Doug Randolph lived at the end of a quiet lane in Sands Point out on Long Island. I rented a car for the day, even though I hated driving on the expressway. I would rather drive cross-country nonstop than spend an hour getting through Queens.
Sands Point was a small community with two-acre zoning and narrow winding roads with tons of trees. It was not the most expensive place to live on Long Island. That was about two miles away. You could still get a starter home for under a million and a nice house with a view of Long Island Sound for under two. Or you could spend four or five times that. Most of the teenagers drove Beemers or Audis, except for the poorer kids, who got by with Lexuses. They all played lacrosse.
I passed through a break in the wall of twelve-foot-tall boxwood and pulled up the white gravel driveway. Randolph’s house was a yellow stucco, with red-tile roof. Sort of an ersatz Mission. Very California. Modest by Sands Point standards.
His wife let me in and walked me through the living room. It was not just clean, it was spotless. Immaculate.
“Your house is beautiful, Mrs. Randolph.”
She was a small woman, short and impossibly thin. Once upon a time she might have been described as elfin and cute, but age and stress had cut deep lines around her eyes and mouth. She was struggling, as though she didn’t know whether to thank me or burst into tears. “Thank you. We have an open house scheduled for this weekend.”
The dining room and kitchen were so clean it looked like a boatload of Navy midshipmen had been through polishing the brightwork. It felt like no one lived there.
Doug was working on a laptop under an umbrella out on the rear patio. Books and a few legal pads were strewn across the top of the latticed-metal table. Steps led down to about an acre of perfect grass with a marble fountain right where a grade-school kickball team would have put second base. The grass ended at a rocky beach and the water. The view was to the north and west. The sunsets over Manhattan off in the distance must have been spectacular.
He shut down the program he had open—something like the Bloomberg trading platform, with graphs and flashing colors—and stood up to greet me.
“Jason, long time.”
“How you doing, Doug?”
“I just got back from seeing my therapist. Does that answer the question?”
I nodded in commiseration. “Believe me, I understand.”
I could see I offended him. I had been guilty of creating my own mess. He had just been swept up in someone else’s. I held up a hand. “I just mean I understand the stress of what you’re going through. I’ve been there.”
He gave a tight smile. “Pull up a chair.”
“Can I get you boys something?” his wife asked.
There was a brittle tension in the air between them—or around them—as though a raised voice or an unkind word would shatter their world like a glass figurine hitting a marble floor.
“I’m good,” I said, shaking my head.
“No,” Doug said. “I have a wine cellar downstairs. I’m no collector, I just bought what I liked, so it’s not worth much to the auction houses. And I can only fit so much of it in the apartment we’re moving into. So . . . ?” It was what the moment needed. It was a magnanimous gesture, wiping the slate between us clean, and announcing that despite all his troubles, he could still treat a guest to a nice glass of wine. It would have been rude to refuse.
“Red or white?” I answered.
“Merlot all right? Hon?” He continued without waiting for my response. “Bring us a bottle of the Duckhorn, would you? And three glasses.”
She gave a more relaxed smile and left.
We made ourselves comfortable and gazed out at the Sound.
“How long has it been?” I asked.
“I left Case five years ago.”
“Long before I blew up.”
He nodded.
I gestured to the laptop. “And now you’re day-trading?”
He nodded again.
“And how’s that going?”
He smiled sheepishly. “I was never a trader. I can’t seem to figure out when to take a loss and move on.”
“It’s the hardest thing to learn. Cut your losses and let your profits run.”
He gave a self-deprecating laugh. “That’s what all the books say.”
“But you were a great salesman, Doug.”
He shrugged. “They’ll never let me back. The minimum I can expect is to be permanently barred. I will be very lucky to avoid a felony record.”
“But can’t a good salesman sell anything?”
“That’s what we say when we’re selling you something.”
I laughed politely. He was making an effort to open up.
“So, how’s Paddy?” he asked. “How does he look? I haven’t seen him in two or three years.”
“How does he look? Just the same. One of a kind.”
“He’s been feeling the heat on this mess, too.”
“Can we talk about that? Working with Von Becker, I mean.”
He developed an immediate tic below his right eye. He took a few seconds looking for something in my face. He must have found it.
“Sure. But we’ll drink a little wine first.”
I was going to have to get used to drinking during the day or find another way to make a buck.
The wife—“Mo,” for Maureen, when we were finally introduced—arrived with the wine. Doug opened it. I asked her about their children.
“Two boys, if I remember,” I said. There had always been a picture on Doug’s desk.
