Black Fridays (29 page)

“Like to Wanda.”

“Well, yeah. That’d be top of my list. But if you go grovelin’, she will disrespect you forever. You have to go strong. And whatever you do . . .”

“I know. No flowers.”

Monday I could start to deal with the parole officer. He would have to let me go to find my son. I could get Brady to help if I had something to trade. At some point, he and Maloney were going to come back to the Arrowhead investigation, and I had what they needed.

“Just a sec,” I said. I grabbed my jacket off the closet door and went through the pockets. The flash drives from Hochstadt’s apartment were all there, including the one with the silver duct tape.

“Roger, you are a friend. Thank you. Right here I have something that I can finish. If this has the information I think it does, I can nail these guys.”

“There you go. Now you got somethin’ to look forward to. All you need in life. Something to do. Someone to love. And something to look forward to. You’re good to go.” He pulled himself up, tossed the barely touched muffin in the trash, and headed for the door. “My work here is done. Now I gotta meet Wanda and go entertain a bunch of five-year-olds. I got nothin’ to look forward to.”

“Thanks again. Hey, and tell Skeli . . . I mean Wanda . . .” There were too many things I needed to say to her. “You know what? Don’t tell her anything.”

“Yeah, I think that’s best.” He was halfway out the door when he turned. “Fuck me and my white horse. I forgot. There’s two city cops making nuisances of themselves out by the elevator. One downstairs and the other right here on the floor.”

“That’s comforting.”

“Yeah, but how long are your neighbors going to put up with that shit? Best of luck with that, sport.”

I was a New Yorker, I barely knew my neighbors to nod to in the lobby. “Thanks, but that problem is not top of my list.”

I locked up after him and headed for the shower.

WHEN THE MARKET
is doing its best to teach a hard and painful lesson, when every brain cell is shrieking for safety, comfort, security, and when every well-thought-out strategy based on value, historical relationships, and statistical analysis has become a dog’s breakfast of toxic securities floating in a stinking pond of hedged derivatives, there is one trading skill that cannot be taught: the ability to act coldly, rationally, in the midst of chaos. A trader looks for the next opportunity. If he cannot do that, he may still have a career on Wall Street—in sales or research—but he will not be a trader.

I had allowed chaos—personal and professional—to rule me for too long. It was time to put away my pain, fears, and anxieties and go to work.

Once again I searched for patterns. Every trader leaves a trail, a mark upon the market, sometimes unique, more often banal. As prices ebb and flow in a random dance, accelerated by electronics to an impossible pace, traders take various approaches to managing their risk.

Position traders are all about guts and muscle; they take the long view. They will hold a position for hours, days, or even weeks. They set parameters for themselves and review the facts, trends, or rumors that influenced their decisions, but they tend to trade rarely, looking for the great sea changes, rather than trying to catch a single wave. When they are right, they hit home runs. They are often wrong. They make money by following the adage “Take your losses early, and let your profits run.”

Then there are the spread traders. They rely on brains, agility, and computational skills. They rarely care whether the general market is heading up or down, they look for anomalies between markets and pounce, buying one security while simultaneously selling a different one. Profit on any one trade tends to be relatively small, but more predictable. A good spread trader is nimble and quick, hitting singles and stealing second, rather than smoking homers over the fence.

Day traders play the game by scalping. They tend to rely on a combination of luck and an ability to read the psychology of the market moment to moment. When is fear exhausted and it is time to buy? When is greed overdone and it is time to sell? They dash in and out, taking their profits and moving on. They may ride a trend, but only for a heartbeat. If they are disciplined, they almost never make a killing on one trade, but they can eke out small gains on hundreds of others. They hope for a streak, where they’re hot and can do no wrong, and when they’re cold they sit on their hands.

The Arrowhead trades fit none of these patterns—or all of them. Geoffrey Hochstadt never had a losing trade. He hit singles and doubles every time. Unless one were to accept the proposition that a trader with no research, little capital, and no access to extraordinary information could consistently outsmart scores of traders from all the top shops, then the only other possible interpretation of the facts was that a widespread scam was being perpetuated, with Hochstadt pulling the strings.

I loaded the duct-taped flash drive—the one that seemed to be in code—and imported the data into the same spreadsheet. The rows immediately rearranged themselves. A new pattern emerged. I had found the money trail. I just couldn’t read it.

