate.”

  Mike? Did he really just call me Mike? Hey, can I brew some coffee for you guys? Maybe you want a Danish or donut with that, since apparently you’re my new pals?

  Before I could respond, several other agents and the dog were inside the house. I was actually relieved to get them off our lawn. Our four-bedroom home sat on a quarter of an acre at the top center of a “T” type block with very little privacy where one quiet street intersects another. The kind of place where, in a nation of pedophiles and serial killers, kids can still ride bicycles without fear and walk to each other’s houses or to the park alone. The parcels are modest and close together. A friend from Connecticut once told me that he could rake my lawn with a dinner fork. This close proximity meant that there were at least six homes with a direct line of sight of the heavily armed SWAT team that had now occupied my house. I didn’t know what the neighbors would think, but I knew it wouldn’t be good.