CHAPTER THIRTEEN

OF BANKS AND ROYALTY

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WITH THE FALL OF BEAR, IT became more and more clear that we had been living on borrowed time. Nu, Zvi, and all the rest of us felt like we needed to get our shit together, and fast. No more pursuing rappers. No more following every lead. Certainly no more fucking up investor meetings at the last minute.

It was time to get back to basics.

Our playbook was sound. The phone calls from talented traders looking for a place to work were pouring in now that the world was falling apart, and the only thing keeping us from getting things rolling was the absence of a real-deal capital partner. The twin gutshots of Bear Stearns and CCU* prompted me to revisit an option I had already once turned down. The Monday after Bear went down in flames, I had called back Dave Abramson of RBC and told him we should talk.

“You and Deigs coming back in?” he asked, referring to John Deignan.

“Not Deigs. Just me. I opened up a firm with Nu Goffer.”

“Zvi’s little brother?”

“Ha! I’ve never heard Nu referred to as ‘little,’ but yes, Zvi’s younger brother.”

“Yeah, I heard you guys were doing something. Nu had a monster year last year, and Zvi is crushing it at Galleon.”

“All true. We’re in the right spot, Dave, and we’re putting together a firm that’s going after the First New Yorks and other big league prop firms. This is going to be big. At the moment, we’re deciding whether to partner up or raise private capital. From what I hear, you’re in business with the right people too, and they have deep pockets.”

“Some of the deepest. And you can ask Zvi; I love that kid. We were together at Carlin. I’ve wanted to be in the Zvi Goffer business for years—and you know I think extremely highly of you too. Been trying to get you to work for me for two whole years now.”

“Well, let’s sit. Office or bar?”

“C’mon. Is that a real question? Let’s do Capital Grille. We can always walk back to the office if we need to.”

“Tomorrow? 4:30?”

“See you then.”

We were drinking at Redemption after the close that evening when I told Zvi the plan.

“I’m coming with,” he insisted, beaming from ear to ear. “Dave loves me. Let’s go in and ask for the world. They’ve got pikers there now. Dave Plate is the only guy at RBC worth a damn.”

“Dave Plate? The guy who sat next to you at Schottenfeld is there?”

“Yep.”

“You told me he was going to put $500K into Incremental and come trade with us.”

“Yeah, well it didn’t work out. Rick fired him after he blew up.”

No doubt on your AMD tip, I thought, recalling a conversation outside of Schottenfeld on 48th and 3rd between me and Shankar and Plate. I’d been walking to Grand Central down Third Avenue, and Shankar and Plate were on the corner of 45th and 3rd, in the midst of a seemingly serious discussion. After a quick hello, they asked in a solemn tone if I was in AMD. “Not anymore,” I admitted, after losing $100K-plus on a Zvi “sure thing.”

Horrible company, horrible call.

Plate admitted he had lost almost $800K plus in AMD alone last month, Shankar about half that. So I guess it shouldn’t have been a surprise that Plate had now “decided” to go elsewhere after being led blindfolded off the cliff.

But I still had to wonder why Zvi had never bothered to update me about Plate’s status. After all, we were talking a $500K investment, which, along with Plate’s trading tickets, I had incorporated into our models when pitching Incremental’s projections.

Given what Abramson had said to me about Zvi, it was only natural that I bring him along to the Capital Grille. We shot the shit over a few drinks, then got down to business and tried to lay it all out for Dave. You could see his barely contained excitement when we spoke. He was leaning in and tapping his right foot like a jackhammer. The pitch was simple. With my trading and operational skills, Nu’s capital and experience, and Zvi’s Galleon research, calls, and very able traders who just missed the Raj/Stevie cut, Incremental was poised to be an inevitable powerhouse.

Abramson asked what we needed. Seeing that he was already hooked, we went straight for the dream list:

A minimum of a $100 million to play with, going up to $250 million in twelve months. Tickets at a penny or less (since we charged ten cents, we made at least a nickel on every share after all fees). And a two-tier payment structure—tickets paid … profit and loss (P&L) paid … and no netting, which meant if we made money on tickets and lost money on P&L, he couldn’t offset one with the other.

