55

 

THE SECURITIES AND EXCHANGE COMMISSION, NYC, MONDAY, NOON

Ange Wilkie was prowling down Liberty Street, hunting lunch, when her cell phone rang. She groaned, saw Lucy Chen’s name displayed, and smiled. She took the call.

“Lucy! What’s up?”

“Old Chinese proverb I want to share with you,” purred the voice, sounding ever more like the cat who got the cream.

“I’m listening.”

“Proverb says, sometimes if you have really nice, really helpful friends, you just might find that little needle hiding in the haystack.…”

Ange felt her blood quicken. “You’re killing me, Lucy. What you got?”

Lucy laughed, but when she spoke again her voice was all business.

“Unusual activity. Conducted by nominee companies. I asked some of my buddies. We can all sorta sniff out insider trades, at least some of the time ’cause they basically justify trades for which we, the uninitiated, can see no justification. They’re the kind of trades that give you pause. Some of the time it’s that the guy on the other end takes a different angle on the same info you have. Other times he just has different info. Inside info. So my buddies and I got together at Bar Agricole and had a good old root around.” Lucy paused for effect.

“I’m biting…”

Lucy laughed.

“So here it is. A series of put options on three California property casualty insurance companies. Quite a collection, far as I can gather. They’ve all been put on over the past week. Add up to a nice chunk a change. Thing about these trades that stuck out is that they are very specific and counter to the general market trend at the moment. My buddies and I could see no reason why someone would take such a position. And, the even odder thing is that the position is not company specific, but sector specific.”

Ange nodded furiously. “How big were the trades?”

“Big. All I know.”

“Any idea who did the trades?” Ange probed, standing like an island surrounded by rushing lunch hour bodies who flowed around her with varying degrees of grace and fury. She was impervious to all but the voice on the phone.

“Nominee companies. Their identity I cannot tell you. I don’t know myself. And my sources wouldn’t tell me. Client confidentiality. Could get themselves fired.”

“Fair points. Lucy, this is awesome! I owe you. Big time!”

“I’ll remember,” purred the voice. Always nice to have the SEC on side.”

Ange chuckled. “One last question. What does it mean? Why would someone put on those trades?”

“It’s basically like selling something short, only with leverage. It’s like a bigger punt.”

“I get that. But why?”

“I mentioned the trades were sector specific, not company specific. That means whoever put them on thinks the sector as a whole is gonna get hammered. That means big, and I mean real big insurance claims are expected. Big enough to move the price substantially.” Lucy paused. “This is where it gets really weird. I was wracking my brain trying to figure out why the price would move against prior market expectation. Here’s your menu; the Big Earthquake, catastrophic fires, though it’s getting to be the wrong season for California wildfires, or the new big one there’s been talk of recently, the ARk Storm—basically a huge winter storm bringing in biblical floods. Google it,” added Lucy. “There was a big article about it recently in the San Fran Reporter,” she continued. “Scared the hell outta me. Anyways, someone, maybe several someones, clearly think one of those three is on its way. Oh, and this I forgot to mention. These are six month puts, meaning the players think it will hit within six months. Which kinda rules out fires. So take your pick. Quake or flood?”

*   *   *

Ange forgot lunch. She wheeled round so fast she nearly took out a Starbucks-carrying jock. With a quick apology, she speed-walked back to the office.

“Keep him there! Cuff him if you have to!” she called out to Bergers’ PA, Bret, rushing past her boss’s office to collect Rodgers. She found him, head on his desk.

“Rac! Wake up!” she hissed. “Come with me.”

“Hm, this good?” he mumbled.

“Red hot! C’mon.” She pulled him to his feet, marched back to Bergers’ office. Bret niftily stepped out of their way.

“A word, sir?” asked Wilkie, managing to pause at his open door.

Troy Bergers forked his tuna salad into his mouth. He eyed them as he swallowed.

“Come in. You look happy. What you got?” He nodded to his chairs.

Rodgers sat down. Wilkie paced.

“The woman who rang Glass who then did the ‘call me on my personal cell phone’ insider shimmie?”

“Yeah?”

“Agent Rodgers got the accent people on her. They came back with California. Silicon Valley area. So I call a contact, ask about any unusual trades going down San Fran way.”

“Needle in a haystack,” grunted Bergers, “though the look on your face tells me you found it.”

“Contact found it. Or something that sure looks like it. A series of put options on California property casualty insurance companies. Described as “big” in size. All in the last week.”

Bergers laid down his fork, dabbed at his lips with a napkin, then trashed the lot. “Who did the trades?”

“She couldn’t tell me. Didn’t know herself. Said her sources wouldn’t tell her. Client confidentiality. Could get themselves fired and all that. Nominee companies, of course.”

“OK, I get that. But it’s a bit of a stretch to think this is an insider trade. First, why would someone put on those trades?”

“Asked her that. Only reasons she could think of was the Big One, the mega-earthquake, or the ARk Storm.”

“ARk Storm? What the hell is that?” asked Bergers with a frown.

“Catastrophic superstorm,” answered Rodgers. “Basically washes away California. Read something in National Geogr—”

“Guys!” exclaimed Bergers, cutting him off. He threw up his hands. “You’re trying to tell me that someone knows this earthquake or this storm is coming, your California woman, and she tips off Ronald Glass and some seriously huge hitter, who then buy the puts. That’s crazy! How can anyone forecast a quake or the weather like that?”

Wilkie gave a moue of defeat. “I know it’s a stretch; thing is, taking out a put like that—a six-month one, incidentally—it’s very specific. It suggests inside info.”

“Yeah, from God. It’s probably some weird hedge. Nothing more. Get outta here and lay off the drugs.”