In January of 2005, Sam received an invitation to the inauguration of George W. Bush. The invite was a token of the political IOUs Sam had accumulated by donating hundreds of thousands of dollars to Bush. Sam wasn’t particularly political. He considered the contributions to Bush to be a form of life insurance. The president was the only person in the country with the power to commute federal prison sentences. Sam wanted to know he could reach Bush through his cousin John Ellis if the day came when he needed a favor.
Sam didn’t bother to attend the inauguration or the balls he was also invited to. It was freezing in Washington and his back was killing him. Besides, there was the weight of the depressing news about Bayou. The Problem was more than $150 million, if the fake performance for the previous year was included.
Bob Nichols remained in London trying to get Barry McNeil’s trade completed. Then came word that 22 million euros had been transferred out of Bayou’s account at ODL. There was no explanation for the bizarre transaction. Who had made the withdrawal? Nichols? McNeil? ODL said it was an administrative error. Because it was noticed quickly, ODL had been able to get the money back to Bayou’s account within two days. But it was another bad sign: The sharks of London were gnawing on Bayou’s money, only to be gaffed away at the last moment. It seemed that it was just a matter of time before someone succeeded in stealing all of it.
The failure of the Soc-Gen trade had been a severe blow to Sam’s morale. Calling from London, Barry McNeil offered a variety of reasons for the ongoing failure to find the “paper.” There was no paper being issued because it was too early in the year. Trading occurred only intermittently. Sam had to be patient. But Sam didn’t want to hear excuses. He wanted action. Bob Nichols had remained in London to ensure that the trades were done. But there was no movement, no sign of progress—at least not that Sam was told about.
Bayou appeared doomed, but it emerged that the fund still possessed some measure of luck—even if it was dumb luck. When Sam’s trading partner Jimmy Marquez had left Bayou years earlier, the fund had purchased 1 million shares in a clean coal company called KFX. For years, Marquez’s final trade had appeared to be just another woebegone reminder of his failure. Then fortune smiled on Israel and Marino.
“We were at the bottom of the barrel cashwise,” Dan Marino said. “We didn’t have enough money to operate the business and handle the withdrawals. There was the money in London, but Sam insisted that he needed it to make the trade in the secret market. Pretty much the only liquid asset we had was the KFX position. Sam used to ridicule the position because it was Marquez’s trade. But at the beginning of 2005 the stock went way, way up. We sold it all. That day we made fifteen million. It was the largest amount of money Bayou ever made on a trade.”
The windfall didn’t give Sam hope. It bought some time—maybe six months. But he needed to make ten times that amount to save Bayou—and himself.
“I knew I didn’t have much time left,” Sam said. “If I wired the money back to New York and gave up, I figured I could probably stay in business for another year or two just by cheating. But I was getting tired of people fucking with me. I was really on edge. I was never sleeping. I was threatening people. Brutally. I was screaming at everybody. No one was helping. No one was performing.”
EVENTS IN EUROPE were taking yet another unlikely turn. Alone together in the bars and casinos of London, Bob Nichols and Barry McNeil began to develop their own relationship. Passing the evenings in his usual haunts, Nichols drank heavily and regaled the South African with tales of his career as a covert operator. Along the way, Nichols told McNeil about Yamashita’s gold and the cache of Federal Reserve bonds hidden in caves in the Philippines.* It was the tallest of his tales, normally met with skepticism if not outright disbelief. But McNeil had an astonishing reply. He told Nichols that he knew all about the hidden caves where the Japanese army had stashed the looted riches of China at the end of the Second World War. More than that: McNeil had been inside the caves. He’d seen Yamashita’s gold with his own eyes! This was incredible news. Some of the fiercest Special Forces soldiers ever had gone to the island of Mindanao to hunt for the gold. All to no avail. And yet the pudgy and unprepossessing McNeil had ventured into the mountains and found the treasure? He’d staged an assault on the fortified redoubt deep in terrorist-protected jungle? The thought beggared belief. The deed was the ultimate measure of derring-do—the kind of thing Bob Nichols did, or claimed to do.
But wait: There was even more. McNeil told Nichols not only that he had confirmed the existence of the treasure with his own eyes but that he was now raising money to launch a mission to reclaim the fabled Fed bonds. McNeil and his team of mercenaries were going to return to the Philippines. This time McNeil was going to stage a raid. He was going to transport the gold bars by charter plane to Lugano, Switzerland. He had an interest in a gold-refining facility there where the ingots could be recast and sold for billions. Nichols knew Lugano well. The small mountain city had more banks per capita than any other place on earth; it was a venue of choice for money launderers and tax evaders. McNeil told Nichols that he could invest in the venture—but only if he acted quickly.
