Long Way Down (5 page)

I
’m guilty. I broke the law. I knew exactly what I was doing and I knew it was illegal and I did it anyway. You want to know why I did it? Same reason every other money manager does it. I didn’t think I’d get caught.”

Sunday night. I was having dinner at Sparks with Matthew Tuttle, recently convicted in federal court of insider trading and currently awaiting sentencing. It was a tad ghoulish, but if there was anyone who could give me a crash course on the subject, Matt was the man. Matthew and I had been at Wharton together, but had gone our separate ways as soon as we finished the training program at Case Securities. I had started on the foreign exchange desk, Matt on the block equity trading desk. Against the odds, there was already a trader in the equity department named Matt Tuttle, so Matt had been renamed Rufus. It had stuck and followed him from firm to firm. Every night, he left his desk, got on the commuter train, and somewhere between Grand Central and Darien, Rufus morphed back into Matt. His wife, Alice, whom I had met a few times over the years, had a habit of correcting people when they
called him Rufus. “It’s Matt, or Matthew.” I had known him before he’d become Rufus, so I never developed the habit.

“But you went through a trial. Why not take a plea?”

“Because the only offer the U.S. Attorney made was to wear a wire and go to work for the Feds. No jail time. Community service and a fine.”

I stabbed another chunk of the cold lobster cocktail. “So why not take it?”

Matt looked at me like I hadn’t been listening. “Kevin McNab. Remember him?”

Kevin McNab had placed the muzzle of a ten-thousand-dollar Italian side-by-side double-barreled shotgun in his mouth and pulled the trigger. Only one barrel fired, but that was all he needed. The story made the
Post
and the
News
, but the nationals ignored it.

“The Feds had him on a leash for four years. They caught him red-handed. He’d been paying a clerk at Goldman to get him draft copies of research reports the day before they were released. He’d put in an order overseas and unwind it a day or so later. Like me, he didn’t think he’d get caught.”

He paused while the waiter cleared the plates and divvied up the Caesar salad.

“Another round, gentlemen?”

I was experimenting with potato vodkas and had discovered one distilled on Long Island, of all places. LiV. It was very smooth and went down like water. My glass was empty. Matt’s glass of Macallan was still half-full.

“Same again?” I said.

He picked up the glass and drained it. “Might as well. I don’t think they serve this where I’m going. Did you know McNab?” he continued after the waiter had left.

“Never met him.”

“He wasn’t a nice guy. His rep on the Street was pretty shady and he drove two nice women to divorce him. They both had to sue to get him to pay his child support. Maybe his mother liked him, but nobody else did. What I’m saying is, he wasn’t someone who would normally warrant my sympathy. But once the Feds got their hooks in him, they made his life hell. They had him wired and turning in everybody he ever worked with. Anybody with so much as a speeding ticket. They pushed and pushed on him, sending him after bigger and bigger fish, until finally he broke. Even he developed a conscience.”

“You could argue he was helping put away some bad guys.”

“Do you believe that?”

“You don’t?”

“First of all, insider trading is a misnomer and it’s not always illegal. An insider is someone with a fiduciary responsibility to a company—a director, an officer, an employee, or maybe a vendor. For one of those people to trade on nonpublic information, to make a profit, or avoid a loss, that is insider trading. It is illegal in most countries. But if the same people trade on public information, or on a whim, or because they need to pay for the kid’s tuition, it is still insider trading—only it’s not illegal. You with me?”

“So the question comes down to whether the information is publicly available or not.”

“That, and intent. So, if you
think
you’re breaking the law, you
are
breaking the law. It’s a little like being Catholic. And Milton Friedman argued that trading on nonpublic information actually forces the information to become public, and therefore the trade is beneficial to the markets.”

“That’s not just some philosophical rationalization?”

He laughed. “Yeah, well, maybe in my case. But people write papers on this. Smart people. Professors.” Now he had
me
laughing. “I’m serious!”

Our entrées arrived. Steak fromage for Matt. Crabmeat and bay scallops for me. Sparks was the unusual steak house where the fish was as excellent as the meat. And I was still working on remaking myself into Skeli’s idealized version of me. We both dug in. My meal was great. His looked better.

“How hard are they going to be on you? It’s only the single count, right?”

He nodded. “Oh, I’m fucked. No doubt. My lawyer won’t even handicap it. Twenty years is the max, but the prosecuting attorney isn’t pushing for it. What he really wants is the five-million-dollar fine, but I’ll do time also.”

