The Buy Side (9 page)

It gets easier. Twice a week I go out with sales traders. Every time I pick the restaurant or bar we go to, and each time I get a ride home by car service. I start to enjoy these nights. I’m the client. There’s very little I can do wrong. At first I don’t understand it. Why are these guys tripping all over themselves to be my friend? Much later I realize that people on the sell side buy call options on people just like stocks.
Today I might not be the head of the desk or control most of Galleon’s order flow, but it’s in their best interest to befriend me early in my career. Take care of me now, and I’ll remember you later.

In December 1999 I attend my first Galleon holiday party. It’s held at a brightly lit restaurant in Midtown. The décor and tables are a few decades old. This place might have been cool twenty years ago. The staff looks like the cast from the movie
Cocoon
. “I’m gonna get fired,” Janine says. She planned the party and booked the talent: a mentalist. I wonder if he can read the lack of excitement in everyone’s mind. I’m sitting at a back table with Janine and Sally, Janine’s assistant, a spunky free spirit. I really like Janine and Sally. We could sit and bullshit all night. Gary approaches our table and my stomach sinks. Some people on the Street call him Rosy, for Rosenbach, but I see nothing bright or cheerful about him. He starts asking me questions: Where’d the market close today? How did Microsoft trade after the bell? How many points are the Giants giving? He doesn’t give me a chance to answer, just shouts the questions out in his high-pitched, whiny voice. He already knows all of the answers. I shift in my seat. Janine and Sally roll their eyes when he’s not looking.

“Let’s do tequila shots,” he says. He points his finger at the waitress. “Eight,” he barks. There are only four of us at the table. He levels me with a stare. “I’ll give you eight hundred dollars if you can drink all eight shots,” he says. At first I don’t know whether or not he’s kidding. I sit upright and feign confidence. “I’m serious,” he says. “Eight shots. Eight hundred. But if you puke, you lose.” The waitress places the tray with eight shot glasses filled with Patrón tequila on the table, and eight sliced lemons. “We don’t need lemons,” he says. I feel backed into a corner, like I can’t say no. It’s just shots, and I can use eight hundred dollars. “Everybody gather round,” Gary yells.

Here I go. One shot, two shots, three, four, and five. Six fills my
eyes with tears and seven makes me gag. I feel my body temperature rising. As I pick up the eighth shot, tequila drools from my lips. The crowd begins to chant—it sounds like a Rangers game. I stand and the floor moves. I steady myself and bring the shot glass to my mouth. When I fire it down, I fall back on the settee with a thud and the room erupts in laughter. Rosenbach peels off eight hundred-dollar bills from a huge wad and drops them on the floor at my feet. On my knees I gather the bills. I’m drunk.

The next morning I’m bloodshot, battered, and humiliated. I make my way to the desk. No one seems hungover except me. I need coffee. Rosenbach sits in the kitchen. On the counter in front of him are boxes of jelly doughnuts, compliments of some broker. He rips one down the middle and stuffs half of it in his mouth and says: “I’ll give you eight hundred if you eat eight doughnuts in three minutes.”

AN EARLY
evening a few months later, the office is empty except for Gary and me. I’m on the Internet trying to see how the Cleveland Indians’ spring training is going. I need to kill some time before my business dinner with CIBC. It’s at Mr. Chow’s, a trendy hangout for fashionistas, celebrities, socialites, and international food groupies, where waiters in white tuxedo jackets serve you your Peking duck. Chow’s is close to the office, so it doesn’t make sense to go home. I’m not sure why Gary is here; his limo usually picks him up right after the market closes. He calls me over to his desk and tells me to take a seat in Keryn’s chair. All of the usual tension is gone from his face. He looks almost soft. “You’ve been doing a good job lately,” he says. Getting a compliment from Gary is like having a lion say you taste good. “You know, since the Qualcomm trade,” he adds. When “the” is said before the mention of a trade, it’s either a really, really good thing or,
in my case, a really, really bad thing. We’ve been so busy lately, I didn’t think he noticed how I was doing.

“Tomorrow I want you to trade with First Boston and Goldman,” he says. “I want you to trade names in and out.” He’s reading an email on his computer as he talks. I don’t say anything. “Pick names that are liquid—you know, like Mister Softee, Intel, SunMicro.” I just recently figured out Mister Softee is Microsoft. “I want you to trade as much as you can,” he says. He starts typing an email to someone. “Try and lose as little as possible.”

“You don’t want me to make money?” I ask.