“Barry told me he’d been in the caves as well,” ODL’s Tim Conlan recalled. “He was a conspiracy theorist. Barry believed that thirteen families ran the world. That was the reason the bonds were structured the way they were. He said there really were Federal Reserve bonds hidden in the Philippines. He was going to get them.”
McNeil seemed to have conjured a level of surreality that outdid string theory. Nichols had used the tale of Yamashita’s gold to scam $10 million from Sam. Now McNeil was going to use the exact same yarn on Nichols? What if Nichols actually believed in Yamashita’s gold? What if he believed the tale of the Rape of Nanking and the network of caves filled with Chinese treasure? What if Nichols was a fraud who was convinced that he’d stumbled onto the real thing? Then there was this possibility: What if the legend was true? What if Yamashita’s gold really did exist? What if there was treasure stored in caves in the jungles of Mindanao?
Nichols put $1 million into the venture. He didn’t tell Sam of his investment. The delays were straining relations between Israel and Nichols in any event. But the fact that Nichols put a million dollars into Yamashita’s gold appeared to be confirmation of what Sam had believed all along. Whatever the truth about Nichols was—whether he was a con man, hit man, madman, or all of those things—he evidently believed in the Federal Reserve boxes.
McNeil wasn’t done with his string of incredible news. He called Sam from London and said he’d found paper to trade—once again, at long last. This time it was a zero bond issued by the French banks Paribas and BNP. The trade was going to be done through ODL. In a zero bond, repayment comes in one lump sum at the end of the term, so it is a structure normally used for extremely safe investments like U.S. Treasury bills and savings bonds. It is also perfect for fraud: Because there are no payments for years, if a fake zero bond was issued it takes a long time for victims to know they’ve been had.
Sam flew to London, once again bringing Debra Ryan as his companion. Nichols had warned Sam that the city was teeming with operatives out to thwart them once again. When they arrived, it was immediately obvious to Ryan that Sam was still brainwashed by Nichols and his paranoid worldview.
London was damp, overcast. Ryan went shopping for a winter coat for Israel. The sales clerk at Harrods looked exactly like Sam: husky, balding, pasty-faced. Ryan told the clerk that he resembled her boyfriend and they shared a laugh. He tried on coats for her. When she returned to the hotel and told Sam about the clerk, he was furious. Sam said that someone had come to reception pretending to be her and trying to get into the room. Was the clerk a doppelgänger deployed by one of the rival factions? Sam told Debra that the sales clerk at Harrods could be “part of it.”
“I asked Sam, ‘Part of what?’ ” Ryan recalled. “What was ‘it’? It gave me a headache just thinking about it. Was he in harm’s way? Was I in harm’s way? I didn’t want to be in the middle of it—whatever it was.”
On Saturday night the participants in the Paribas/BNP deal met at London’s Ritz casino for dinner. Entering the grand room, Ryan was amazed by the casino’s opulence. She was wearing a new designer dress Sam had picked out for her—a metallic silver skirt with matching blouse. Sam was wearing a suit and tie, as were all the other men—Bob Nichols, Barry McNeil, and Graham Wellesley from ODL.
“Ellen tried to sit next to Sam, but I insisted on sitting beside him,” Ryan recalled. “She was still trying to put a wedge between Sam and me. I didn’t know the others. I was trying to figure the people out—who was manipulative, who had the money, who was in control. Across from me was Katherine Carnegie. Sam was having a great time. He talked about putting on a benefit concert in China. He was going to get the Allman Brothers and their rock star friends to play. I’m not a big drinker so I was bored. The room was gorgeous—rich jewel tones, gold leafing, dark wood. Looking around, I realized that some of the wood in the casino was faux finished. It was painted so perfectly and magnificently. The mahogany wasn’t real but it looked amazing. I was blown away. It was fake—but really expensive fake.”
