CHAPTER FIFTEEN

THE KING IS DEAD

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WITH THE DOOMSDAY CLOCK TICKING AWAY, my day-to-day the stress was borderline debilitating. Life at home suffered as well. I had started taking Ambien every night—alcohol alone, even in copious quantities, couldn’t quiet my wired mind anymore. I’d come home and listen to Lisa bemoan her catering disasters—the wrong extra virgin olive oil, or a stale crab puff causing a fury with some sexually frustrated Greenwich housewife. Yet when I mentioned my own concerns—the market tailspin, the back and forths with Incremental, the way every ally slowly became another RBC—all I heard, when I had a good trading day, was about our getting a second home, a new car, or a refinished kitchen.

At Incremental we were beyond desperate now, and had decided to turn to a guy named Uri Cohen, whom Nu had once worked for at Spectrum Securities. Uri was a brilliant Orthodox Jew, strictly kosher, a tall, skinny thirty-year-old who wore thick eyeglasses and made a point of keeping out of the limelight. He was, more importantly, a trader at heart who made a fortune on the “rebalancing” once a quarter or year.*

At our first meeting with Uri, he got us instantly. He loved the model, and was willing to give us exactly what we needed. I didn’t love it, but only because, frankly, Uri was a no-name brand—and yes, names mattered in the trading world. Besides, from a purely business perspective, we still had Gittlin’s money. But Nu and Zvi genuinely adored Uri. Nu had been trading his account at Uri’s firm only last year, but had allegedly made upwards of $7 million there. And Uri was the only one left who understood the risk, had the capital, and wasn’t making us dance through hoops. Deutsch’s dad had agreed to wire us the money on October 1 but then Todd had called us to say there had been a glitch of sorts, travel-related, I believe*, and after apologizing profusely promised the wire would be authorized on the first of November. One month away felt like a goddamn eternity.

And hey, Uri was onboard and ready to go all in with just a few minor details regarding structure and percentages left to work out. We scheduled a final meeting with him for October 16, 2009, to ink the deal. So it was a day like any other, right? Well, not quite. A mere few hours before we were scheduled to meet, Wall Street was rattled and the hedge fund world was rocked to its core by a 9.2 Richter scale event.

With CNBC and Bloomberg streaming from multiple flat-panel televisions on most trading floors all day, it takes a lot to actually grab traders’ attention through the daily mash of noise. But the “BREAKING NEWS” scrolls and pictures of Raj being escorted handcuffed by FBI agents in flak jackets with the sub-headline “Galleon Co-Founder Raj Rajaratnam Arrested” did it in a big way.

“Turn this up!” came screams from the trading floor as we all stopped what we were doing and looked on in stunned silence. With half a dozen ex-Galleon guys on our floor, and Zvi’s close ties with Rajaratnam still very much intact, the news blaring from the TV speakers was very, very relevant to all of us. As we sat there quietly and digested the CNBC loop, Franz Tudor slowly walked over to Zvi’s desk and motioned him over. I could hear them speaking.

“This is crazy, right?” Franz said. “Do we have anything to be concerned about?”

“It’s fucking nuts. I don’t know. I mean this is … this is really fucked up.”

Zvi did not sound confident—a true rarity.

Franz did a walk-by on several other traders—Nu, Joe Mancuso, some of the Galleon guys, and myself—just to get a read on how we were feeling.

“Mike, are you worried?” Franz whispered.

“About what? Raj? What do you think they got him on?”

As I said at the start, when I first heard about Raj, I was only thinking about sex. Raj was supposed to be an over-the-top hedonist. To me, the likeliest scenario was that someone had snuck into one of his famed parties who wasn’t quite eighteen.

For the moment, we had to pretend all was fine and dandy and focus on raising this much-needed capital from Uri at our meeting later that morning. When we entered Uri’s simple, understated office on an upper floor at 120 Broadway, just before lunchtime on October 16, he had on the TV in the conference room: it was CNBC, and all the talk was Raj, Galleon, and the arrest. Uri was watching Raj, in his cashmere cardigan sweater and Prada loafers, doing the perp walk on a loop. It was now clear that they had arrested Raj for insider trading. This was a move by Uri. He knew that Zvi’s ties to Galleon and Raj ran deep.

Zvi tried not to linger on it, but dove headfirst into his final pitch.

On our side, I could see Adam Gittlin quietly scratching his head; he had already made the connection that Zvi had worked directly for Raj during the period of Raj’s criminal complaint. Still, Uri had yet to experience fully the salesmanship, the gamesmanship, the staggering exaggerations and outright lies that comprised Zvi’s alter-ego when he pitched. Even I was still unaware how deep these rivers of deception ran. (Gittlin had gone farther than any of us. In a moment of infatuated drunkenness during his first meeting with Zvi, he had signed a “friendship contract” with Zvi—insisting that he wanted to be more than just a business partner with Zvi, but a friend. Zvi liked the idea so much that he even drew up a three-sentence “cocktail napkin contract” they both inked, committing to the bond, and Zvi posted it above his desk.)

I was more or less incapacitated during this meeting with Uri—busy running doomsday scenarios inside my head. Adam and Zvi did most of the negotiating, somehow managing to turn an ELE (extinction level event)—Raj’s arrest—into the greatest thing to ever happen to Incremental. Instead of Zvi going to jail for conspiring with Raj—and Incremental getting shut down—we were now going to have the pick of the litter at Galleon. We could get not only Galleon’s B team, but the A Team superstars as well. Studs like Leon Shaulov, who made money hand over fist. It was all on the table. You could see Uri go from predator to prey as Zvi wove his fairy magic.

Next, I began to worry about Deutsch. Surely this news—that Galleon had been sunk at sea, and “Baby Galleon” still wanted his funds—would mean the end of his investment. Not only was Deutsch one of the managing partners of Galleon, but his Captain’s Fund was specifically mentioned in the criminal complaint. The same would happen, I was certain, with Stevie Cohen and SAC. As Zvi pitched to Uri, I sat at the table getting more and more paranoid. Then I thought about the man himself. What was Deutsch’s actual situation? He must be on the SEC’s radar, given where he was with Raj and what he traded. Had Deutsch been tipped off or leaned on by the Feds? Was he a target in his own right? Or possibly a cooperator? Was that why he and his dad were making excuses regarding the wiring of money? And based on Raj’s complaint, was that the only “wire” I should really be worrying about?

This was all the more extraordinary because I ended up being almost right. My suspicions were correct—sort of. I was fishing with the right bait, but in the wrong waters.

As we’d soon find out, our friend Franz had been sitting next to me on the trading desk wearing a wire for over a year.

Anyhow, Uri was all in after the meeting and it was just a matter of finalizing a detail or two. Zvi had successfully flipped what should have been a “game over” or at least “proceed with caution” type event into a once in a lifetime opportunity to grab talent from one of the best known hedge funds on the Street. Within ten days or so we had everything signed and the accounts set up, Gittlin’s money came in, and we were ready to roll.

And a week after that? The FBI paid me an unexpected pre-dawn visit, and Incremental vanished forever.

* Major stock indices like the S&P, Russell 2000 or Nasdaq 100 are typically “rebalanced” once a year. According to companies’ “market weight,” the indices decide the appropriate weight that each company makes up in the index, thus causing all of the index mutual funds (Vanguard, Fidelity, etc.) to buy or sell certain stocks as they are added to and taken out of various indices. Computers took this over too, but for a while, back in the day, smart, connected traders could get a feel for the flow and dislocation caused by S&P 500 having to buy five million shares of a stock and sell five million of another when they rebalance.

* In retrospect, I believe something far more sinister had taken place.