CHAPTER TEN

MILLION DOLLAR CHECKS

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I HAD CAUGHT THE 1:40 A.M. train home—the last one of the night—almost passing out mid-journey, which would have meant a devastating 3:00 a.m. last stop arrival at Stamford or Westport, Connecticut and a $100 taxi ride home. I stumbled out of the train, squinted at my twelve-year-old beige Lexus GS300, and kept walking, marking the first responsible decision of the night.

By the time I got home, I was desperate to water our front yard, even though it was the middle of winter. Oh, the primordial joy of urinating outdoors. Inside, I squinted at the glowing alarm keypad like it was the final question on Who Wants to Be a Millionaire? and disarmed the four-digit code, cooing like a baby when the light went red to green. I trudged upstairs, discarded my clothes, brushed my teeth, and crawled into bed. Lisa protested softly, either in the dream she was having, or at me, then rolled over and went back to sleep. I set the alarm for 5:30 a.m., which meant a solid three hours of shut-eye. I closed my eyes and tried to command my brain to halt the spinning, the music, and the ticker tape cycling through it.

When it came, 5:30 a.m. felt like the end of the world.

Why do I do this to myself? What’s the point?

For the hundredth time that year, I swore to myself I would cut back. I was still drunk. Pain coursed through my body like a hot shot of liquid agony. The true hangover was just beginning. Dehydration, pounding head. I looked around briefly for the cat that must have crawled onto my face while I slept and crapped in my mouth, only to remember that we didn’t have a fucking cat. Automaton time. Become a robot. That’ll work.

Water, Advil, toothbrush, hot shower, heavy clothes, car keys.

Where the hell are my keys? A wave of panic rushed over me.

We had an important investor meeting at 7:15. That meant a 6:14 train to make sure I had time to grab coffee and navigate the swelling, heaving sea of humanity that was Grand Central Station and midtown Manhattan. It was almost 6:00. I was cutting it way too close if I wanted to grab Starbucks before the train. I’ll just use the valet key. Where the hell’s my car?! My car’s been stolen! And then I remembered that I had sensibly left it at the train station. But it was 6:01 now and a mile to the station, which meant running. Over-the-shoulder duffel bag, wearing a suit and dress shoes, still drunk and burping up whatever garbage I’d eaten the night before to try to line my stomach. (I’d eaten several things. Breaded chicken strips with a spicy garlic mayo sauce. Calamari rings. Nachos covered in processed cheese, with jalapenos and bits of black olives.) Another burp.

Kill me now, please.

The train was just pulling up as I sprinted across Chatsworth Avenue and bounded down the steps toward the station. The conductor, in a rare act of sympathy (after all, one of the job perks must be the angry faces of entitled suburbanites as he shuts the door in their faces and pulls away), waited for an elderly gentleman with a cane. I used him as a human shield and slipped on right behind him. The thirty-minute ride without coffee or water was pure torture, but we pulled into Grand Central at 6:50, giving me a few minutes to grab a large Starbucks, a bottle of water, and a Turbo-chefed fake egg sandwich. I asked the barista to drop some ice into the coffee and consumed all three on the walk up to Michael Wilen’s offices on 49th Street. 7:03. Zvi was waiting outside the building for me, sucking back a coffee and looking quite pained himself.

“What are you wearing?” I asked.

Zvi was in dark brown dress slacks, a collared white shirt, and a light brown houndstooth sweater. I’d never seen him wear a sweater before, and it looked ridiculous.

“Why are you late?” he returned with a grin.

Then Zvi asked me to push him in front of an approaching M60 line bus to end the pain. I commiserated. The six Advil and Venti redeye had done little to dent the thudding in my brain.

“So listen,” Zvi said. “Nu’s wife works for this guy. He likes her. So let me do the talking.”

“Gladly,” I groaned, dipping into the retail storefront for a couple of iced coffees for our foreheads.

Inside the law firm of Wilens & Co., Michael Wilens intercepted us at reception before the attractive secretary could seat us in the waiting area. Pushing forty, short and well-groomed, with an engaging smile, he vigorously shook our hands while asking the receptionist which conference rooms were available. A sudden morning influx of meetings had removed all the vacancies, so he apologized profusely as he led us to a very small but empty associate’s office and positioned himself behind the desk, with the two of us in sleek Herman Miller Aeron chairs on the other side. Zvi and Wilens exchanged small talk about Nu’s wife Jill and the state of the wildly fluctuating markets for a few minutes. Then Wilens went into his highlight reel of what the firm did.