Times were harder. Sentences were longer. I wanted to help but there wasn’t much I could do, and sympathy wasn’t part of our culture. You take your chances and take your lumps. That’s what the market taught us. “I can recommend someone to prep you on prison life. How to get through it.”

“My lawyer has me set up with a consultant outfit in Baltimore. They help with pre-sentencing, how to survive, and reentry. I’ve been meeting with them for a while.”

“I don’t think there is any way to prepare for reentry. No matter what, you’re never getting your old life back. But you’ll figure something out. It just won’t be anything like what it once was. It might be better.”

He looked unconvinced. “What was the worst?”

I thought about my first night, listening to the psychos and the sobbers threatening and crying in the dark, an auditory outer ring of hell. I remembered my first fight, the only one that was more than a scuffle but that had earned me the right to be left alone; the constant lack of trust, knowing that no one is your friend, but you can’t afford to have a single enemy; the way your brain shrinks, so that thoughts of life outside become limited to food, sex, and fresh air.

“The boredom.”

He was surprised. “Not the violence. Rape?”

“You’re too old. Sorry.”

He laughed. Embarrassed. Relieved. “All the TV shows, you know?”

I nodded. “Yup. It’s there, but you’re not going to a maximum security facility. You might even end up at a camp, which is no garden party, but it is better. And, by the way, you really are on the old side. Guys in their teens and twenties are the main targets. They either fight or get punked—or both.”

We both sat thinking about that for a few seconds.

“Jesus Christ,” Matt said.

“Yup. According to the stats, five to ten times as likely.”

“Some kid gets popped with a little too much weed in the trunk of his car, and . . .”

“Yup. More than half the prison pop in the U.S. is there for nonviolent crimes.”

“Jesus Christ,” he said again.

“Amen.”

He waved his fork as though dispelling all such ugly thoughts. “You know, a hundred years ago, what I did wasn’t just legal. It was how you played the game. That was the job. You maintained your network, traded favors and rumors. If you heard your buddy made a pile of dough and you weren’t in on it, you had every right to be pissed off.”

“So why not do it all the time?”

“Because it’s illegal! I was managing close to a billion dollars—three ETFs—all leveraged equity funds. I was making a nice buck. Why would I want to screw that up? It’s one thing to write research papers or op-ed pieces on the subject, but it’s another whole bucket of worms to get caught doing it.”

“And yet you did.”

“Yeah, so I screwed up. It’s not like this was my business model, like some of these guys. This is all public information now, so it doesn’t hurt if I tell you the story. I bought a lousy fifty thousand shares of Myo-Life Labs at forty-two on a Tuesday afternoon. I thought it was oversold—it was down over ten percent in three days. As soon as I did the trade, I hated it. You ever get that feeling? Like you’re buying something you think is so cheap you’re practically stealing it, and then you sit back and say, ‘Uh-uh, that was
too
easy.’”

I knew that feeling. Every trader has had it.

“That night, I’m having drinks with two other fund managers. We never talk our positions. Ever. Not only is it against the rules, but we are all way too competitive. And these days, too paranoid. You never know who’s gonna be wired. But we got together once a month or so, just to shoot the shit. Those nights got very liquid, but there were some things we never talked about.”

I saw that my glass was empty, but I thought it might be a good time to start slowing down.

“Anyway,” he continued, “at some point I come back from the bathroom and there’s a group of guys standing around our table. Everybody is laughing over some story one of them is telling. I don’t know these people but it’s obvious my buddies do. I sit down and smile and try to catch up, but at this point in the night, I’m already getting hazy.”

I was feeling a bit hazy myself at that point. I drank a glass of water and tried to convince myself that it would help clear my head.

“It turns out that I know the guy doing the talking—he’s a banker over at Pierce and one of his accounts is Myo-Life. I know this and right then I should have said something or walked away. But instead, I listen. Myo-Life is toast. They’re going to announce in the morning. Eight years of research, and instead of coming
up with a new antiviral, they’ve got a few thousand petri dishes of brown scum. Everybody’s laughing because the CEO checked himself into New York Hospital so he wouldn’t have to face the press in the morning. The punch line to the story is ‘Chest pains!’ and they all keep repeating it and cracking up some more.”

“And you?”

“I’m ready to barf. How could I have been so stupid? I bought into a ‘way back’ trade without doing my homework. A rookie mistake. I focused solely on the price action and now I’m in the shit. I panicked. I excused myself from the table, went out on the sidewalk, and called the Coast. I figured that no one back at the table knew I had the position, and no one anywhere else in the world would know I had the information. I unloaded the whole position at better than forty. The next morning, they delayed the opening until the firm made the announcement. The stock opened up at twenty-four, traded as low as eight, before it bounced a bit and closed just under ten. I took a two-point hit and saved my investors a buck and a half.”