“It was a fantastically extravagant dinner,” Graham Wellesley recalled. “There was champagne, caviar, like in a James Bond movie. Sam was sucking back lobster. Drinks were free. That was how the casino operated. They only gave you that kind of treatment if you were a big loser, or they were trying to get you to gamble there. Normally, a professional hedge fund manager would be a highly quantitative, serious man. The last way he would portray himself would be as a whale in a casino, with lots of booze and money flying around. A serious hedge fund trader would never go to a place where they get comped. The global hedge fund business is very small and very gossipy.
“Sam was the impresario. He dominated the conversation. That irked me a little. But he had $120 million in an account at ODL. There was no denying that. But even that was strange. The money had been sitting dormant for more than a month. It was in a money market account, which was basically like a checking account. Usually with that amount of money you try to make it work all the time. Sam didn’t seem to care. I said to them all that I didn’t believe the bonds really existed. They told stories about how they would generate funds for the CIA. They said the CIA used the drug trade to finance its operations. I listened in disbelief. I kept asking them to show me a real deal—to describe even one transaction that had actually occurred.
“They couldn’t give me a straight answer. They talked about trying to source bonds. It was about the Mai Wah family or the Philippines or some similar nonsense. There were all these schemes. I told them all that I was going to check out every aspect of any instrument they wanted me to buy. Because if I buy something for a client of ODL and it was wrong, I could be liable.”
THE BILL FOR DINNER was $8,000. Sam insisted on picking up the tab. The next day, Wellesley decided that passively watching McNeil operate wasn’t enough. The viscount needed to take positive steps to be sure ODL’s clients weren’t ripped off. When McNeil brought a potential investor to ODL, Wellesley now went to the conference room to warn them. He sat down with the prospects and explained in detail the perils of believing the conspiracy theories involved in the so-called shadow market. Wellesley told them that he’d never, not once, seen such a trade actually happen. He explained that McNeil wasn’t employed by ODL. He didn’t directly say that McNeil was a fraud. He had no actual proof, only strong suspicions. But the stern warning given by the senior figure at ODL had the expected impact. Even the most gullible or reckless couldn’t ignore the viscount.
“Why are you scaring off clients?” Conlan complained.
“I’m just telling them that they should have written reassurances,” Wellesley said. “They can’t rely on what you say. They need it in writing.”
Conlan’s shoulders slumped. There was nothing to say: Wellesley was the boss. “Okay,” Conlan said, sighing.
When he was told about Wellesley’s warnings, McNeil was enraged. How dare Wellesley sabotage the trading when they were so close to the end? McNeil had spent months building the business. Between Israel and the other investors, McNeil had $160 million on deposit in ODL. But it was useless: Wellesley was adamant. Clearly no new money would be put into the shadow market. The flow of clients turned to a trickle and then stopped altogether. The jig was up. McNeil ceased coming to ODL.
Sam had no idea what was happening inside ODL. Wellesley had not shared his suspicions with him. Sam had been swept up by a more immediate concern—one that could crush Bayou. He discovered that financial disclosure documents sent to investors had contained accounting mistakes. The documents were entirely fraudulent, of course. But even in inventing numbers Dan Marino had made an error. It was an idiotic situation, but that was true of so many things related to the Problem. Bayou’s largest investor was Sterling Stamos, a prominent and powerful fund that ran money for the Wilpon family, owner of the New York Mets. Sterling Stamos had initially invested in Bayou to draw down its exposure to Bernard Madoff’s hedge fund. The change in strategy had proved effective: Bayou had matched Madoff’s performance, a truly incredible feat that could be explained only by the fact that both were frauds. But CEO Peter Stamos was now worried about Marino and Bayou’s back office operations. With $40 million invested in Bayou, Stamos was one investor Sam couldn’t blow off. If they redeemed, the fund would be in danger of collapsing. Sam flew back to New York to try to talk to Stamos.
“Sam told me that it was just a regular annual meeting with the manager of the fund,” Marino said. “He didn’t want me there. He didn’t say why. But I had the sense something was going on. Something felt wrong. So on the day of the meeting I drove to the city myself, without telling Sam, and I met him outside the building and told him that I was going to invite myself in. Sam stopped me from going with threats. He said that if I came in the whole relationship would be blown and I’d be the cause of Bayou’s failure. He made me feel very bad about coming to the city.”
Israel met with Stamos and his top staff. Sam said that he was about to raise $2 billion from European sources. He didn’t specify who’d given the commitment, just that it was “European” money. Stamos wanted to know if Sam could scale up his strategy with that much more capital.