Basically, they had secured the rights to every conceivable 1-800-LEGAL suffix: 1-800-IMMIGRATION, 1-800-DIVORCE and 1-800-BANKRUPTCY. The numbers were so popular and the leads they turned over so voluminous that Wilens’ father had quickly—and correctly—figured out their firm wasn’t suited to handle the onslaught of business they created. Rather than turning customers away, they’d reinvented themselves as a kind of third party marketing outfit that referred business to other law firms that could handle the customers, in exchange for generous referral/participation fees, of course.

This was an absolute monster moneymaker. Zvi was doing his best to appear interested, but the delay was killing him. Zvi’s eyes were bloodshot, and his manic energy was manifested in leg tapping and scratching that houndstooth abomination on his chest. It might have been my imagination, but I thought could still smell the pheromone mix of perfume, tobacco, and alcohol that was the calling card of most city bars on his hair and clothes. The first time Wilens paused in the telling of the the Wilens & Co. autobiographical audio book, Zvi pounced—even though Wilens was still essentially mid-chapter.

“That’s pretty incredible. This is really some business you guys have managed to build. Based on what you’ve told me and what Jill has told us, it seems clear that you’re interested in exploring investments that aren’t directly tied into your business or legal operations, in order to diversify your investment stream.”

“Exactly,” Wilens said enthusiastically.

“Traditionally, real estate would offer someone in your position an excellent way to diversify,” Zvi said.

“Okay.”

“There’s only one problem with that approach right now,” Zvi went on, changing his tone. “Real estate is finished. If you haven’t bought it already, you can’t buy it now. And if you have it and haven’t sold it already, you’re probably stuck with it. We’ve spent the last few months looking for office space and what we’re seeing is the start of a serious downtrend that will last for years.”

“I agree. Businesses are laying off people and breaking leases. Rents are collapsing.”

“Precisely,” Zvi said with a solemn nod. “So what we can offer is a business that is totally uncorrelated with the real estate collapse, and which can be a perfect complement to the more economically sensitive investments you already have.”

“Your business itself is in a rather nice anti-recessionary space,” I chimed in. “Divorce, bankruptcy. I imagine those are both perfectly countercyclical offsets to your other corporate work, which is more dependent on the economy.”

“Yes, precisely,” Wilens responded, enthusiastically pointing at me to say I’d got it right.

“I know you already know what a hedge fund is and have contacts in that industry,” Zvi added.

“Have you heard the name Rich Grodin?” Wilens asked with a twinkle.

We both nodded. It hurt to nod.

“He’s a good friend of mine. I know a lot of those ex-SAC guys and we’ve put some money to work in various funds. But I’m looking for something a little more substantive—something where I can have some input on the business and that’s a little more early-stage. That’s why I was excited to hear about you guys from Jill.”

“Let me tell you a little bit more about us, and then we can talk about some of the ways we might be able to do something together,” Zvi said.

He reeled off a ten-minute pitch covering who we were, where we came from, why we were much more conservative than a typical hedge fund, and how we’d make money no matter what way the market moved. He talked about how we were the casino—the house—and how we’d take a piece of every trader’s transaction, but with enough upside on profits that the returns could be significantly higher than at most hedge funds. Around halfway through Zvi’s pitch, which I also knew by heart, I picked up on a deep basso sound that, at first, I thought was Zvi’s stomach rumbling. Yet soon it became clear that it was Dr. Dre’s “The Next Episode” from 2001. Where it was coming from, I couldn’t precisely tell. I tried to tune back in for the conclusion of Zvi’s pitch.

“… a ground floor opportunity to help finance the growth. We’re going to pick up guys like Grodin, plus a bunch of guys that used to work for SAC and Galleon, where I’m close to the King himself. Those are the ponds we’re fishing in now. Top drawer all the way.”

When Zvi finished, Wilens pulled out a checkbook from his jacket pocket. It caught both of us totally unprepared. A lawyer wasn’t the ideal partner, but money was money. The only problem was, as our initial disagreement over what percentage to give Whitney for his $100,000 investment had shown, we really didn’t have a set solution for how to value the firm or what we were willing to give up.

“Count me in,” Wilens said, not missing a beat. “Here’s a check for … a million dollars.” He signed his name with a flourish, ripping the check from the checkbook and placing it on the edge of the desk in front of us.

My adrenaline started pumping as I realized this wasn’t going to be an introductory “We’ll get back to you” meeting, but that real decisions had to be made, here and now, hungover. The Dr. Dre tune had ended and led to “Warning Shot” by the Notorious B.I.G. I laughed inwardly for a quick second, thinking what an odd coincidence it was that both those songs were on my iPod, until I suddenly realized that it actually was my iPod playing in my jacket, hung up on the chair behind me. I decided that it would be worse to acknowledge it and turn it off rather than let it play on and pretend it didn’t exist. Wilens might not have even heard the music, and even if he did, he might have assumed that it was coming from an adjacent office.