The first column that revealed its secrets to me was an embarrassment. It was a list of dates, written in European format with the day of the month first and the year truncated. I should have recognized what it was right away; instead I had wasted half an hour comparing the figures to the other columns.

My next success was a bit more satisfying. The column showing the profit per trade matched up quite clearly with one of the newer columns. Identically. And after an hour or so of playing with a calculator, I was able to see that the next column was always a percentage of that profit, though the share differed from one trader to another. Some of the smaller, less active traders were getting a 60 percent cut, others got 70 or even 80 percent. The bigger the fish, the larger the share.

The other columns were still a mystery of seemingly random letters and numbers.

Some days, our good deeds, hard work, and good intentions do come back to reward us. Often enough to keep me believing in luck. My phone rang.

“Hey! Mr. Stafford.” It was young Spud.

“Mr. Krebs. It is very good to hear from you. How are you? I tried to reach you the other day, and heard that you had left the firm.”

He laughed easily. “They jettisoned me out the airlock. One of the first. Barilla had me on my way before I had a chance to order lunch. I didn’t know he even knew who I was.”

“I gather Gwendolyn got a message through to you.”

“Yeah. I’m up visiting my folks in Vermont. I took off the day after the debacle. I really appreciate you getting in touch, though.”

“Any ideas on what’s next? Anything I can do? I could make some calls for you—not everyone takes my calls these days, but I do still have some friends.”

“Wow. Thank you. Let me think on it, okay? I don’t mean to be coy, I’m just rethinking things, know what I mean? I don’t know if Wall Street is the best place for me.”

If he was thinking along those lines, then it probably wasn’t.

“You’ll let me know. Meantime, I was wondering if you had any time to help me finish up our investigation. I’d make it worth your while.”

“Sure. I’m planning on being back in the city sometime this week. How’s Wednesday?”

“How’s today?”

“Dude! I’m in Vermont!”

“I’ll have a car pick you up. You can be here for a late dinner. We’ll work straight through.”

“No, really. I’m at my folks’.”

“Sure, sure. I’ll pay you two hundred an hour. Minimum a thousand dollars. It’s a puzzle. You’ll love it.”

He took a minute to think about it. “I like the money. What do you need me to do?”

I described the files, what I had been able to come up with, and the problem.

“I don’t need to come to New York. E-mail me the files. We can work it over the phone.”

Simplicity itself. I zipped the files and sent them. Then I made a pot of coffee while Spud looked them over.

“What do you think?” I said.

“Does the minimum still hold?” he said.

“Is it that easy?”

“Yes and no. I see what you were saying about the dates and the dollar amounts. I agree, all that makes sense.”

“And?”

“Okay, the next column over? Letters and numbers? Those are SWIFT numbers. International bank ID codes for wire transfers. If they were domestic, they’d all be ABA numbers.”

A clerk would have caught it—not a trader.

“Show me.”

He did. Within a week of any trade, a wire transfer went out. The banks were all in countries that had a greater reverence for client privacy than the U.S.—and lax or nonexistent tax regulations. The Cayman Islands and the Bahamas led the pack, though some of the accounts were held in the old standbys of Switzerland, Luxembourg, Liechtenstein, and others. One enterprising soul was using a facility in the Cook Islands in the South Pacific.

“I’m thinking that the numbers in the last column are individual accounts at those banks. And, just a guess, but the second column, right after the date? That’s gotta be Arrowhead’s internal code for each trader.”

It made sense.

Spud continued. “He used the last three digits of the bank’s code in his own coding, you see? That way he couldn’t really screw up and transfer money to the wrong account.”

“It still doesn’t tell me who the traders are.”

“I don’t get it. Look at row twelve. Whoever that guy is moved twenty-four million over in three years. His firm didn’t miss it? Is that possible?”

“A guy like that might make thirty or forty a year for his firm. How much are they going to question him if he only makes twenty or thirty? They may cut his bonus, have a sit-down, and so on. But unless he screws up, no one is going to start investigating him. He’s still a big earner.”

“This could have gone on forever, then?” Spud sounded half disgusted, and half in awe.

“Hiding in plain sight.”

“So, do I get the thousand dollars?”

“Absolutely. Ready for the bonus question? See if you can find me a key somewhere for the account names,” I said.