Abramson didn’t flinch. He said it didn’t sound unreasonable, but that he would still have to run it past RBC’s legal department. That was more than fair—so we shook on it and ordered another round of drinks.

One week later, Zvi and I walked out of RBC’s offices at 666 Third Avenue with a term sheet giving us that deal … with just a few constraints. For starters, RBC would have a hand in approving new traders. In addition, per the P&L, RBC got a 10 percent slice, while we took 40 percent, with the remaining 50 percent going to the trader. There was no capital risk, a guaranteed $500K-plus in pure tickets profit per month into our pockets (something which would only increase as Incremental grew), and a brand name bank umbrella we could recruit under, coupled with the promise of all the capital we needed. We wondered with one another if it was really too good to be true—except it was actually both, too good and definitely true. Still, I had questions gnawing at the back of my mind. Would RBC stick with us once they realized they were taking all the risk for only a paltry slice of the upside? Sure, as long as we never lost money, it was a great deal for everyone; but what happened when we lost, say, $1 million in P&L, while also making $1 million in commissions, and then demanded RBC pay us our million (yeah, that’s what “no netting” means)? For now, none of that mattered, it was a future worry. We had our deal, and, in a pure “The world is mine” Scarface moment, we were off to Sutton Place to swim in fountains full of vodka and champagne.

Flash forward to a long hot August spent getting used to each other, not unlike new lovers early on in a relationship. Both parties were putting their best feet forward and on their best behavior. A good solid August naturally emboldened us, and we started to turn up the gas, as Incremental was up more than 3 percent in September. But almost immediately, we were met with resistance from Dave: intraday limits, holding times, you name it. We were already getting the feeling that RBC’s reins on Incremental were just too damn tight. We had gone on the customary three dates, and it was time for some action. Deep down, I know that Dave understood this was the right move, but he wasn’t ready to stick his neck out for us. Then again, he was politically cautious, a survivor who understood these were dangerous waters, and it was unlikely he’d ever risk his neck for anyone.

So this inevitably led us up the chain to Dave’s boss, Jeremy Frommer, who was in charge of RBC Cap Markets. The prop desk fell under his jurisdiction. He said we’d been getting a lot of buzz around RBC. We told him we were now asking them for some more rope and leeway. So Frommer decided it was time for us to meet, and suggested drinks or dinner. I thought it was a great opportunity to explain our strategy to someone other than Abramson.

Zvi and I were waiting for him at Capital Grille. Frommer arrived late, with an aura of brusque arrogance, as if he were doing us a huge favor just by being there. After some inevitable small talk, I launched into our pitch—it was the same one RBC had already signed up for, but this time I offered a lot more details and specifics. Frommer kept playing with his cocktail, mixing and stirring it, then ripping off pieces of bread and slapping on lots of butter. Maybe he was just hungry, but it felt an awful lot like he wasn’t even listening to me. I started to get annoyed, and was three seconds away from asking him if he needed a fucking Ritalin to focus, when Frommer swiveled on his bar stool toward us. He raised his hand, as though he intended to say something original and important, and then proceeded to echo Abramson’s overly cautious approach. He spoke about how he’d come to the conclusion that taking very small bites at the apple—the no-risk model—was the best way to go. He didn’t use the words “piker model,” but that’s what he was talking about—a model that took very little risk, and made very little money.

It was definitely not the model we were having so much early success with at Incremental. You sure as hell can’t ask someone who ran $75 million at SAC to have a $5000 intraday loss limit and put a deposit down. You’d be laughed at right in your face. But Frommer clearly felt that he’d made his point convincingly and asked—with seeming earnestness—“So, do you guys understand what I’m sayin’?”

For a few seconds neither Zvi nor I so much as blinked.

And then, Zvi loudly proclaimed, “With all due respect, you couldn’t be more fucking wrong!”

The place went quiet. People in nearby booths stopped eating, drinking, and gabbing, and instead leaned over to listen in an E. F. Hutton moment.