“But you weren’t an insider. You traded on hearsay. Rumor.”

“No. I traded on nonpublic information. I had every reason to believe that the banker had the goods and I was privy to something solid. According to the law, I should have waited until the information became public.”

Privileged information rarely affects the foreign exchange markets, unless it’s who’s buying or selling or how much. Governments release economic stats and the markets move or they don’t. Occasionally there might be a leak and everyone would get in an uproar for a day or two, but this kind of parsing of what was legal information and what was not was well beyond my experience.

“How did they catch you?”

“Routine review. The SEC is all-seeing. They ran all the trades in the week leading up to the announcement. They do that kind
of thing as a matter of course. But if I had been the only one front-running the announcement, they still wouldn’t have been able to make a case. I trade too frequently. They’d have had a hard time showing intent. It turned out that the banker had told a few other people that week. On paper, it looked like a major conspiracy. They rolled all of us up.”

I had no appetite left. The man across from me had made a mistake—I had made a flood of them. But it doesn’t take much to destroy a career—a life. Just one misstep.

“And now?” I asked.

Matt grinned sadly. “Now I’m enjoying a great steak, and living in the moment. So get us another round. And pass the spinach.”

S
tone walls in varying stages of disrepair lined both sides of the road as I looked for the turnoff to Westwood, the Haleys’ compound/estate out on the North Shore of Long Island. I passed a golf course, a vineyard, a discreet conference center, and a development of luxury homes for people who insisted upon living in mansions the size of hospitals on deforested lots close enough to their neighbors on either side to absorb every detail of marital or familial discord—all of which had been, at one time, portions of the vast robber baron estates of the nineteenth century. But a very few of those estates still survived, as evidenced by the occasional gated drive that led back into the heavily wooded acreage. I tapped the brakes and slowed as a fox burst out of the brush on my side of the road and ran across, disappearing instantly in the tall grasses on the far side.

Few of these gated drives exhibited numbers or names—either of the owners or the homes. It was apparent that if a visitor did not know exactly where he was going, he was simply not welcome. Haley’s secretary had emailed me directions, and now that the rain had let up, I could see well enough to follow them.

I took the first left after the second golf course and slowed for a series of speed bumps. The posted speed limit was five mph, and it appeared that they took this seriously. Hitting one of those obstructions at anything over ten would have destroyed the suspension on the rental car and bounced my head off the roof. Thirty yards or so past the third bump, I came to the gate. I stopped the car and, as instructed, rolled down the window.

“May I help you?” The voice, a no-nonsense, testosterone-laden male with no discernible accent, seemed to come from right outside the car, though there was no one around. It was creepy, but not impressive. My Bose stereo system was just as capable of distributing sounds to specific parts of the room.

“Jason Stafford. Mr. Haley is expecting me.”

There was a pause.

“Would you please look to your left?”

I looked to my left and tried smiling for the camera, though I couldn’t see it.

“Thank you.” The metal gate swung back almost silently on rubber wheels. “Take your second right turn into the employee parking lot and have a nice day.”

Another first experience in life; I had just been wished a good day by a clump of brown spikes of hydrangea.

The drive was barely wide enough for one car to safely pass a bicyclist or pedestrian; they must have had some way of holding traffic at either end. It would have been impossible to back up or turn around. I passed the first turnoff. It led to a stone house and tower complete with crenellated battlements that must have been the gatehouse—or guardhouse. It looked highly efficient either way.

The woods cleared slightly as I took the turn at the second break and I got my first view of the property: tennis courts, a long greenhouse, a riding ring, stables with a long, low building attached that
may have been an indoor ring, and the vista of Long Island Sound from atop a thirty-foot cliff. Nice digs.

The money was not all Mrs. Haley’s—just most of it. A few minutes’ research that morning informed me that she was the sole surviving fourth-generation heir to the estate and remaining fortune of a coal mining tycoon by the name of Wilford Potts, who had assured his place in history by being the first to direct the use of a machine gun on striking workers. He fathered three daughters and lived long enough to see them all married, one to a Vanderbilt, one to an Italian count, and the third to a Pratt. His great-grand daughter, Selena Pratt, had met Philip Haley at Harvard Business School. He was already a bioengineer with several patents and a mid-eight-figure multimillionaire. By all accounts, it was a love marriage, though a cynic would have pointed out that Mr. Haley had simply found the most direct route to three hundred fifty million dollars in capital to expand his already successful business.

