Bull Street (28 page)

Richard was flipping through the pages. The bottom page was a spreadsheet showing dates, names of the four institutions they had identified last night as linked only to the London staging point, and dollar amounts.
Where is she going?

Kathy went on, “The two Swiss banks and the Chilean and Hong Kong institutions are majority-owned by Schoenfeld & Co.”

Richard said, “But the London staging point we identified last night is called Golding & Co.”

“Yes, and if I’m right, it’s also owned by Schoenfeld & Co. But the other interesting fact I uncovered relates to the dates of Milner’s deals the SEC says are involved. Shortly after each of those three deals—Tungsten Steel Service Centers, Ernest-United
and Val-Tech Industries—GCG and Schoenfeld & Co. put more money into Walker.”

Richard said, “So there’s something fishier going on than we suspected last night.”

“Right. Every time Milner did a deal, not only did Walker make money, but Schoenfeld and GCG made money, and they reinvested the profits into Walker & Company shortly afterward.

Richard was trying to put it together.

Kathy went on, “I had Walker’s capital accounts and financial statements because I worked on a potential IPO of Walker for Jack last summer.” Kathy was standing with her hand on her hip, probably not trying to look sexy, but Richard wanted to kiss her again. She raised her hand as if to stop him. Did she know what he was thinking all the time? “There’s more. Each of those times they reinvested, their ownership came out the same. Parity at 51% for Schoenfeld and GCG combined.”

“This is fishier than I thought. That means our mole is passing information to our foreign partners, who are using it to create illegal trading profits to finance their worldwide expansion via Walker & Company.”

Kathy laughed. “It just sounds so laughable that anybody would be using an insider trading ring to finance the development of a global investment bank.”

Richard said, “GCG is an entrepreneurial place. Lots of little profit centers, and very decentralized. The Walker stock is held in the merchant banking subsidiary, which reports directly to Delecroix. And Schoenfeld is the quintessential, old school private English merchant bank.”

Kathy just looked at Richard.

“Global schmobal,” Richard said.

“What?” Kathy asked.

“Global schmobal. That’s the term Jack used to describe Sir Reginald’s worldwide plan.”

“The mole can’t be Sir Reginald.”

“No, but the foreign partners may be at the top of this whole network. I wonder if Milner knows this.”

“Milner? Why would you ask that?”

“I told him about getting dragged in by the SEC and Holden. Told him about them targeting him, too. And about the data we have. I said if any of this was helpful to him, I hoped he’d help us out.” Kathy was scowling like hearing this was hurting her. “He said he’d get back to me. He played his cards close to the vest, but I think he knows more than he’s saying.”

“That was a lousy idea. Does he know where we’re staying?”

“No.” The thought that Milner might feel threatened hadn’t crossed Richard’s mind. He felt a whoosh of realization wash over him.
Stupid.
What if Milner had him tailed? Came after him? He knew how the Devon guys worked. And Kathy here, too. He shook his head at Kathy as he said, “No, he doesn’t know where we’re staying.” At least he didn’t think so.

Richard got out of bed and crossed the hotel room to retrieve his laptop from the desk. After five minutes of sorting he said, “Holy shit,” aloud.

“You are so damn compulsive,” Kathy said.

“Sorry, I didn’t mean to wake you.”

“What is it?”

“The mole. See these code names?” He turned the screen toward her.

“Chloe, Renée, Elaine and Cynthia. LeClaire’s wife and kids.”

“The mole’s LeClaire.”

“How do you know?”

“The code names. LeClaire told me that for the last year or so the new convention at Walker was to give code names based on family members of the client. The mole code named those four deals for his wife and kids. And MCS is Mary Claire Stepshus, Milner’s wife’s maiden name. Project Mary Claire is Tentron. All the mole’s trading in MCS is Tentron. The mole is LeClaire.” Richard was thinking of work, the late nights; LeClaire obviously sneaking off to send his mole emails. Richard’s mind had gotten around it, but he was still stunned, trying to absorb it.

Richard watched the financial news channels at the Waldorf, unable to take his eyes off the unfolding train wreck in the markets, when the story that crossed shortly before noon about stood him on his head.
Oh, no.
The Enforcement Division of the SEC and the U.S. Attorney’s Office announced they were pursuing a major insider trading case with the cooperation of a central member of an insider trading ring they were calling “Source X.” Source X was cooperating as a result of a plea bargain and limited immunity agreement with the SEC and the U.S. Attorney’s Office. At least one prominent U.S. corporate business figure was implicated and perhaps others were involved. Further announcements would come soon. He saw himself back at 75 Centre Street, then with cuffs on.

“I’ve been looking for you at the Carlyle,” Toto said when Richard called her after seeing the announcement. “Get your butt over here. Bring Kathy. Jack and Mickey are on the way.”

“Right away,” Richard said, not liking the sound of any of this. This had to be the mole. And Milner.

Richard hung up the phone and turned to Kathy. “That was Toto. She wants us at her office.”

“I love you,” she said and kissed him.

No spunky remark.
She was worried. Richard was trying to get his mind out of slow-motion. He grabbed his Otis baseball cap, seeing himself do it and asking himself why at the same time, then his briefcase. A glance over his shoulder at Kathy’s face told him how he must have looked: tears were welled in her eyes. He walked to her and hugged her. “Let’s go,” he said.

When they entered Toto’s office she motioned for them to close the door, and put her phone call on the speakerphone.