“Jeremy, that model is dead!” Zvi boomed. “All the places that still operate like that are folding or making no money. These aren’t the glory days of day trading. To succeed, you need more leeway, more capital, and more talent to extract money from the market. Right now, you have a once in a generation opportunity to land real talent. A huge restructuring is underway on Wall Street. Guys who returned double digits for ten years and made millions, tens of millions, are suddenly free agents on the market. They need jobs. It’s like Derek Jeter is suddenly available to play for our expansion team, and we can sign him with no upfront, just on a per-hit basis. I’m telling you, you won’t get another opportunity like this. Incremental can build a world-class desk that rivals any of the funds out there, for almost nothing. This dislocation will last less than ten months. We can build something in that time that would normally be impossible. Just think about it, Jeremy. You can either keep clinging to that last dead model until RBC takes you off life support, or you can”—Zvi paused here for effect—“grab your balls and become a presence in the space. Either way, you know I’m right.”

Zvi stopped and took a long sip from his drink.

He had done it—completely reversed the tenor of the meeting, and knocked Jeremy back on his heels. By the end of the meal, Frommer was ready to play ball. There are moments, few and far between, when I understood exactly how Zvi got his admirers. This was one of them. Frommer went back to the office and greenlit us, and all that October we knocked it right out of the park.

November went well too. We were up slightly, but most firms were in a tailspin. During December we were flat or down small, yet we still got a large check for our commissions. This left Abramson fuming. Then, as we had known it would, it dawned on the RBC brain trust that they had been shouldering all the risk even as they were forced to eat the losses. Abramson started making noise. Over on the risk management end, he was also doing a lot of head-butting with Zvi and myself over trader risk.

Ultimately, RBC also wanted veto power over who we hired as traders. A great example of this was Franz “I’m Best Buddies with Fitty” Tudor. Dave Abramson wanted no part of Franz, but Zvi was ready to go to the mat for him. Loved the guy, and wanted us to hire him. Abramson grudgingly agreed to allow Franz to plead his case at RBC’s office … to a young trader on Abramson’s team named Martin Shkreli.

Shkreli was a freakishly skinny, on-the-spectrum biotech trader who had worked under both Jim Cramer at Cramer, Berkowitz & Co. and Wayne Holman at SAC Capital. While the general public knows Cramer from CNBC, Holman is a legitimate hedge fund legend and, after Stevie Cohen, the second biggest SAC Capital earner of all time. Holman made a fortune taking huge positions in early stage biotech companies like OSI Pharmaceuticals (OSIP), and profiting enormously when OSIP’s acquisition by Astellas was announced. Word on the Street was that Holman had an unholy “edge” with OSIP, speculation which remains unproven to this day.

Shkreli strolled in wearing dark, poor fitting jeans, a sweater a size too small, and an off-white Hanes T-shirt that had seen better days. He was five foot nine and junkie-thin at 130 pounds. His uncombed, wild hair fell over a disturbed child’s face. The visual presentation had me mentally running through the DSM-IV table of contents before we’d even said hello.

Deep down, at heart, nearly every person harbors the inner fear that he may not be as good as everyone thinks he is. That he’s one market move or event away from being exposed to the world as a total fraud. This biotech showdown was like Tyson-Spinks. Everyone thought Spinks was one of the best boxers on earth, maybe in history. The undisputed light heavyweight champion and a master of the sweet science. He would assuredly be able to stick and move and keep Tyson off him. But Tyson exposed him as an overrated, historically insignificant heavyweight champ and brutally ripped away the whole façade with one uppercut to the gut a few seconds into the first round. Spinks crumpled.