Wilens slid the check toward us, so we could count all the zeroes on it and confirm that it was signed.

“What … uh, what are you looking for?” Zvi stammered, and looked to me for help. I offered a single insipid nod. Punting it back to Wilens wasn’t the worst option here. Although, as the son of the founder of a law firm worth nine figures, he had surely learned a thing or two and wasn’t about to start negotiating against himself.

“You tell me. What does something like that, on the spot, get me?”

Zvi looked my way for me to take the lead, so I took it: “Well, we just did a minority investment with Whitney Quillen. Do you know the name?”

“Sounds familiar,” Wilens lied.

“He’s the founder of Quillen Capital,” I continued. “His brother, Parker Quillen, is a very well-known hedge fund manager. A few months back he gave us $100,000 for 1 percent of the company. We’ve landed several good traders since then and might have found a great deal on space, so arguably the firm’s position has only improved. But because because you may be able to introduce us to other investors or traders from your contact list, I’m comfortable making a deal for the same valuation. So your one million gets you 10 percent of the firm.”

Wilens leaned back, thinking, which gave Zvi the opening to jump in.

“In reality, Michael, we gave Whitney that deal because of his connections. He knows traders, he knows money management, and he even has a platform that we might be able to use to garner a better rate with Goldman. So it’s a little bit of a different situation. His strategic ties are extremely strong. I don’t think I’d make that deal today for someone not in the industry. He’s not going to be passive in the least.”

Zvi was inadvertently helping close Wilens on the valuation I had put out there, but I instantly understood that his real motivation was to get Wilens to go higher. To Zvi, if the guy committed to a $10 million val, he could always come back trumpeting to Nu to veto and try to get him to $15 million.

Wilens put his elbows on the table.

“I’m not planning on being passive either. And while Whitney may have a different background, I know plenty of guys in finance. And with my legal and real estate skills, I can save us money on legal fees, documents, a new office, lease negotiations, and a dozen other ways. Not to mention I’ve got some very deep-pocketed friends in my Rolodex looking exactly for situations like this.”

The guy was good. I’d give him 10 percent for that one million dollars sitting in front of me, no problem. But there was a problem.

“You see,” Wilens said, “I’m looking for a bigger percentage. I’m willing to give you that million today without even looking at the firm’s books.” He paused, and to let me know that the next words out of his mouth would mark him as either a lunatic or a savvy player.

“But I want 25 percent of the company for it.”

Wilens had effectively called our bluff. If we needed the money bad enough, we might snatch it. He could always come back if we said no and ask to see the books, noting that they might justify the $10 million valuation we were seeking. “Warning Shot” rolled into tracks from Ice Cube’s Death Certificate, a fitting end for the meeting. I knew Zvi was thinking higher valuation than $10 million, not lower, but to his credit he responded very deftly.

“Well, obviously I’ll put the offer in front of Nu, but we’ve got several other offers out there on par with the $10 million valuation, from individuals we respect as well. We’d love to do something with you, but at that number, it’s frankly not going to happen. Come see the space we’re looking at, meet some of the traders, and we can sit down again with you, but the numbers we discussed today are not going to get a deal done. Again, between Raj and Gary Rosenbach at Galleon, I can get a check for $5 to $10 million, but we’d have to give up half our firm. You see, we want to retain control. We’re the ones out recruiting every night. We’re the ones putting up the eye-popping P&L numbers during the day. And we’re the ones that are going to work eighteen hours a day for the next three years to turn our operation into the next First New York. And you know what Stevie Cohen offered to buy them for last year?”

“What was the number?” Wilens eagerly asked.

“$400 million … and they said no thanks!” Zvi finished with a smirking flourish.

“Hmm. Okay. Well, I’m still interested in continuing the conversation. Talk to Nu and come back to me. In the meantime, I appreciate you guys dropping by. It was great to put a face to the ‘famous Zvi’ name. Your brother talks about you more than he talks about his wife, that’s for sure.”

“That’s because I’m more interesting. But I bet you realized that three minutes into this meeting.”

Zvi flashed a Cheshire grin, pulling down his horrible houndstooth sweater and standing to shake Wilens’ hand. I followed suit, and we walked back to reception and took the elevator to the lobby, to the soundtrack playing in my jacket pocket.