“Bill just finished his sophomore year at Harvard. He’s teaching sailing at Sewanhaka again this summer. Buddy starts Tulane in the fall.”
That sounded like a hundred thousand dollars a year for the next two years and another fifty for each of the following two. Before grad school.
Doug saw me doing the math in my head. “Tulane was very generous. Buddy’s in the honors program. As long as he lives in a dorm and maintains a three-five he only pays five thousand a year.”
Which still left Harvard and fifty grand or so a year.
“Do you and your wife have children, Mr. Stafford?” Mo asked.
“Jason, please. Mr. Stafford is a really nice man who runs a bar over in College Point and takes care of my son every other Sunday.”
She smiled. “Just the one son? How old?”
“The Kid just turned six. He’s a handful. And there is no Mrs. Stafford at this point in my life.”
The wine was very good. Mo stayed and helped to keep the conversation going until the bottle was more than half empty.
“I have some things I just have to take care of inside, Jason. Please excuse me.” She made to pour the remaining wine into our glasses. I covered mine. She smiled and poured the balance into her husband’s glass. “You two finish this up. It’s much too good to go to waste.”
There was another long silence after she left.
“Nice wine,” I said.
He nodded.
“Nice view.” I gestured with my glass. The lighthouse at Execution Rocks. City Island and Hart Island. The two bridges. The slanting roof of the Citicorp building sparkling with reflected sunlight. The only jarring note in the whole expanse, the ugly phallic monstrosity of the Trump building in New Rochelle.
Randolph was staring into his glass, building up steam for an eruption.
“Enough!” he said. He took a couple of deep breaths and spoke again. “I’m fifty-two fucking years old. I’m bankrupt and I don’t want to go to jail. A year ago I was worth fifty million—on paper, but still. Fifty million. My old man gets by on a school superintendent’s pension out in Johnson City, Pennsylvania, and he sleeps like a baby every night. I get two or three hours a night and wake up sweating, asking myself, How the hell did I get here?”
His hands were shaking, his eyes suddenly red and wet.
“I’m sorry. I’m dragging up a bunch of bad shit. You don’t have to talk about this.”
I suddenly found I wasn’t capable of pushing him. If he wanted to talk, fine. But if he didn’t . . .
But he did. He had to talk about it.
“Thirty years in the business and I never saw it coming.”
There wasn’t anything to say.
He took another sip of the Duckhorn and slurped it around in his mouth. “Yup. Good juice.” He pulled himself together and sat straighter. “Okay. What do you want to hear about?”
“Anyone who knew you back at Case would have a hard time believing you did anything wrong.”
“Yeah, well, thanks. I haven’t heard from too many supporters. But that’s where it started, actually. Back at Case. There was a guy I was friendly with in the mortgage research group. Eric Purliss?”
I shook my head. I hadn’t known him.
“Good guy. He lives in Port Washington. We rode the train together. Got together with the families sometimes. Well, he and another guy there, David Hu, had a sideline business going, buying and selling buildings in Brooklyn and Queens. I never paid much attention because I never thought you could make any real money that way. I was making a good bit more than they were, so it looked like a lot of effort for not much return. Eventually, though, the two of them left the firm to work on that stuff full-time.”
“Those were good years for commercial real estate.”
A flock of small sailboats appeared in front of City Island, the boats too small to be seen with the naked eye, each one seeming to arise from off the water as the sails were raised. They fluttered into a tight group and began a swirling dance between two large orange markers.
We both sat watching the zigzagging jumble of boats suddenly break into a wedge of speeding sails, knifing through the light chop. The race had started.
“I was up in Newport last week. I saw some of the boats doing drills.” A gross exaggeration, but it made Randolph more comfortable.
“Really?” he said. “My brother is doing the race again this year. He crews on a J-boat out of Stonington.”
I nodded as though I was envious of someone crossing half the Atlantic Ocean on a bucking, heaving platform the size of a studio apartment, braving storms, wet clothes, lack of sleep, and bad food for four days.
“Where was I?” Randolph frowned as though undecided whether he really wanted to continue or not. He took a long swallow of the wine. He was long past the sipping stage. “Yes, Eric and David Hu. You’re right, those were good times. Lots of low-hanging fruit. But those guys were both lucky and smart. Two years later, they were back. They had a partner and a business proposal. They’d opened a small office in the next village over—Plandome. They were buying up notes on private mortgages—at a nice discount—and were looking for investors so they could expand.”
“Do I need to know what that means?”