That’s what Shkreli did to Franz, peppering him with rapid fire questions about stock values, Net Present Value (NPV) methodology, and ongoing Phase II results. Franz couldn’t hold a candle to Shkreli’s psychopathic level of statistical recall and brainpower … but trading is only about half brainpower. Equally important are discipline, psychology, and perspicacity; figuring out what everybody else knows (and doesn’t know), where everybody else is on a trade, where the market is, what’s priced in, and where the pressure points are. You have to know at what level do the longs give up, do the shorts get squeezed, and does the risk manager come tap-tapping. Shkreli was an NPV absolutist, finance’s equivalent of the data geeks that think fashion, religion, art, or any other matter can be broken down into a precise quantifiable algorithm. The NPV absolutists think investment is a neat little science, and that they can precisely model what future earnings and revenues will be, then discount that back to the present to get the exact number a stock should currently be trading at based on all available information. If a stock is trading for less than NPV, buy it. If it’s trading for more, sell it (while giving yourself some cushion on both sides, of course, because nobody’s perfect all the time). But like most modelers, and certainly all of the guys in the risk departments leading up to the crisis, they all suffer from the same fatal flaw: a model is only as good as its inputs. If the inputs are off (which they almost always are when you’re trying to handicap the likelihood of future events), then the model is much more of a directional compass than a set of exact GPS coordinates. It’s the correct starting point for stock valuation, sure, but it’s only one part of the equation.

That should have been Franz’s short rebuttal. But instead, he was drowning, drinking from a firehose as Shkreli fired off question after question, cutting off his answers, or dismissing them as ridiculous or wrong.

I wasn’t sure if Franz was holding back because they thought this was a friendly discussion, or if he wanted to appear civil because a possible capital backer was in the room. Either he didn’t have the tools to fight back or didn’t realize there was an actual fight going on. Whatever the case, the ref was about to step in and call it based on the three knockdown rule. I realized it was time to let Franz know this was a “gloves off” encounter. If the interview/interrogation ended like this, there was zero chance he would get an offer from Dave, and Incremental would look foolish for having offered this stumblebum lamb up for slaughter.

Franz’s performance might have been pathetic, but I still had a soft spot for him and wanted to give him an opportunity to work for us. And this Shkreli guy was insufferable. I enjoyed his act for about six minutes … then it started to piss me off. He was a bully, and an obnoxious one at that.

“You can’t accurately model most early or mid-stage biotech,” I interrupted. “Everyone knows that. Look at the moves in that sector. Volatility is massive. Biotechs get cut in half all the time. And it’s always because someone modeled the likelihood of approval or clinical results wrong. You can’t model FDA approval from Phase I with any real degree of confidence”

Shkreli looked at me and hesitated. He had orders to go after Franz. What was Dave’s partner doing stepping into the fray?

Shkreli glanced over at Dave, as if asking permission to engage. With a subtle nod back at Shkreli, Dave took the leash off his pet.

”Of course you can,” Shkreli sneered back at me, gloves off. “But the very fact that some modeled it wrong means someone could have modeled it right. They just didn’t do their homework!”

“Except 90 percent of that ‘homework’ involves talking to people who shouldn’t be talking,” I countered. “The biotech mafia is awfully good at modeling a double blind placebo. How does researching that work? How do you read data if there’s no data to read?”

“It’s not as difficult as you make it sound,” Shkreli countered. “We can model likelihood of success to a statistically significant point and the resulting share value. We do it all the time.”

“Oh, oooookay,” I said sarcastically—my gloves coming off as well. “So you’re the one on the other side of all those trades that go wrong. Now I understand. That explains why you’re running a $5 million prop account for RBC instead of running three billion for Stevie or Oracle. I gotcha.”

All the stereotypes I harbored about quants and geeks came bubbling to the surface. Those guys could debate and massage data, peer review and tinker with models until the sun rose—sure—but ad hominem personal attacks, sarcasm, and humor—things that were a big part of big boy life on the Street—completely threw off their game and scrambled their antenna.

“It is a science, and that’s why Wayne and the rest of the true stars in biotech know me on a first name basis!” Shkreli shrieked loudly. “The fact that you don’t even know that makes me question why Dave would be in business with you in the first place!”

I had to give Shkreli that much. For a quant, he was holding his own.

“Dave, you can call off your attack dog,” I said with a smile. “He’s made his case.”

“Attack dog? I’ve merely proven this trader is incompetent!” Shkreli said, motioning to Franz. “But I can show you an attack dog if you’d like.”

He gave me his best “tough guy” stare. It was like watching a starved poodle with rickets trying to impersonate a Great Dane.

