Confessions of a Wall Street Insider Page 3
Zvi, for his part, appeared to have no such qualms.
As we sat there, Zvi—aloud—began trying to determine who was the rat, or rats. He was convinced that they must exist in our organization. He began to mention the names of our friends and business partners. It did not seem sincere. As he spoke, Zvi would wink and smile my way. I returned neither gesture. It was all I could do to repress the urge to gouge out his eyes.
Later that morning, a group of guards came and opened the cell. Still handcuffed, we were marched down the hall to a room where we were photographed and ID’d. At one point, Zvi looked at me and raised his shackled fist in solidarity and smiled, nodding as if he was Tommie Smith on the ’68 podium. I did not respond.
They kept us together as we were processed. When the agents were filling out our paperwork, I heard them ask Zvi his highest level of education. He locked eyes with me and grinned: “High school.”
High school?
That was a surprise. Zvi had always boasted about graduating summa cum laude from SUNY Binghamton. I had never doubted this claim, or thought to investigate it. (Who, after all, would make that up?) Zvi had once even produced what had appeared to be an acceptance letter for Harvard’s dual JD/MBA program.
Again, I had that sinking feeling. The wormhole went deeper. Nothing was as it seemed.
Next we were taken to a dingy arraignment cell. We were extracted one by one and brought before a pretrial services employee who read us the charges against us. As I listened to mine, I understood that they involved criminal stock trading—at least in part—but mostly they seemed like nebulous, official-sounding nonsense. And they included a dollar figure that just didn’t sound like it could be correct. At the end of it, they asked me if I could post bond. (While all this was happening, Lisa was scrambling frantically to contact Sommer, my lawyer, who it turned out was in the Bahamas. I didn’t yet know this.) I said I thought I could.
Some hours passed. Later in the day, I was brought before a magistrate—marched into a packed courtroom where, much to my relief, I saw Lisa and some other people I knew, including a lawyer named Mitch Epner who had been sent to fill in for Sommer.
When it came to arranging my release, I would later learn my brother-in-law had put up his house as collateral. My bail was $250,000.
After the bail was decided, my handcuffs were removed. A marshal pointed to Epner and said: “He knows where you go.”
He did. We went to another room side and filled out paperwork. Then I was finally free to go. By the time I remembered to look around for Zvi and Nu, they were gone.
We exited through a back door of the facility, but there was still a mob of reporters. We hurried into a black rented towncar that drove us back to Larchmont. Epner told me not to talk about my case in front of the driver, but I did anyway.
Epner had seen the charges. I had to ask him: What was up with that typo? He must know the one I meant. The one that said I had done something to illegally make $16,000. Surely they had meant to write $160,000, I said. Or perhaps even $1.6 million.
No, Epner assured me.
My life had just been upended over $16K.
My arrest was the confirmation that the story was not going to have a happy ending. That was the worst part. For so, so long I had been able to tell myself that it would. For the past year I had been weathering a storm professionally. A horrible, epic storm. But it was to the point that I was telling myself that maybe we had weathered it. It was that point where you look around and think, damn, maybe we really are going to make it. That maybe everything really is going to be okay.
The firm I had founded, Incremental Capital LLC, had artfully dodged Trading Armageddon, as the general economic and financial decline of 2008 had set in. We maintained our profitability at a time when Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, and a host of other big banks and publicly traded financial institutions were imploding on a terrifyingly regular basis. Many were the not-so-innocent victims of a reckless credit bubble which had popped, as financial bubbles of every kind over the last few hundred years have tended to do. At that time, every trading day was a short-seller’s wet dream; an oozing bloody mess. Yet we couldn’t look away, watching the destruction of capital on a scale never seen before in American history—billions of dollars of market value disappearing to Money Heaven on a nearly hourly basis—you felt, if nothing else, like at least you were witnessing something historic.
The market action was exacting a massive psychological toll on almost everyone in the business. For some, it engendered borderline hysteria. Looking out office windows at the concrete far below, it was easy for a lot of us to commiserate with those boys who had leapt from their ledges on Black Tuesday, October 29, 1929. The most hardened, experienced traders still felt sick to their stomachs most days, and even those managing to make some money trading on the short side watched, hopelessly, as their 401(k)s and children’s college funds got decimated. Wherever you looked, odds were good that friends and family members were losing their jobs and homes. Up and down Wall Street, firms and traders were looking to simply survive, not thrive. We were all just trying to hold on until tomorrow.
My firm, however, was an exception.
Incremental had weathered the storm well. We’d been smart or lucky enough to increase our risk and press our short exposure some eight months before the market bottomed at the devilish 666 level in the S&P 500 index. Yet despite our impressive performance, the Royal Bank of Canada (RBC), our capital partner, panicked when the global financial markets went haywire. Word came down from their Toronto headquarters to wind down the US proprietary trading business. In retrospect, we should not have been surprised by this. Canadian banks were generally more conservative than their American counterparts when it came to managing balance sheet risk. When it came to underwriting mortgages, they’d even had the foresight to ask their citizens to pass a credit check and submit proof of income.