He held up a single finger, asking for patience. “I listened to the pitch and asked them how much they wanted to raise. They said they weren’t really sure, but maybe as much as ten mil. When I heard what they had going, I laughed. I wanted in. How about a hundred mil? I asked.”
“Some pitch.”
“Tell me about it. There’s a whole field of private lending that goes on in the commercial real estate market that never makes headlines. Here’s an example. Let’s say you run a car wash in Staten Island and you want out. You’re ready to retire. You figure the place is worth a million or so.”
“For a car wash?” I turned to face him.
“Car washes are good businesses. When’s the last time you saw one with a ‘Going Out of Business’ sign out front?”
“I’m from Manhattan. I don’t think I’ve been to a car wash more than two or three times in my life.”
“In Staten Island, people go every week. At twenty bucks a pop. And they wait in line for it.”
“Gotcha.”
“But it’s hard to find a small-businessman with a million dollars in cash. If he’s successful, his cash is already working for him. And it’s almost impossible to get bank financing on a cash business with potential environmental issues.”
“I can see that.”
“So the seller agrees to take a chunk of money up front and the rest over time. A note. A private commercial mortgage. The buyer pays it off over five or ten years, usually with some kind of balloon payment at the end.”
“Isn’t that risky? Suppose he doesn’t pay?”
“It’s a mortgage. There’s real property involved. Worst case, you foreclose. But with a big down payment up front, you’re in a good position.”
“I can see that.” I could also see the potential problem. “But meanwhile, I’m down in Orlando with the wife, sitting by the condo pool, worrying about my cholesterol. I don’t want to be chasing after some idiot back in New York who’s getting divorced, or discovered horse racing, or snorting cocaine.”
“Exactly. So you’re going to be very happy to talk to our representative when he calls and offers to buy out your note. Ohhh!” He pointed out at the water. Three of the sailboats were in a tangle as they made the turn around one of the orange markers. “That’s a two-turn penalty.”
It looked like boat goulash to me. I thought about the business model. There were plenty of pitfalls in running something like that, but none that couldn’t be fixed with good underwriting and frequent monitoring.
“I would guess that you offer to buy the notes at a discount. Right? Isn’t that where the real money would be?”
He smiled. “Sure. But you’re down in Orlando, sweating in the humidity and dreaming of a nice three-bedroom on the ocean, where the grandkids would come and stay more often, and here I am offering you a big lump sum of cash right now. All our clients were businessmen, remember? They knew what they were getting and they knew what they were giving and nobody was making them sign. You can’t hard-sell a guy who ran his own business for thirty or forty years.”
“You’re making it sound like a public service.”
“Oh, it was a business, all right. Those three guys were making returns of fifteen to twenty percent. Their average foreclosure rate was under five percent. I waited until bonus time, cashed out, and became their fourth partner. My commute shrank to less than ten minutes. Over the next two years, I brought in almost a billion dollars of investor money. The other three partners focused on the underwriting and pricing side of the business. I focused on growth. We expanded into markets all along the East Coast. We ran ads on local cable. We bought billboard space in Florida and South Carolina. Big ads with my face under block letters announcing PLANDOME CAPITAL—WE BUY NOTES.”
“You were famous.”
“Getting there. Which became a problem in itself. We couldn’t find deals fast enough to satisfy the hedge funds and other investors. All our investors were either large institutions or hedge funds. The four of us were the only private investors. We didn’t want the regulatory headaches of dealing with the mom-and-pops. No widows. No orphans. We raised the minimum investment from ten mil to fifty. We capped it at one hundred mil for any given client. It didn’t matter. Money was still coming in like Niagara Falls.
“We talked about relaxing underwriting standards, taking a little more risk—and rejected the idea. Our worst nightmare was to wake up someday and find the foreclosure rate soaring and we were suddenly in the business of running a car wash in Staten Island or a dry cleaner in Philly. Or both.”
He drained his glass. “I don’t suppose you want to open another.”
“I have to drive back to the city later, but you go ahead.”
He thought about it. “The days get really long sometimes.”
I understood that. “The nights are worse.”
“I’m getting a glass of water. You want one?” He stood and headed for the patio doors.
“Sure.”
The day was starting to heat up. I leaned forward and pulled my shirt away from my back. There appeared to be plenty of wind out on the water—the sailboats were all still moving quickly—but the Randolphs’ yard was protected. Leaves in the tops of trees rustled. I could have used a bit of that breeze.
Randolph returned with the water.
“So, finish your story.” I said. “I have yet to even hear Von Becker’s name here.”
He nodded and sat back down.