“You’ve proven nothing other than an overreliance on mechanical valuation formula that only works with suspiciously perfect info,” I told him. “And even then it doesn’t account for shifting outcomes, like Phase II results, or changing reimbursement guidelines.”

There was something more I wanted to say. I knew something I shouldn’t. But then I did. Shkreli had a way of making you set aside your better judgment.

“And if you speak to me like that again, I’ll walk around this table and choke you out right here in this conference room,” I added quietly.

The physical threat snapped him out of his catbird seat. He stuttered for a few seconds and began to turn red. Then Dave stepped in.

“Thank you, Martin. That’s all we needed you for. Please let me finish with Mike and Franz alone. I’ll talk to you in a few minutes.”

Shkreli got up and walked out, turning back to glare at me once more from the doorway. I gave him a nice big smile in return.

“Okay, that was … interesting,” Dave said. “Mike, I’ll give you a call later today and we can discuss. Thank you guys for coming down. I apologize for Martin, he’s really smart—just a little rough around the edges and immature. Either way, we’ll talk soon.”

“High IQ or not, I’d be careful of anyone who has absolute faith in anything,” I told Dave. “We both know how much of this comes from real experience.”

“Well, I’ve got ‘absolute faith’ my wife is going to kill me if I don’t head home and give her a break from the kids. So let’s chat tonight or tomorrow, yeah?”

We left.

Dave Abramson won that day’s battle, rattling poor Franz. Even so, Dave ultimately came to regret his relationship with Shkreli. Shortly after the Franz ambush, Abramson was forced to fire Shkreli after some highly questionable trades that cost RBC a huge chunk of change. Yet Shkreli then landed on his feet, becoming a successful biotech hedge fund manager, specializing in short-selling early stage biotech companies. Years later, of course, Shkreli famously raised the price of Daraprim, a life-saving pill, from $13 to $750, creating a tidal wave of outrage at greedy pharma companies during an election year. The powers that be—pharma, insurance companies, politicians—collectively turned their eye on Shkreli and suddenly “found” multiple securities laws violations he had committed. He was arrested and is scheduled for trial in June of 2017. I expect he will serve a dime if convicted.

In the meantime, the verbal arguments between us and RBC on the trader and risk front continued to escalate, culminating with Abramson cutting off and then firing Bryan Roth within a few ticks of a temporary market bottom. Roth was down maybe $50 thousand on the day, $250 thousand total, which is far from a huge amount in this business, and easily erased with one solid trade. But RBC was adamant: Roth had to go. From Zvi’s little cubicle, the entire trading floor could hear Zvi and Ralph, RBC’s risk manager, going at each other over the phone. It quickly devolved into a “Fuck me? Fuck you!” back and forth. That triggered a call from Abramson and his sidekick, Marc Schwarz, asking for a summit at RBC to try to work things out after everyone had cooled down. We scheduled it, but when we got there, Abramson had not cooled down at all. In fact, he was more livid than ever.

He started off the meeting by banging the table. Then he screamed at Zvi.

“You’re trying to fuck me right in the fucking ass, and if you think that’s gonna happen you’re out of your fucking mind!”

This was, of course, a big mistake. It showed he had totally misjudged Zvi the Hulk.

Zvi said: “First of all, you scream and start making threats, I’ll come over this table and slam your head through the fucking wall.”

Silence all around.

“When have I ever disrespected you like that?” Zvi asked.

Abramson did not answer.

I tried to steer the meeting back in a productive direction. I told them that we recognized their concerns—which drew a harsh glare from Zvi—but that we saw things in a different light. At the end of the day, all I could get them to agree on was a six-month extension of the status quo. After that, RBC wanted a new deal. We barely shook hands when we stood up from the table. In the elevator, still livid, Zvi said, “Fuck those guys! We’ll get a new, better deal elsewhere. What a bunch of fucking no-talent bureaucrats. They don’t even understand our business. We’ve got whales that want in. Did I even tell you Slaine is back, and wants to give us $10 mil?”

“Seriously?” I said.