“I can do it,” Sam said. “All the stocks I trade are very large, very liquid names. There’s a tremendous amount of liquidity in the things I trade. I can get in and out of any position within a minute or two.”
Stamos said he was concerned about Dan Marino and the operations of Bayou, especially given the sudden growth. It was clear that Marino had to be dumped if there was any chance of keeping their money in Bayou. This was a fork in the road for Sam. In truth, he would be more than happy to get rid of Marino. In Sam’s view, the overweight and overbearing accountant had become a kind of monster. But Israel couldn’t fire Marino—not without winding up in prison.
“I told them that I needed to be able to run the business the way I saw fit,” Sam said. “I didn’t say outright that I’d get rid of Dan. I told them I would take it under advisement.”
Marino was pacing outside, desperate to know what had happened. Sam lied and told Marino that his name hadn’t come up at the meeting. “Sam told me that they’d only talked about what to expect for the coming year,” Marino said. “But I could hear the inconsistencies in what he was saying. I knew there was something wrong, but there was nothing I could do about it. It was starting to feel like it was too late to do anything.”
Within days, Sterling Stamos sent a letter stating they were redeeming more than $40 million. Bayou didn’t have the money—unless it came out of the $120 million sitting in ODL. Israel and Marino had an epic fight. The liquidity of the fund was in crisis, Marino said. No money was coming in. Worse, Sterling Stamos wasn’t the only investor redeeming. The whispers about Sam’s stability and Bayou’s strange business practices had grown louder. New investment had slowed, in large part, because Sam was in London for weeks on end. Worst of all, Sam refused to meet with new investors.
“Once the trades are going we won’t need those investors anymore,” Sam told Marino. “I’m not wasting my time.”
“If you just meet with them, we’ll stay afloat until the trade happens,” Marino replied.
Israel pointed to all the money Marino had drained from Bayou’s coffers. The companies he’d invested in had multiplied: BMG Golf, Double Triangle, HRsmart, Windtalk, Bio Conversion Technologies. Marino had parted with more than $50 million—more than enough to cover the redemptions. While both Israel and Marino had indulged their fantasies—Sam as the great trader, Marino as the titan of venture capital—both had crippled the fund.
Ultimately, Bayou withdrew $20 million from ODL to cover the redemption payment to Sterling Stamos. Sam now had exactly $100 million to make his trade—or, to be precise, $800,000 less, due to an error in calculation. Until then, Marino had rarely been forced to “dip” into Bayou’s funds to pay redeeming members. But they were in a new and dire situation.
“All through this, we had to keep the staff happy,” Marino recalled. “Sam wanted to be generous with year-end bonuses, even though we didn’t have the cash and they weren’t doing any work or making any money for the fund. Sam’s view was that he had to pay them well so they would stick around. If they left and started saying things like ‘I didn’t understand how Bayou made money’—well, that would not be good. It was a form of bribery. Sam was a very big proponent of that.”
Israel and Marino ended virtually every conversation screaming at each other. Israel spent all his time holed up at the Trump house. For years the two men had lived with the threat of mutually assured destruction. Now they were both self-destructing at an alarming rate. Marino’s overeating had made him obese. His health was in free fall because of the stress of running Bayou.
“I just wanted out,” Marino said. “There were many, many times I debated with myself about simply giving up and walking into the FBI office. I figured I might get some consideration in my prison sentence if I did that. Once, after a horrible fight with Sam—in front of all the employees—I drove to Manhattan and sat in my car in front of the United States Attorney’s office. I sat there for two hours staring at the building. I actually walked up to the front door, up to the metal detectors and security guards at the entrance. I was within five feet of going in when I turned around. In the end, I didn’t want to go to jail. There was no incentive for me to stop the fraud. I wasn’t confident that I’d get a favorable deal from the prosecutors. I thought I had a better chance of solving the Problem and still making money in the process. At least it gave me and Bayou a fighting chance.”
IN FEBRUARY OF 2004, Sam checked into Beth Israel Hospital for yet another surgery, this time to repair a torn rotator cuff in his shoulder. After the operation, a sling and brace kept his arm at a forty-five-degree angle. He convalesced for a few days, but he had a family tradition to attend to. Every year he went to Mardi Gras no matter what. The Israel family had been prominent participants in the celebration for five generations; Sam’s father had been Duke of the Rex, the most prestigious organization at the carnival. Sam chartered a Gulfstream private jet, sparking a confrontation with Marino about his spendthrift ways. Israel said he was going to take a dozen of Bayou’s most important investors with him. Marino didn’t want to go: He was petrified of being away from the office for even one day, lest one of Bayou’s employees stumble on evidence revealing the scam.