Even so, they had decided to get out of the business, lick their wounds, and retreat. In so doing, RBC also chose to renege on a deal which had required them to absorb all of Incremental’s losses in exchange for a share of profits and commissions. It had seemed a too-good-to-be-true deal when we’d struck it. Still, it felt like a betrayal when RBC pulled out, and it took about nine months to find a suitable capital partner to replace them. We eventually did so by raising capital from several sources, including a billionaire real estate investor’s family. The wealthy investor’s son, Adam Gittlin, an accomplished businessman in his own right, also agreed to be our new COO.
As an augment to this recapitalization, I lined up significant equity commitments from several well-known hedge fund moguls, all-star heavy-hitters such as Todd Deutsch and Gary Rosenbach, along with a handful of other prominent investors, including the granddaddy of them all, Steve Cohen’s SAC Capital. By the fall of 2009, we were employing about fifty traders, many of whom were so-called “fallen angels,” experienced and highly talented individuals recently fired from Goldman Sachs or the late Lehman Brothers, or from top-tier hedge funds like Galleon and SAC—all of them casualties of the financial meltdown.
These traders were comfortable taking substantial risk, and with suitable leverage, the firm’s daily exposure to the market ran in excess of $200 million. The stress of raising money while also navigating the most treacherous and discouraging trading markets since the Great Depression had begun taking a toll on my marriage and on me personally. I was drinking far too much, and hiding my feelings and frustrations from my wife more than usual. But now, in the fall of 2009, things were looking up. At last! Our firm would once again sink or swim solely on its performance. I was pleased with the business, but then again I was a trader at heart, and knew, deep down, that the Trading Gods often have their own agenda.
I arrived home after 10 p.m. and shut myself away from everyone in Lisa’s office. I paced and moped. I fought off waves of nausea. Around midnight, I got up the courage to go online and see if it was in the news.
Manhattan U.S. Attorney Charges 14 Defendants with More Than $20 Million in Insider Trading
Charged Defendants Include Hedge Fund Managers, Trading Firm Executives, Lawyers, and Corporate Insiders; Five Already Have Pleaded Guilty To Insider Trading Charges
PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH DEMAREST, JR., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), today announced charges against 14 additional Wall Street professionals and attorneys arising out of their ongoing investigation of insider trading at hedge funds and stock trading firms. The charged defendants include hedge fund managers and trading firm executives, lawyers, and corporate insiders. Five of the charged defendants previously pleaded guilty to insider trading charges in Manhattan federal court. The defendants collectively are charged with allegedly participating in insider trading schemes that generated more than $20 million in illegal profits.
1. ZVI GOFFER, who formerly worked at The Schottenfeld Group LLC (“Schottenfeld”), a broker dealer in New York, New York, and currently operates a trading firm called Incremental Capital (“Incremental”), in New York, New York;
2. ARTHUR CUTILLO, an attorney at the law firm of Ropes & Gray LLP in New York, New York;
3. JASON JENKINS, an attorney in New York, New York;
4. CRAIG DRIMAL, who worked in the offices of the Galleon Group (“Galleon”), in New York, New York, but is not employed by Galleon;
5. EMANUEL GOFFER, who formerly worked at Spectrum Trading LLC, a trading firm in New York, New York, and currently is associated with Incremental in New York, New York;
6. MICHAEL KIMELMAN, currently associated with Incremental in New York, New York;
7. DAVID PLATE, formerly employed by Schottenfeld, and currently associated with Incremental in New York, New York; and
8. ALI HARIRI, a Vice President of Atheros Communications, Inc. (“Atheros”) in California.
A ninth charged defendant, DEEP SHAH, who was formerly employed by Moody’s Investors Service, Inc. (“Moody’s”), in New York, New York, remains at large.
ZVI GOFFER, JASON JENKINS, EMANUEL GOFFER, and DAVID PLATE were arrested at their homes in New York, New York. ARTHUR CUTILLO was arrested at his home in Ridgewood, New Jersey. CRAIG DRIMAL was arrested at his home in Weston, Connecticut. MICHAEL KIMELMAN was arrested at his home in Larchmont, New York. ALI HARIRI was arrested in San Francisco, California. All of the defendants except HARIRI are expected to be presented in Manhattan federal court later today; HARIRI is expected to appear in San Francisco federal court later today.
Of the names of those arrested, the only two whom I knew at all, really, were Zvi and Nu Goffer.
Knew. Was that even the right word? Did I even actually know them at all? Who, really, were they? Until that day, I had never thought to seriously question anything about them. Now, it seemed, I was asking questions about them that would be too little, too late.
These others … I’d met Plate a couple of times, tops; Drimal just once; Jenkins and Cutillo, never.
Next, I had a look at what the Securities and Exchange Commission had to say:
SEC Charges Wall Street Lawyers and Traders in $20 Million Insider Trading Scheme
Washington, D.C., Nov. 5, 2009—The Securities and Exchange Commission today charged a pair of lawyers for tipping inside information in exchange for kickbacks as well as six Wall Street traders and a proprietary trading firm involved in a $20 million insider trading scheme.