“Yup. And according Craig Drimal, Todd Deutsch wants in too. And don’t forget Raj. And we’ll close a deal with Stevie by then. Stevie knows the game. He makes these punks look like toddlers.”

“Okay then … let’s pursue Stevie, I guess,” I said earnestly.

We did.

Stevie was the only one who really mattered. The legendary Stevie Cohen ran and ruled SAC. One of the ex-SAC traders who worked for us had put us in touch with Stevie’s funds guys—Sohail Khalid and Jason Karp. Jason, a well-known portfolio manager, was head of research for Sigma, Stevie’s more old-school, research-driven fund. The operations side was run by Sohail. They both knew about Incremental and were impressed with our plan.

After a few meetings and some time spent drilling down into hard numbers and strategies, we started drafting documents for a $10 million capital infusion to start, allowing us to nestle under Stevie’s Midas wing.

As Karp told us at one of these early meetings: “Stevie doesn’t get involved in something unless he thinks he can make it a $500 million dollar firm. He definitely sees that potential here with Incremental.”

We were golden, right? Well, as it turned out, not exactly. It was hard to get things signed and sealed. With the RBC clock ticking, the discussions with Stevie’s boys dragged on for months. We were scheduled to meet twice with Stevie—or “The Big Guy,” as they referred to him—but it always fell through. One time was on a Sunday, we were actually already on our way out to Stevie’s house in hedge fund guru heaven—Greenwich, Connecticut—but Stevie had to reschedule. We hadn’t even been told that he was stuck in Europe because the day before Karp (allegedly) had blown Stevie up for about half a billion on the Volkswagen squeeze.*

The second time was at the Palace—the upscale Palace Hotel on Madison Avenue, not the greasy spoon Palace Diner, as Nu initially thought (providing some much needed, and unintended, comic relief). That second cancellation was due to some family emergency. Even so, Sohail and Karp showed up. They spent their time making the novel case that Stevie deserved 50 percent of Incremental, and not the 10–25 percent we had previously discussed.

“You guys have built something impressive, in the worst market any of us have ever seen,” Karp said to butter us up. “Now imagine if you also had the ability to say you were backed by the Big Guy, and that his capital and resources were lined up behind you …”

The thought alone was making me salivate. I could see Zvi start clenching and unclenching his fists under the table while he rocked back and forth in his chair. But 50 percent was certainly new, and a big jump from the 10 or 25 percent we had been looking at.

Privately, I would’ve given 80 percent to Stevie if he had wanted it, and if it had been my call alone. Let him bring in his people to run it as well and make me a consultant. I was getting sick of this nonsense. I was tired of trying to manage Zvi, while simultaneously trying to raise money and navigate the most treacherous markets in a generation. I’d walk away tomorrow for a decent check and go do charity work somewhere warm. That was the truth. We weren’t curing cancer or changing the world, and I knew it. We were in it for one thing.

The problem was that Incremental had become Zvi’s baby now. I had sworn I wouldn’t let that happen, and then found myself powerless to do anything but watch as it did. Zvi did not just want to make money. It was about more than that for him. Some part of him needed to avenge/revenge himself on every risk manager who ever reined him in, every trader who had ever scoffed at his calls, and even the great Raj, who had fired him for losing more money in a shorter period of time than most people had thought humanly possible. This was Zvi in charge. When Rick Schottenfeld told him he would be the next Stevie, Zvi intended to prove him right—to show Raj and everyone else out there who ever doubted him that they had been wrong. That meant keeping control. That meant keeping his name on the door.

“Jason, I hear you,” Zvi said. “We definitely want you and Stevie involved—and as our partners—but if you think you guys can just come in and minimize what we’ve built here and grab a majority of the firm for next to nothing, you’re not on the same plane of existence we are. People have refused him before. First New York told Stevie ‘No thanks,’ and we’ll do the same. You know how hard it is to build something. You’ve been at it for years and do you have anything remotely like FNY or Incremental to show for it? If it was easy, you guys would have already done it. Especially with the name and resources behind you.”

Taken aback by Zvi’s words, Karp said: “We’ve taken a different approach and you know that. We have different projects. We have staked dozens of—”

Zvi just cut him off.