“We’re getting there. The partners all agreed to just sit on our hands and keep milking it. We were each taking a million a year in salary and letting the retained earnings just build up at double-digit rates. We were having fun and getting rich. We closed the fund. No new money. We had invented the golden goose.”
But, of course, someone always kills the golden goose.
“The first approach from Von Becker came from a financial advisor in their private banking group. He heard about us and had a client who wanted to invest. I told him the fund was closed, but thanks for the interest and so on. I forgot about him ten seconds after I hung up the phone. A week later, Von Becker himself calls. He wants to buy the firm.”
A tugboat came around the point, towing a big barge, the cable invisible at this distance. It looked like a runaway barge chasing a tugboat. The sailboats veered away like a covey of quail running for cover.
“He saw all that cash.”
“The sonofabitch worked us over nicely. It started with cases of wine, Cuban cigars, little presents. Then he turned it up a notch. Eric liked to shoot skeet. Von Becker bought him a shotgun. A Perazzi?”
I shrugged. It sounded like an expensive stereo system.
“It’s Dick Cheney’s gun. Retails for around twenty-five grand.”
“It doesn’t seem to have done Cheney much good.”
“But it wasn’t all just flowers and chocolates. Von Becker had ideas as well. He wanted us to go national. Instead of just the East Coast, he wanted offices in Atlanta, Memphis, Chicago, Dallas, and Los Angeles. He wanted us to do an infomercial and set up a website where note holders could get a quote in five minutes or less. He wanted the fund reopened. He said we could go from one billion to ten in two years.”
“He must have been slavering over the possibility of that much new cash.”
“When the offer came, it was way over the top. One hundred and fifty million. We would each get ten mil up front, the rest in a single balloon payment at the end of five years. During the five years, we would stay in our current positions and each take two million a year in salary. Even without performance bonuses, I figured it was twice what any reasonable party might pay. I thought it was a no-brainer.”
“But not everybody agreed?”
“Three of us voted to take it. Eric said no. We tried to work it out. Instead we ended up in a screaming match. Everybody got a lawyer. Eventually we bought him out. Then I had to go back to Von Becker and convince him to stick with the deal without one of our top underwriters.”
I was beginning to see where this train wreck was headed.
“Von Becker said no problem, but he had to cut back on the up-front-cash part of the deal, am I right?”
Doug let out a long breath. “Right. From forty mil up front down to thirty. How the hell I didn’t catch on right then.”
“So he ended up buying a seventy-five-million-dollar company for thirty mil down and a promise. And in the meantime got control of a massive stream of new money coming in.”
He nodded. “And the three of us used all of our savings plus the up-front money to buy out Eric, who still isn’t speaking to me. Buddy, our younger boy, is his godson, by the way.”
“How long did the honeymoon last?”
“About six months. Then there were delays opening up in the other markets. Then Von Becker wanted us to lower underwriting standards. Take on riskier loans. Speed up the foreclosure process. No more workouts with slow payers. Every goddamn day there was another e-mail with some directive that had all of us foaming at the mouth. Gunther, the other partner—Gunther Pratt—started getting stress migraines. David and I were drinking a good bit more than usual. And the tap was still on. I had one month where three hundred million came in. We had nowhere to put it.”
“And Von Becker offered to park it for you.”
“Right. One of his funds. He offered us a decent rate of return, so our earnings still looked good to investors. The plan was to keep buying loans and take it back out of the Von Becker account as needed. Only, money was still coming in faster than we could find new deals.”
“Did investors know what was happening? That their money was actually sitting in Von Becker’s account?”
“They knew. Some questioned it. If they didn’t like it, I offered them their money back.”
“Did they take you up on it?”
“Not one. But when Von Becker heard about what I’d done he threw a fit. Reamed me out. That’s when I started to think we had a problem.”
“But no proof.”
“I kept telling myself he must be clean, otherwise the regulators would be all over him. He had auditors. The SEC had been over his books. I assumed that those guys were actually doing their jobs. I can’t believe how stupid that makes me sound right now.”
“So it comes down to who knew what when.”
“Well, that’s what the lawsuits are all about. Every penny we took in—I took in—is in limbo. When Von Becker got caught, it all fell apart. On paper, it looked like I was fronting for him—bringing in money and immediately moving it into his scam. The Feds took me out in handcuffs. They still don’t know whether they’re going to charge me or not. Every client I ever worked with sued me personally. All my money was tied up in Von Becker funds and I may never get a cent back. David and Gunther are still in the office every day, working to unwind all the notes. They brought Eric back to help out. They’re still collecting salary at least, but Eric is the only one with any real money, though he’s under investigation, too. Meanwhile, the bankruptcy trustee is on their backs every day to sell off the loans and raise cash. Goddamn bloodsuckers at Goldman offered them twenty cents on the dollar for the whole portfolio. Eric told them to stick it.”