Their house, which I caught a brief glimpse of as I rounded the last turn of the driveway before pulling into the parking lot, was a magnificent example of the opulence and excess of Long Island’s historic Gold Coast. Built by Selena’s great-grandfather as the family’s summer retreat, it was half medieval castle, half neo-Georgian–mid-Victorian–Turkish revival, wrought in dark brownstone with granite highlights. An industrious real estate broker would have said it had character.

The laboratory, a five-minute walk from the house through a century-old forest of rhododendron, was housed in a modern brick and glass eyesore, which some kindhearted landscaper was trying to hide, or at least obscure, with a series of groves of birch trees. It almost worked. The vertical, somewhat slanted, white trunks diffused the appearance of the squat red walls, but the vast expanses of gray glass reflected only the winter sky. The place had the appeal of
a nearly vacant office park in some rust belt suburb. Beige drapes in every window hid whatever operations Haley was using to turn the energy industry on its ass.

A khaki uniform–clad man with a gun on his hip passed me driving an electric golf cart. He was wearing mirrored aviator sunglasses. On a cloudy day in December. If the look was meant to intimidate, it would have worked better with another vehicle. It’s tough to look badass on a golf cart.

Haley’s secretary, a tall, sleek brunette wearing black-rimmed glasses that failed to hide the ice in her eyes, was waiting for me in the bare lobby. She looked out of place; perhaps she ought to have been serving the world’s elite in some Park Avenue glass tower with teak paneling, thick carpeting, and recessed lighting. Instead, she was out here in the mad scientist’s laboratory, with bare concrete floors, asbestos drapes, and metal fireproof doors.

“This way” was the sum total of her greeting to me.

I am not a fan of ice people. I was one at one time—traders are rarely rewarded for being warm and huggable—but I had it all burned out of me in prison. The hot metal savagery of a tattooed, three-hundred-pound, muscle-bound berserker at large in the anything-goes confines of a prison yard can turn ice into a lukewarm liquid running down one’s leg in a flash.

“Look at the screen and try not to blink,” she said, pointing to a small monitor set in the wall.

A flash went off so quickly I could not have blinked if I’d tried.

“A retinal scan?” I asked.

She nodded. “You now have limited access. This way.”

I followed her up a narrow stairway, our footsteps clanging and echoing on the rust-stained metal treads. The second floor was a mostly open space surrounded by glass-walled offices. A long conference table, littered with old newspapers and used paper coffee
cups, ran down the center of the room. The carpet was worn and the walls had not been painted in much too long. It wasn’t the kind of environment to inspire fiscal confidence.

Philip Haley’s office was as utilitarian as the rest of the floor, with a long metal lab table for a desk and a minimum of chairs. It was a workspace, not a room for high-level meetings, or investor schmooze sessions.

“Phil will be with you in just a minute. He’s getting changed,” my guide said in a whisper, as though we were standing in a chapel. “Can I get you anything? Water? Coffee?”

She didn’t want to get me anything, I could tell. But then, I didn’t really want anything, either. “Thanks, I’m fine.”

Philip Haley walked into the room. The secretary looked like she wanted to genuflect. Haley was a remarkably handsome man in a very masculine way and he gave off the kind of charismatic glow that you see in some actors or politicians. He had large blue eyes, like that kid in
A Christmas Story
, and at some point he had spent a lot of money on dentistry.

“You’re Virgil’s man,” he said, extending a well-manicured hand. We shook. His grip was strong, but he didn’t push it. He wasn’t trying to prove a thing. “Thank you, Kirsten. Let them know downstairs we’ll have a visitor in . . .” He checked his watch—a no-nonsense Tag Heuer. “. . . fifteen minutes.” He turned back to me. “I’m late. I know. Forgive me. I will explain later, if there’s time.”

There was nothing of South Carolina low country in his voice. He must have worked hard at that at some point in his life.

“Actually, I had just arrived.”

“Good. Good.”

“Pretty Spartan surroundings,” I said once we had settled into two straight-backed chairs that practically screamed,
Don’t get comfortable!

“I spend money on security and research. Everything else is a
waste. If I have the product, and can keep the Chinese from stealing it, it will sell and we’ll make money.”

He wasn’t bragging. He was supremely confident, but without a hint of arrogance. I thought of mentioning the upkeep on the riding stables, but accepted that his wife’s lifestyle and his business standards might be viewed as entirely apart.