“Whatever the case, 50 percent is more than we’re going to consider. Why don’t you guys talk it over and let’s get together again next week when you’re ready to do this for real.”

Zvi stood up, apparently prepared to leave a $17 Grey Goose on the rocks half-finished to punctuate his point.

Zvi had made a possibly powerful, possibly ridiculous statement by comparing us to First New York, a firm likely netting $100 million a year.

I wanted to check him, but I adhered to the cardinal “Sonny Corleone” rule of business: Don’t air your internal disagreements in front of others. I couldn’t think of anything to say, or any way to redirect this exchange that wouldn’t come off that way. But if this was a Mafia movie, then it was only Stevie who carried the aura of the Godfather. (Incidentally, Karp had nearly given Zvi an on-the-spot orgasm early on, when he’d told him straight-out: “You know, you kind of remind me of the Big Guy.”)

Whenever I asked Zvi why we shouldn’t take the deal, he would stress that we did all the work. I would counter by arguing that the pie would be so much bigger with Stevie on board that it wouldn’t matter. We could give away half but get a $500 million dollar firm, or stick to our guns and own all of a $50 million dollar firm. “Just do the damn math, Zvi!” I’d shout at that point. Yet Zvi remained unflinching. It was the principle of the thing. Zvi also liked to say: “I can get Raj to give us $10 million at the drop of a hat, and he’ll want no more than a 20 percent stake … so fuck Stevie.”

Looking back, there were several occasions when Raj indeed seemed to be just around the corner with $10 million in hand. Sometimes. I was even in the room for a few of these encouraging Raj/Zvi phone conversations about how close Raj was to investing.

But here’s where I have to remind you that I was a dealing with an insane man and didn’t yet know it.

Things I was about to learn later convinced me that, on all of those occasions, there was nobody on the other end of the phone.

Our talks were still getting bogged down, on all fronts, so we had to keep shopping furiously. This was made painfully clear one day in March of 2009 with RBC’s ninety-day termination notice came in the mail, with an official certified stamp on the envelope that might as well have read, “FUCK YOU!” across the front. Once you have a firm deadline for something like that, things take on a terrifying clarity. We had a mere ninety days to replace $150 million in buying power. That meant three months to raise at least $10 million, if not $20, and find a platform that could house us.

We were immensely fortunate that Dave Plotkin had come over as a trader. Dave had left Schottenfeld when his six-year-old son Max was diagnosed with leukemia. He devoted almost all his time to coordinating health care, doctors, and treatment. Later, he launched the Max Cure Foundation with his father Richard. As a parent, I couldn’t fathom the suffering he was going through, and yet the guy was still engaged, and still good for Incremental’s morale. Dave genuinely loved our firm. He even invested $250K for a small stake. More remarkably, given the sword of Damocles hanging over us all, he wanted to arrange meetings with Todd Deutsch and his friend Adam Gittlin, two folks with a wealth of experience and Marianas Trench-deep pockets. Plotkin felt that both men would be eager to invest in Incremental.

With the days ticking down, one slow trading afternoon Plotkin and I stepped off the desk to eat lunch in the conference room and talk shop. After walking me through some personal trivia on Gittlin (“His wife is a producer for Good Morning America, and he’s a published author …”) and Deutsch (“He’s memorized over 1500 stock symbols and charts, and is supposed to have a memory like an elephant …”), Plotkin asked me what else we had planned on the capital raise front. I mentioned that David Slaine was back in again, thinking he’d be impressed.

“Whaddya mean ‘again’?” Plotkin asked.

His face looked like he had just received an “I think I’m late” text.

I told him about how Slaine had nearly become an anchor investor and trader at Incremental in early 2008. He’d been hesitant because we were still in the concept phase at that point, but now we’d proven our trading chops. Slaine was finally ready to write a check for $10 million and wanted in as a partner.

“Listen, man,” Plotkin said, in a tone of absolute sobriety (putting down his Italian sub to impress upon me that this was super important). “I gotta tell you something. You don’t want anything to do with Slaine. That is one bad guy.”