“I think you’ve already got it. But the files came over as read-only. You need to connect the flash again.”

I plugged it in and opened the file in a new window.

“Now click on one of the bank account numbers. Any one,” he said.

A drop-down window appeared.
FBO Mrs. Karen Nunn and family.
I knew Karen Nunn. I had been there when she married Gerald Nunn, who had been trading Yankee bonds at Case when I was starting out. We had lost touch when he moved to London.

“Anything there?” Spud said.

“Just a second,” I said. I clicked on the other column.
Gerald Nunn, Finsbury & Wallace, Ltd.
“Holy shit.”

“It worked?”

“Mr. Krebs, you just earned the bonus.”

I clicked on the next row. Another ex–Case employee, now trading for another large American bank here in New York.

“This is the goddamn Death Star. I could smash planets with this file.”

No wonder someone had searched my apartment. They must have known this file was out there somewhere. Anyone on the list had a very big incentive to find the file and destroy it. And destroy anyone who might have seen it.

“Listen, Spud, if anyone contacts you—anyone at all—and wants to know if we talked, I want you to deny everything. We never spoke.”

“You’re scaring me, Mr. Stafford.”

“Good. And call me Jason. There are at least two people who died because of this—maybe others. Stay up in Vermont until you hear from me. And stay around people you know.”

—

I CHECKED THE LOCKS
on the door—again. I kept working.

I saw why Diane Hochstadt had referred to the “old crowd.” Case Securities was well represented. But like a virus, the scam had leaped oceans and raced over continents, spreading its infection through almost every major investment bank.

My neck was stiff and my eyes ached before I discovered the three non-trading accounts.

The first was a recent addition—less than a year old. There was a single payment of $1 million to a bank in the Caymans, followed by monthly payments of $100,000 each. When I clicked on the bank account number, a name came up. I wasn’t surprised.

The other two accounts dated back to the beginning. The amounts varied each month and it took me some time to figure out the system. A week after closing out business for any given month—and after having made payments to all of the active traders—these two accounts split whatever remained after expenses. The smaller share—about 10 percent of the net—went to a numbered account in Switzerland. I scanned down quickly, estimating, truncating, adding. It came to over ton million. I clicked on the name. It wasn’t exactly what I expected.
FBO Diane Hochstadt.
Geoffrey had put all his tax-free profits in his wife’s name. When he lost her, he had lost it all. I knew how that felt.

The last account was a puzzle. When I clicked on the account numbers, nothing happened. No drop-down window revealing the name of the mastermind. Hochstadt would not need a reminder of who had first envisioned the whole operation. The man who had recruited him and all of the major producers. The driving force behind it all who kept it running with tact and diplomacy, hidden behind a mannered veil of secrecy. Not a greedy man, either. His cut was modest—though it came to well over a hundred million, but only because the scope of the fraud had been so large, and had gone on successfully for so many years.

But years ago, when the system was first put in place, the man had traded with Arrowhead. Probably testing the system, I thought. Once it was running, he had stopped. Why shouldn’t he? Why take the risk, when he was getting a cut of every trade that went through anyway?

I searched through the files for the earliest trades and lined up all those I thought were his. The trades all took place in London over a six-month period. I stared at them until the pattern emerged. A picture of the man shaped itself in my mind. I knew who it was. I just couldn’t prove it. Yet.

—

“I TOLD YOU
there’s nothing I can do until Monday.” Brady sounded beyond exhausted.

“You’re still tied up?” He wasn’t the ideal candidate for what I had in mind, but he was all I had.

“This is going to take months.”

“Could you get away for a couple of hours?” I said.

“Not a chance. They’ve got me checking bank transfers. In eight different time zones. It’s a twenty-four-hour operation.”

“How about on a Sunday morning? Before the Far East opens.”

“I was hoping to get three or four hours’ sleep sometime tonight.”

“I can hand you the killer. Gift-wrapped.”

“I don’t handle violent crime, remember? I push paper. Now, let me get back to it.”

“No! You owe me. You know it.” I took a breath and tried to calm down. “I’m not crawling or begging, Brady. I’ve got something to trade. Something good. I’ll set it up. You show up with a posse and nab this guy and you’re a hero. Maybe they even transfer you out of pushing paper and give you a real job.”