I thought he might respond to the most direct approach. He did not like to waste time any more than money. Neither did I.

“Virgil was afraid they might have charged you by now.”

“I will testify early next week. If it becomes necessary. I expect all of this to go away.”

“You think they’ll let you walk?”

He scowled. “I’m being set up.”

“You’re saying that you did not trade shares of your own firm based on nonpublic information using a secret offshore banking account.”

“Exactly.”

“And you expect me to take that on faith.”

“Take it any way you want. It’s the truth. My lawyer arranged a lie detector test and I passed. I am innocent.”

All it takes to pass a lie detector test is a total disregard for the truth or the consequences of one’s actions. Sociopaths passed them all the time and innocent people failed almost as often.

“Then let me hear you say it,” I said. “Say the words.”

He scowled again. “I had Kirsten look into your history. Why does Virgil have your confidence?”

“I fix things. I find things. If you violated securities laws, broke trust with your investors, and pocketed a few bucks in the process, there’s only so much I can do to help you. My advice? Cut a deal.”

“But I didn’t do it!”

“Even if that’s true, it might still be worth your while to cut a
deal. These people don’t believe in the concept of innocence. And fairy tales just piss them off.”

“This is what my lawyer has been saying all along. Is this Virgil’s response, too? I ask him for help and he sends you to deliver his message?”

“Nope. I’m a bit of a loose cannon. I speak for myself. And I’m still waiting for you to say the magic words.”

“I said I didn’t do it.”

“Repeat after me. I did not trade shares . . .”

“Why don’t I have you tossed out of here?”

“Because if you really didn’t do it, if you really are innocent, then I’m your guy. I’m good at what I do and I don’t quit. But if I think you’re too dumb to tell me the truth, I will be wasting my time, and I’d rather be taking my son to the playground.”

He took his time thinking it through. “Come on,” he said, standing up. “I’ll give you the backstage tour.”

I stood with him, but I made no move to follow. “I really do want to hear you say it.”

He cleared his throat, looked me in the eye, and said, “I did not trade shares of this company—or any other—based on privileged, nonpublic information. I do not have a secret offshore bank account.”

I believed him. “Well, all right, then. From here on, I’ve got your back. Let’s see your operation.”

There was another scanner inside the elevator. Haley went first.

“Just look into the viewer and try not to blink. The doors won’t open until we’ve both been scanned.”

I looked in and blinked. I blinked a few times. The doors opened anyway. I thought they would.

There was a brief hiss of moving air and I felt my eardrums pop.

“We keep a slight negative pressure in the immediate environs
outside the lab,” Haley said. “Sorry. I should have mentioned it. Some people find it painful.”

“Negative pressure? Won’t that help your experiments escape to the outside world where they will destroy all life as we know it?”

He smiled indulgently, but without humor. “Our algae are rather fragile. They were all designed in a lab environment. Contaminants could easily undo months of research.” He punched buttons on a security pad in the door and it slid back with a
whoosh
. We stepped into the lab.

Not quite
into
the lab. We were in a glass-enclosed corridor that ran down the center of the building. On either side of us, figures in white protective suits briefly looked up from their work, then ignored us. Green slime had them all enthralled. There were vats of it and small dishes of it. Green was the only color in the room, otherwise everything was white.

“Is this what they mean by green technology?” I asked.

“Very funny,” he said, though it was obvious he didn’t think so at all. “What do you know about Arinna? Our work?”

“I did do some homework,” I said, which was true as far as it went. “You grow algae and turn it into biofuel. How am I doing?”

“I came to algae late. There are people in Europe and out west who were working on it long before I got involved. But most of my competitors come from chemical engineering backgrounds. They see energy produced from algae as an alternative to solar panels. The problems they see are ones of increasing efficiency through better use of structural materials.”

“I’m a math guy. I never took an engineering course in my life.”

“Not important. Engineering is important, but it’s not the answer. It’s limited. Eventually, inertia wins. Let me ask you this. What do these three things have in common? A simple battery, a can of gasoline, and a lump of coal.”

“It’s easier to talk about what makes them all different,” I said.

“Yes, yes. But the point is that they are all ways of storing energy. When you need some energy, you can plug in your battery to run an electric motor, or burn some coal to boil water for a steam engine, or explode some gasoline in the engine of your car. All energy systems are similar in that energy needs to be both stored and released again when needed. And every system is limited by its own parameters. Efficiency, as we view it in the twenty-first century, must also address refuse, be it dross, residue, or effluvia.”