“Really?” I said in genuine surprise.

Everything I’d heard about Slaine centered on his wonderful trading feel, his nine-figure bank account, and his massive share volume (which is important when you’re upcharging traders’ commissions and negotiating with clearing firms for a good rate).

“I can speak from personal experience,” Plotkin said. “One of the worst human beings I’ve ever met.”

“One of the worst?” I said doubtfully. “Rank him against Ronnie Weiss.”

I was urging a comparison of Slaine to Schottenfeld’s universally hated risk manager, a man I knew Plotkin despised. While Dave had been working at Schottenfeld, Ron never asked how his son Max was doing, knowing the poor kid was battling for his life. But if Dave went three cents over his buying limit or daily loss limits, Ron was there to hawk him. Weiss seemed heartless, totally devoid of any sympathy whatsoever.

Plotkin’s answer was telling: “Ron Weiss is just a bad guy. A jerk. But Slaine is one of the worst. Ron is triple A, but this guy is Hall of Fame first ballot. Remember, I was David Slaine’s assistant-cum-partner at Chelsea.”

“You were Slaine’s partner? He was at Chelsea?” I asked, wondering how I wasn’t aware of either of those facts. “Chelsea was a bad shop from what I heard, right? There were a lot of rumors flying around about that place. Like, I heard the owner flipped on Frank Quattrone to keep himself out of prison.”

Plotkin raised his eyebrows and nodded slowly.

“What you heard was right,” he said. “Chelsea was a mess. But Slaine is even worse. I had a deal with him to be his trader, and anything I made him I’d get to keep 25 percent. At the end of the year, he was up almost $3 million off my ideas and trades. Instead of giving me the $750,000, he gave me $50,000. He told me he had a ‘tougher year than expected’ and if I didn’t like it I could walk. I was struggling to put a roof over my family’s head, and this guy was not only one of my closest friends but somebody already worth $50 million plus! That’s the type of guy Dave Slaine is.”

To give you a sense of how correct Plotkin was, it’s worth taking a moment to review precisely what Slaine was up to at that time … namely dialing for scalps. Slaine had secretly agreed to cooperate with the FBI to ensnare his friends and colleagues. With a wire attached to his rumored-to-be-“enhanced” body, Slaine recorded dozens of conversations with his supposed best buddy, Craig Drimal (known as “Ruby”), to keep his sorry ass out of prison. He also wore a wire or taped calls with dozens of others, including me. The FBI had knocked on the door of his West 57th Street home in 2007, telling him he could either snitch or stand trial for numerous charges of rulebreaking and financial impropriety. Saving his ass would prove a pretty easy endeavor, for one simple and sad reason—namely, Drimal trusted Slaine, trusted him like a brother. Too bad that brother took his cue from Cain. Drimal was well situated inside Galleon and had a solid working relationship there with Raj. Slaine also knew Raj personally, having briefly worked for him at Galleon after leaving Morgan Stanley’s OTC trading desk under a cloud of suspicion for market manipulation in the late ’90s. It was while he was at Morgan Stanley that Slaine met Drimal, then a bouncer at the Vertical Club in Manhattan. The two quickly formed a friendship based on a shared passion for weight-lifting and their mutual ability to bench-press 400 pounds. Shortly after arriving at Galleon, it was Slaine who persuaded Galleon’s top brass to give a job to Drimal. So it was no wonder poor Drimal would remain grateful and trusting of his old pal.

In the end, this shows just how oblivious we were at that time. The government was already rounding traders up. People were already wearing wires. It was all starting.

And I was so out of the loop I was talking about having informant #1 invest.

* We had piled into a “long CCU” risk arb trade on Zvi’s advice, only to see the stock collapse from $33 to $27 when there was talk of the banks refusing to fund CCU’s acquisition.

* Karp had recommended shorting Volkswagen, and when it was announced that Porsche might take a stake in the automaker, the shorts got decimated and the squeeze drove the stock into the stratosphere. That was effectively the end of Karp’s career at SAC. He took a job at Colson Capital in Dallas shortly thereafter.