“My family rented a floor of the Lafayette Hotel every year,” Sam said. “It was always huge fun. But this year I spent the whole time I was there working the phones calling London. I had to get the ODL deal done. The horrendous nightmare would be over. I had Bob working in London. But he couldn’t get ODL off their asses. Either they were scared or something was wrong. On the day of the parade, I was in a store in New Orleans buying beads and trinkets to throw into the crowd when I started to yell at Bob on the phone. I told him I was going to get the bonds myself. I knew the powerful families were in the Caribbean at the time—that was where they congregated during the winter. They owned a few of the best islands. I was screaming at Bob, saying, ‘I don’t fucking care who does the trades, I don’t fucking care about a few percentage points.’ I was trying not to scream too loudly because a bunch of my investors were with me.
“It was clear to me that Bob didn’t know how to get it done. I kept asking where the paper was and he didn’t have an answer. He said there was a dearth of bonds. The books were done for the year. There were only certain times when trades were available. The families only allowed a specific number of tranches so they could retain control. I told Bob I didn’t care—I was going to kill McNeil and the ODL people. They put me in an awful position. My name was going to be bad in this market.”
Then Barry McNeil called. The first tranche of $100 million was going to trade on Fat Tuesday. But nothing happened. Once again, Sam called McNeil.
“Why the fuck aren’t you trading my money?” Sam yelled. “Do the fucking trades. Get it done.”
“There’s nothing to be done,” McNeil said. “The markets are scarce.”
“Fine,” Sam shouted, hanging up. “I’ll get the paper myself.”
THE MYSTERY OF BARRY MCNEIL’S constant failure to consummate a trade could be solved with two words: Graham Wellesley. The ODL executive in London knew that McNeil was up to no good—he just couldn’t see what was behind all the commotion. The first time a trade had been about to happen, Wellesley had discovered differences in the bonds being sold and those described in the trading instructions. The variance seemed designed to create a smoke screen, leaving Wellesley to explain why ODL had enabled a fraudulent transaction.
“The exact same thing happened when Barry tried to trade the second time,” Wellesley recalled. “There were discrepancies. Small ones but enough to stop the trade. I knew something was up. I didn’t know what. But I wasn’t going to agree to trade anything without knowing it was legitimate.”
So Barry McNeil quietly departed the scene. Not in a dramatic fashion. There was no falling-out. There were no harsh words. McNeil had been defeated. He’d failed, it seemed. He hadn’t made any trades. His attempt to defraud Israel and the others had come to nothing. No money had changed hands. Downcast, it seemed, McNeil flew back to South Africa with Katherine Carnegie; she was still his girlfriend, it turned out, despite her fake flirtations with Sam.
“There was never a time when Barry said the trade wasn’t going to happen,” Tim Conlan recalled. “There was no big crash. It was delay, delay, delay. I began to wonder about the bond market. Did it even exist? I didn’t worry about there being something wrong—as in dishonest. But what was really going on?”
BAYOU’S AUDIT FOR 2004 was released at the end of March. Richmond-Fairfield reported that the fund had $410,626,200 under management. The real number was anyone’s guess. The loss, in terms of actual money, was perhaps $75 million. If the accumulated performance was considered part of the “lost” money, then nearly $250 million was gone—money that had never existed in the first place. With $100 million in London and $50 million tied up in dubious VC investments, Bayou was essentially broke. But that didn’t stop Marino from wiring $15 million to the Cayman Islands to keep his venture capital plays alive and provide getaway money.
As Israel and Marino drove to Manhattan to see another investor who was considering redeeming, Marino’s cell phone rang. It was FBI Special Agent Carl Catauro looking for Sam; the office had given him Marino’s number because Israel rarely answered his cell phone. Marino passed the phone to Sam. Marino listened as Sam discussed the FBI’s investigation of Bob Nichols and the European trades. Marino was flabbergasted. Hanging up, Sam assured him that the FBI had no clue about the Bayou fraud, which was true, though amazing; the bureau knew that Sam was involved with Nichols and other scammers, but no serious investigative steps had been taken to see what was going on at Bayou. Marino didn’t reply. He stared out the car window.