The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of international law firm Ropes & Gray LLP, had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated. Through his friend and fellow attorney Jason Jenkins, Cutillo tipped this inside information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group. Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts.
Goffer was known as “the Octopussy” within the insider trading ring due to his reputation for having his arms in so many sources of inside information. Cutillo, Jenkins, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled “you” and “me.” After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.
The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
This read from start to finish as though it was established fact. The word “alleged” was buried in the second paragraph, and that all-important phrase “presumed innocent” saved for the very end.
Despite the circumstances, I had to smile at their portrayal of Zvi. When you read about a guy labeled “Octopussy” who’s biting cell phones in half … well, you remind yourself that at least you’re not that guy.
I clicked around some more and found New York magazine had also published a piece about us. It was titled “White Collar Crime, Without the Collar.” While the writer did qualify the fact that none of those rounded up had been proven guilty of a crime, she cited Zvi and Nu, “the Brothers Goffer”, as guilty of crimes against fashion for having shown up for the arraignment in track suits.
Here, too, I had to laugh, even though my world had crumbled.
So, so much of this was so very absurd.
Octopussy? Really? I had known the guy for several years, and worked with him every day for the last year. I had never heard that name used. It didn’t even make any sense. I mean, Octopussy was a female arms dealer in a Roger Moore James Bond movie released before Zvi was even born.
And biting the cell phone in half? Who the hell could even bite a cell phone in half? With the exception of the character Jaws from Moonraker (to stay with the Bond theme), and the guy dragging the train with his teeth in the Guinness Book of World Records, and maybe, just maybe, my high school buddy Big Zut, who would rip the caps off non-twist beer bottles with his teeth, I couldn’t imagine anyone tearing into a Motorola and spitting out a Qualcomm chip like a watermelon seed.
Then, suddenly, a very specific memory went shivering up my spine. A few months back, on Incremental’s trading desk, I’d been walking over to Zvi when I saw Nu pass him a yellow Post-it. When I reached Zvi’s seat, I saw him crumple the note and pop it in his mouth, like a Tic-Tac. He was still chewing on it. Zvi sat at the end of the trading desk, within his mini cubicle. (It wasn’t even remotely private, but on the phone with RBC, investors, or recruits, it gave him modicum of shelter from prying eyes and ears. He chewed a few more seconds and swallowed.) I looked at him point blank.
“Did you just eat a Post-it?”
He looked at me with his trademark glare, smirked, and then went back to typing up charts without answering.
“Why would you eat a Post-it?” I pressed.
Zvi raised an eyebrow, rocked back in his swivel chair, and smiled.
“Because I don’t have a shredder at my desk?” he reasoned.
And I have to admit, it somehow made sense at the time.
“The Human Shredder,” I said with a laugh.
Zvi didn’t laugh quite as hard, instead offering a softer version of one of his famous glares. By then, I knew all of this was part of his grand shtick, boasting about how he had Raj and other billionaires on autodial, and had access to the best intel around. I only wish I’d known more, and earlier, about what and who I was dealing with. I always thought of myself as a good judge of character, with a solid
built-in bullshit detector—but I was never more wrong than when it came to Zvi. And the details, not to mention the consequences, of my misjudgment and his deceit were only just beginning to hit me where it hurt.
When I could no longer bear to look at the Internet, I took drugs and drank Ketel One and fell asleep.
I awoke in the vise grip of an Ambien-Klonopin hangover. My daughter Sylvie was asleep next to me, snoring gently, mouth wide open. She’d crawled into our bed at some point during the night. The Klonopin was typically able to construct a pontoon system that suppressed my waves of agony and anxiety, but it couldn’t mute the incalculable uncertainty, the terrifying prospect, of what my life had now become.
I propped myself up and stared at Sylvie’s sweet elfin face, a tangled mess of freckles and wheat-brown hair, all meshed into benign perfection. If I went to prison, would she even know me? How could I possibly explain to her what happened yesterday? How can I explain it when I don’t totally understand it myself? I’d never wanted to get out of bed less. Walking to the bathroom and turning on the shower seemed an insurmountable task.
The door popped open and my three-year-old son, Cam, all wild curly red hair, bounded into the room, shouted “Daddy!” and leapt into my arms.
Being a parent is tough, the toughest job most of us will ever have. Every halfway decent parent knows this. The pendulum between good times and bad doesn’t always swing symmetrically. Unfettered sleep is a distant memory from a younger, less complicated life. Your freedom becomes subjugated to the whims of someone else’s existence. But there are those moments you wouldn’t trade for anything: a child jumping into your bed, or seeing you at the school pickup line and breaking into a run while yelling your name—these are among the finest experiences life has to offer. They wash away the tough times in an instant—but, unfortunately, they also don’t last very long. At five years old, Sylvie was already too cool for emotional displays, and would offer only a placid smile when I would pick her up from school or camp.