“Source X is an employee of Walker & Company. We’ve granted him limited immunity in exchange for a plea bargain in which we’ve made very few commitments to him…”

Toto was scrawling names on a piece of paper. Franklin Stone, Head of SEC Litigation, Roman Croonquist, Head of SEC Enforcement, Charles Holden, Assistant U.S. Attorney. Richard’s muscles twitched at seeing Croonquist’s and Holden’s names. He kept shooting glances from Jack to Steinberg to Toto, not seeing much reaction from any of them.

“Gentlemen, let me interrupt you for a moment. I have put you on the speakerphone with Messrs. Jack Grass and Mickey Steinberg, my clients at Walker & Company. I’m prepared to continue this conversation with them on the line.”

“Up to you,” Croonquist said. “Our limited immunity for Source X doesn’t extend to other individuals at Walker &
Company. To be perfectly clear, any other members of this ring are subject to prosecution independent of whatever arrangements we have made with Source X. Understand?”

“Understood, but not agreed to,” Toto said.

“We aren’t asking for your agreement.”

That got Richard’s attention. He glanced at Jack and Steinberg again.
Still calm.
Richard wasn’t.

“What about Walker & Company itself? You were starting to say something as my clients entered.”

“Well,” Croonquist said. “In our agreement with Source X we have come to some unusual arrangements for Walker & Company.”

“Go on,” Toto said.

“One of the stipulations Source X required in order to cooperate was immunity from prosecution for Walker & Company itself.” Toto looked at Jack and Steinberg, who both smiled and shrugged. She pushed the mute button on the speakerphone. Jack and Steinberg looked at each other.

“We have no idea what’s going on,” Jack said.

Toto didn’t look convinced. Richard wasn’t. He continued to look back and forth between Jack and Steinberg. Nothing. He might as well have been looking at concrete. Toto released the mute button. “Go on,” she said.

“Harold Milner is at the center of this investigation and has been implicated by Source X for violations of the securities laws, including conspiracy to engage in unauthorized trading on material nonpublic information. Any other Walker employees, including Messrs. Grass and Steinberg, will be treated on a case-by-case basis based upon their involvement and on their cooperation. Any information which corroborates Source X’s information and which supports our case—which is already strong—against
Mr. Milner will be treated as helpful to the government and likely to lead to favorable treatment.”

Toto said, “In short, you don’t think your case is airtight, so you’re offering anybody at Walker a deal if they’ll help bring down Milner.”

“Interpret it any way you want. We’re here to discuss the possible interest of any of your clients in cooperating. I don’t think we have anything more to offer in this conversation at this point. Charlie Holden at the U.S. Attorney’s Office is on board with this approach. You can contact either one of us.”

“Thank you, gentlemen. We have no more questions for the moment,” Toto said, looking up at Jack and Steinberg, who nodded, “we’ll be back in touch if we have anything for you.”

“If that’s your response, we think it’s only fair to tell you that we’re currently processing warrants for the arrest of certain individuals in this case.” Richard recognized the voice as Charles Holden’s. It made him twitch. “You may not wanna wait too long to make up your minds about your course of action.” Why did these guys talk like that? “Certain individuals.” “Course of action.” No wonder the papers Holden slapped in front of him at Centre Street were so thick.

“Thank you, we’ll be in touch,” Toto said, and hung up.

“Will someone please tell me what on earth is going on?” she said, looking back and forth at Jack and Steinberg.

Steinberg said nothing, but looked at her, blinking slowly. Richard exhaled, now feeling more grounded. This wasn’t the kind of thing he wanted to get used to, but he sensed he was adjusting. He looked over at Kathy, who seemed paralyzed.

“We’re telling you everything we know as soon as we learn it,” Jack said. “And we—at least I—can’t figure it out. Why would
their Source X insist on full immunity for the firm? Not that I’m complaining or anything.”

“Unless he’s someone who has an interest in the firm being unencumbered by any liability as a result of this scandal,” Steinberg said.

No one spoke for a few moments. Richard wondered if Jack and Steinberg were playing dumb about Source X.

“Richard, Kathy, does any of this make sense to either of you?” Toto asked.

Richard was juggling pieces in his mind, trying to line them up. The mole had to be LeClaire, so wasn’t the mole Source X? Or could Source X be somebody else involved who got caught or turned himself in? Was it possible Jack and Steinberg weren’t involved after all? The scheme started when the foreign partners invested in Walker four years ago; maybe LeClaire was their boy on the inside and Jack and Steinberg were clean.

“Richard?” Jack said.

Richard decided he’d get at least part of it out in the open and see how Jack and Steinberg reacted. He’d taken a calculated gamble with Milner the other day. This would be another one. Richard said, “We did some analysis of the trades you all have copies of. Four of the institutions doing trading are each owned in part by Schoenfeld & Co. And those four institutions had their trades funneled to them from a staging point in London called Golding & Co., rather than from GCG Paris. We also believe that GCG Paris’ messenger in the network doesn’t know the other Schoenfeld-owned banks exist.”

“What are you getting at?” Toto said.

“I don’t know what we’re getting at; these are just the facts for now.” Kathy was looking at Richard like he was nuts.

“Go on,” Toto said.

“We were able to figure out that the foreign partners— Schoenfeld and GCG—made additional investments in Walker stock shortly after completion of three of Milner’s deals that the SEC says were part of this investigation. Tungsten Steel Service Centers, Ernest-United and Val-Tech Industries. And the amounts they invested correspond with the amount of profit we estimated on the network’s insider trading.”