In the following weeks Sam frantically worked half a dozen cell phones trying to find a trade. Back and forth to London he flew. He was escorted to the airport by a local cop he’d befriended who lit up his cherry tops on the way to JFK so Sam could cut through traffic. At the security line Sam flashed a law enforcement badge he’d obtained. He’d created a persona for himself as a man like Bob Nichols—but it was all a concoction. The end was nigh, he knew. For the Easter holiday Sam flew to the Caribbean island of St. Barts with Debra Ryan. If Sam was going to go down, at least he’d have a tan. He told Ryan that the billions were going to start to roll in. He lolled naked on the deck outside his villa, as if he didn’t have a care in the world.
But Sam’s desperation was expressed in the increasingly improbable schemes he got involved in. Months earlier, he had met a South African broker who claimed to represent the De Beers, one of the Chosen families. Out of the blue sky, the broker said he’d found “paper” to trade. But the minimum investment in these bonds was $500 million. Told that Sam had “only” $100 million, the South African generously agreed to drop the entry level—but just this one time. As always, though, the deal wasn’t completed.
Sam was now completely isolated from his old friends. He never returned calls or e-mails—personal or professional. Worried, one of his best friends came to the Trump house and confronted him about the people he was surrounding himself with—users, hangers-on, sycophants. Bayou’s employees were constantly seeking favors from Sam. The same was true of the strangers Sam was now associating with. But Israel wouldn’t listen to his friend, which led to an argument that quickly escalated to a shouting match. Sam shoved his friend against the wall and threatened to throw him off the balcony where they were standing. Both calmed down, but it was a shock to Sam’s friend to see him so alone and so different from the gentle goofball he’d known so well. It was as if Sam was no longer able to see the obvious truth about other people—or himself.
To stave off the sense of claustrophobia closing in, Israel grew even more manic and unpredictable. Willing to try anything, he revived the idea of going after Yamashita’s gold. He reasoned that he could get a reward of $75 million if the Federal Reserve paid even 3 percent of the face value of the $2.5 billion in bonds that was supposedly in the “motherbox.” Sam didn’t know about McNeil’s planned mission or Nichols’s investment in it. A retired Special Forces soldier named Jimmy Bates agreed to lead the mission. Sam flew to Baltimore in a private jet with John Ellis to meet Bates. The colonel seemed extremely paranoid as he talked about how the federal government used satellites to track people. Bates paced around the hotel room frantically. In return for $1 million up front, Bates said he’d form a team of Filipino Special Forces soldiers he knew to stage a raid. Mindanao was home to an extremist group with the unlikely name MILF, for Moro Islamic Liberation Front. What if the Fed bonds wound up in the hands of MILF and Osama bin Laden? Bates wondered. If Al Qaeda controlled billions it would be a cataclysm of biblical proportions.
As improbable as it sounded, Bates really was a Special Forces veteran with top-secret clearance from the Pentagon. Bates proposed that once the Fed bonds had been obtained they should be flown to Guam, where they could be appraised and quietly brokered to the government. Sam was ready to fund the venture once the trading began—if it ever did.
Down to his final days, Sam gave up on ODL. The whole interaction had been pointless and maddening—and it had consumed a huge amount of Sam’s most precious commodity: time. As spring of 2005 arrived, it was only a matter of weeks (or even days) before Bayou’s fraud was exposed, Sam was now certain. Sam contacted a man named Lew Malouf in California. Malouf supposedly owned the Sacramento Kings—but a simple computer search would have revealed that he spelled his last name differently from the real owner. He claimed he ran a secret Fed trading program for Pacific Rim countries. Malouf told Sam that he had “paper” ready to trade. He said that Sam’s profit would be $695 million. As ever, all Sam needed to do was wire $100 million to Malouf’s account. “Now for the surprise,” Malouf e-mailed Sam on the eve of Sam’s sending the money from ODL to the United States. “With the deployment of 12 cycles you will actually receive $1,597,750,000. But there is one small catch. We might have to use an alternative company name on the bank account. This will only be done if necessary and the bank says, ‘It is time to change names.’ But it will still be your profit.”
“I had a sinking feeling about the deal,” Sam said. “But believe it or not, I still believed it was going to happen. Malouf swore it was going to happen any day. We were going to get paid any minute. They said the programs were already trading, we just had to get in on the action.”