“What will the final damage be? Any idea?”
He pursed his lips and squinted one eye. “About a third of our cash was tied up in Von Becker funds. Our investors will lose seventy to eighty percent of that. That’s a guess, but probably a good one. My partners will hang tough. They know they’ve got good paper. I would think they eventually unload it all at cost or close to it.”
“So your investors may end up down twenty-five percent or so. That’s bad, but not a disaster. I mean, you could lose that in a blue-chip stock fund.”
“It depends on how our case turns out. If we’re found guilty of conspiracy with Von Becker, all the money goes into the same pool and gets divided up according to whatever the trustee thinks is fair. In which case, our people lose three-quarters of whatever they put up. Or more.”
“Do you think they’ve found all the money?”
He took a moment to think about it. “Everybody who worked with Von Becker is under investigation—except for those who have already cut a deal. And the only way to cut a deal is to tell the Feds everything. It would be hard to keep something hidden. If you don’t give up all you know, you run the risk that the next guy rats you out to make his deal sweeter.”
“Do I hear a ‘however’?”
He grinned. “You do. Von Becker had more moves than Kobe Bryant. There could be millions—tens of millions—out there somewhere. Maybe more.”
“Who would know?”
“Paddy told me you were working this angle. I’ll tell you what I told him. I don’t really know. In many ways we were very much on the outside of Von Becker’s operation. The family might know, but that doesn’t help you.”
“All that money moving around, and you have no clue where it ended up?”
“None.”
“If it would help your memory, I’m sure I can negotiate a finder’s fee. It could solve a lot of your problems.”
He was insulted. I could see it flash across his face—but the cold reality of his depression came right back. “My wife is one martini away from a nervous breakdown. I’ve lost every penny I ever made and still might have to spend some time behind bars. If I had any information that could turn our lives around, don’t you think I would have already given it up?”
I believed him. He was “the Boy Scout.”
“Sorry,” I said. “I should go.”
He didn’t disagree.
The wine was long gone, and I had gotten as much as I was going to get.
I backed the car out of the drive and pulled up to the stop sign at the head of the lane. The sign sat in a little island where the road split, surrounded by wildflowers of some kind. Lying in the midst of the flowers was an empty bottle, as though someone had tossed it from a car. Joyriding teenagers, most likely, I thought. Only, I was in Sands Point. The empty was a fifth of Rémy Martin.
• • •
EVERETT ANSWERED VIRGIL’S private line—not a surprise. Everett was doing what he did best—embedding himself in the power structure camouflaged with sycophancy, and mopping up as much of the trickle-down cash as possible.
“It’s Jason. I’m in a car. I don’t want to go into too much depth on an open line, but I thought it was time to check in.”
“Excellent. Virgil asked me just half an hour ago if I had heard from you.”
“I’ve got an expert working on the cash transfers. He’s very good. I’ve worked with him before. If there’s anything there to find, he’s the one to dig it out.”
“Padding the bill already?” he said and snickered.
My gut response was to sink to his level and tell him to “shut the hell up and just do your job, asshole,” but I managed to hold back.
“I’m paying him, Everett. Not the family. Not the firm. Me.”
“Certainly. Understood. Only making a small joke.” Everett could retreat better than anyone.
“Thursday and Friday, I made calls. Monday and today, I’m out interviewing people. I had personal business to take care of yesterday, so Virgil owes me for four days so far. I’ll e-mail him a bill when I get home.”
“Any news for me to report?”
“Early days. But from what I see, I would be surprised not to find a stash somewhere. Can I run some names by you?”
“Clients?”
“Just tell me whatever you know. Paddy Gallagher.”
“He was in the office from time to time. I didn’t trust him.”
“Oh? Why not?”
“Just a feeling. And that gold ascot.”
“Next. Douglas Randolph.”
“What did he tell you?”
“Sounds like he and his partners got royally screwed.”
“I would bet he knows something. He was their rainmaker.”
“Hmm. One more. Rose-Marie Welk. I’m going to see her tomorrow.”
“She and the other one. Tucker? The two clerks. They sat at his feet.”
“Thanks, Everett. You’ve been a great help.”
“I have? Well, good.”
There is a level of self-adoration that is immune to sarcasm. Everett was there.