In the end we never did business with Wilens. In hindsight, his potential business was not the important part of our meeting. Instead, it was what became clear to me because of it. Namely, that by hook or by crook Zvi was going to take on the role he wanted for himself, whether you liked it or not. I saw this again and again in the investor pitches we made in all the weeks that followed.

Zvi could sell you a Hummer when gas was $5 a gallon. His only problem was he had no idea how to close. Part of closing is actually signing a contract, getting that money in the bank. To get to that part you have to have a contract. And contract terms were where Zvi would become unhinged. There was a dictatorial streak to him, a Castro-like cult of personality that made it all but impossible to come to a realistic deal. To him business, trading, life in general—all of it was war, and you either destroyed your opponent or you got destroyed. I don’t know if this was borne from the Israeli in him, that mentality of “You are always surrounded by hostile nations and you must fight for your life,” or if this attitude was simply writ large in his DNA. Only later, much later, would I get a clear answer to that question. For now, here was this smart kid who came through the working-class public school system of Canarsie, Brooklyn, where survival for a smart white kid on Flatlands Avenue was damn remarkable.

Zvi’s glasses weren’t rose colored; they were hypnotic. If the other side wanted to look at trailing twelve months, Zvi wanted to look at the future twelve months. That, actually, made sense to me. After all, with respect to Incremental, it started out as semi-conceptual, and it was the future potential that mattered from an investment point of view. We had not only survived the greatest financial collapse since 1929, but had doubled our employees and been solidly profitable for every month, including up a blowout 3 percent the same month that Lehman Brothers exploded. We were doing something right.

Zvi was able to weave a brilliant interlocking combination of hard and soft sell. The soft was “Hey, I’m from Brooklyn, raised dirt poor, made more money last month than my parents made in their lifetimes. I’m comfortable, and if this all goes away tomorrow, I’ve got no regrets, so I really don’t need or want your money. I’m just doing you a favor because Greg Ettin or Craig Drimal said you were a friend and spoke highly of you. Look, if you weren’t friends with him, I wouldn’t even be here.”

Zvi was able to make you feel that by giving him money, he was actually doing you the ultimate favor.

“I’m only here because of you-know-who, and that’s the only reason you’re even in a position to have this opportunity to give us money, but since I am here and now you’ve seen it—this … ‘machine’ of ours that rivals anything the Bellagio or Stardust can put out on the casino floor—you know you’d have to be crazy not to take advantage of it.”

We would put skeptics and ballbusters in their places by comparing the young hyper-growth returns of Incremental to whatever business or field the guy we were pitching was in. Most of these guys were megamillionaires who had plateaued with whatever they were doing and got a hard-on contemplating returns in the mid-teens. Anything in the 20s and they were salivating. We were offering 30s and 40s, or, if Zvi thought the guy wanted 40s, then 50s was our target. If he wanted 50s, Zvi would say that triple digits were not out of the question. He was never going to be underbid and there was no ceiling. We were selling futures. It wasn’t unlike stock analysts who came up with any number their investment banking brethren needed to win the beauty contest to get the IPO business of young companies.

Things got so bad in the 1990s and early 2000s that the analysts had to make up new “metrics” altogether. Ratios which had been exhaustively vetted and used for decades and were the valuation gold standard suddenly became quaint. Granted it’s hard for a company to have a P/E!* when there is no foreseeable E. But they just made stuff up. Eyeballs or number of people in the world divided by people that own or want to own a computer times $100. It was nonsense. Not even creative nonsense. Just run-of-the-mill nonsense. They were pulling magical numbers out of a hat to pad their bonus checks.

But that’s the job of an analyst: to determine, or at least make a justifiable, defensible estimate. Show me the E or the sales or the revenue at some future date to justify a price today of $X. Instead, they just made stuff up. There was (and still is) almost disbelief when some analyst is told that retail traders actually relied on or used his research and analysis as the justification to purchase a stock. They most likely have to cover their mouth to suppress a giggle (I’m actually laughing now as I write this).

This should be shocking only if you have an altruistic view of Wall Street. And there aren’t many of those left. And what reason could you possibly have for that? If you look at Wall Street’s two original missions—first, to allocate capital formation efficiently, and second, to fleece Main Street—much of what we’ve witnessed and tsk-tsked these last twenty years becomes expected and consistent, rather than the “ugly, rogue” elements as it’s been spun.

Zvi was a rainmaker. He sold dreams. He sold wild things that felt as though they could not possibly be true.

But what if they were?

That was the question now. For him, me, our investors. Everyone.

What if they were?

* Price to Earnings ratio, the conventional way to value stocks.