When the equally hopeful and deluded Robert Booth Nichols heard of Sam’s new venture, he was concerned he was going to miss out on the big payday. Nichols wanted to ensure that he received 10 percent of Sam’s windfall, as they’d agreed, still more proof that the CIA asset believed in the shadow market. Sam assured him that there would be more than enough money to share. But Nichols wasn’t satisfied. The trust the two men had for each other had been destroyed. Nichols dispatched his wife to California to introduce herself to Malouf and his brokers. He sent an introductory letter with her. But Malouf wasn’t interested in honoring any side agreements.
Shut out of the deal, Nichols decided that he’d had enough. He’d scored $10 million from Israel. He was sixty-one, with failing eyesight and poor health. He needed to put some distance between himself and Israel. The bewildering swirl of events that had started in a taxi in London was about to come to an end. The mystery of Robert Booth Nichols wouldn’t be resolved—at least not yet.
“We had a big blowup,” Sam said. “It seemed contrived to me—like he was deliberately picking a fight. We’d written in our agreement that he was going to be the head of security for me for five years. That was supposed to be payment for the ten million. To make it look legit. But now Bob didn’t want to perform the services. He said he’d given me the booby-trapped box in the Queen’s Vault and that was worth ten times more than the ten million. All of a sudden he didn’t want to be involved anymore. He didn’t want to talk to me. It all came apart very quickly.”
At the same moment, the Malouf deal seemed to come together. Sam sent wiring instructions to London for ODL to transfer $100 million to an account in Hong Kong that Malouf had established. But there was an obstacle in Sam’s way: again Graham Wellesley, the great-grandnephew of the Duke of Wellington. Wellesley was now certain that Israel was involved in criminal activity of some kind. Under British law, ODL was not permitted to directly contact the American authorities; Wellesley had to work through regulators in London. He asked them to notify their counterparts in New York about Sam’s highly suspect activity.
“So the regulators called me from New York,” Wellesley said. “I told them what was going on. They said, ‘Whatever you do, do not return the hundred million.’ Sam didn’t know anything about any of this. I couldn’t tell anyone, not even my staff. It was strictly confidential. I told the Americans that I needed an injunction or something because it was Sam’s money. The money was on call. I couldn’t just refuse his request to get the money.
“When Sam tried to take the money out I delayed. I told my staff to wait until the banks in the United States had closed for the day. So that bought another day. The next day I had my operations guy send Sam an e-mail saying he had ‘forgotten’ to send the money. Sam freaked. You don’t forget to send one hundred million. Sam called up from New York screaming and yelling, ‘You fucking assholes. Pay my goddamn money back.’ He had a hell of a temper. He said he was going to kill my operations guy. I don’t think he meant it. But still.”
Unaware that ODL hadn’t actually wired the money, Malouf informed Sam that the funds had arrived in Hong Kong. The money was in the account of a company called Majestic Capital Management, which was controlled by one of Malouf’s collaborators. But the buffoonish Malouf hadn’t performed even the most simple steps to disguise his intentions. The money was supposedly at a brokerage account in a discount trading website connected to Wachovia Bank. The online balance was stated to be $100 million. But Marino was able to see that Malouf had created a fake account—a phantom.
“I tried to explain this to Sam but he wouldn’t listen,” Marino said. “You’d think that after committing a fraud for so many years he’d recognize a fraud. But he didn’t.”
For Israel, doing something, anything, was better than doing nothing. Sam repeated the demand that ODL release “his” money—this time to an account in the United States that Malouf’s coconspirators controlled. Wellesley could hold out for only so long. Despite the viscount’s express request for guidance from American regulators, they had done nothing; the negligence of the authorities seemed to know no bounds. On April 12, 2005, ODL wired $99,191,102.18 to a suburban branch of Wachovia Bank. The money was no longer in Bayou’s name. Following Israel’s instructions, the funds were sent to Majestic Capital. It was the usual modus operandi of the shadow-market con. Once the money was out of Sam’s control, in a so-called nondepletion account, the only question was whether Malouf could convince Wachovia to release the funds before the law caught up to the scam—if the law ever took any action.
“I was truly desperate,” Sam said. “I was appalled. I was like a guy at the casino who had lost everything. He’s got enough left for one last bet. So I put it on the roulette table and let it spin. I figured I had one hundred million. I was still alive.”
* That this exchange took place is based on Nichols’s subsequent testimony, which remained under seal until it was leaked to the author by a confidential source.