“Not the point,” he says as he clicks send. “I want you in and out of these names all day. Buy a hundred Intel with First Boston, wait five minutes, and then sell it with Goldman.” His cell phone rings. “Just trade back and forth all day,” he says. He clicks the talk button and tells his driver he’ll be right down. “Stick with me, Turney. I’ll make you a star.” I watch as he gets up and leaves. The whole conversation is weird: what he wants me to do, and how nice he was in telling me.

Undoubtedly, part of Gary’s good humor is because of the business Galleon is doing. By 2000, our reputation on the Street is vicious. That happens when some of your funds have triple-digit returns. We no longer talk in millions; we talk in billions. Investors can’t give us money fast enough. If a salesman or trader won’t do what we want, there are ninety-nine other guys standing in line to service us. Each day a new analyst shows up and occupies one of the vacant offices. We’ve picked off another senior trader from Morgan Stanley, and the bosses have promised to hire a couple of younger guys to take over my grunt work.

But there’s also something about Gary’s directions that makes me suspicious. Coinciding with the firm’s insane growth is an ever-thickening
atmosphere of intraoffice distrust and competition that flows down from the top. Raj is notorious for taking two analysts who are equal in status and manipulating a rivalry between them. I call it the Raj cockfight model. He whispers something to one analyst and then the other, and then likes to sit back and watch them scratch each other’s eyes out. It’s survival of the fittest. The one who wins the fight gets to keep his job; the pile of bloody feathers gets swept out the door. He tried to do it with Keryn and me, but he didn’t take into account, or didn’t know, how close we were and that we talked all the time out of the office.

On top of that, a rivalry is developing between the two funds under the Galleon umbrella. Raj, Gary, and Keryn attend the tech fund, while Krishen, Slaine, and I focus on healthcare. When I first started at Galleon, the healthcare fund made up only about 10 percent of Galleon’s assets under management. But in the short time I’ve been with the firm, healthcare has ballooned to over a billion-dollar fund. Though only a third the size of tech, it’s become wildly successful by any measure. Much of its growth is due to the bull market streaking upward, but some of the credit has to go to Slaine, the head trader. Though Gary and Slaine are friendly, go to the gym every morning together, and even pal around some, their competitive natures simmer just under the surface. So, even though Gary is my de facto boss, he’s crossing a not-so-invisible line by giving me the opportunity and telling me he’ll make me a star. But all I know is, I’m about to start trading in earnest—and that’s a lot better than ordering breakfast.

The next morning I’m back at my desk. I get through my routine and the morning meeting unscathed. When the market opens, it’s go time. I decide to buy my first hundred thousand shares of INTC with
First Boston. I sell it two minutes later with Goldman. I make two cents but lose twelve cents on my commissions. A loss of a dime. I do it again. Lather, rinse, and repeat. I decide to buy two hundred SUNW, sell it a few minutes later. Again, again, again. It’s not even lunchtime and I’ve traded a couple of million shares. I’ve lost a total of $75,000, but we’ve paid Goldman and First Boston $60,000 each in commission. And that’s the point, Gary tells me at lunch. “Good job,” he says. It doesn’t feel very good, but if he’s happy, then I’m happy. Though it still doesn’t make sense to me, it’s fun. And, both my Goldman and First Boston sales traders are thrilled.

It makes more sense the next day. First Boston prices an IPO, Selectica Inc., symbol SLTC, putting four million shares on offer this morning. I have no idea what the company does, but its IPO is about a hundred times oversubscribed. Every client of First Boston is trying to get an allocation. This is what everyone refers to as a hot deal. We put in for a million shares last week just like everyone else on the street. First Boston calls and I pick up the phone. My sales trader tells me we got 100,000 shares and the deal is priced at $30. He says we got one of the highest allocations on the Street, which is probably true. Most of his clients got shut out or received an allocation of five, ten, or twenty-five thousand shares, he says. I tell Gary and then Raj. Then, like I always do, I type it into our system so the portfolio reflects the position. Gary sees the trade pop up on his screen and calls over to me: “Nah-nah-nah-nah-no,” he says in his nasally whine. “Book it in the admiral’s account.”

The admiral’s account is a private fund made up mostly of Gary and Raj’s money. I don’t know how much they have in there, but it’s substantial. Employees are also allowed to invest through the admiral’s account. When I first started at the firm it was strongly suggested that I do so. “Trust us,” they said. “Put your money in there.” I did.
I had my IRA, which was about fifty grand (I had rolled it over from Morgan), and maybe five or ten thousand more.

I highlight the SLTC trade, double-click on it, and change it from the main fund to the admiral’s account:
Buy 100,000 SLTC $30
. After the market opens, our First Boston guy calls again and tells me SLTC will open around ten a.m. I yell it out to the desk so everyone hears me. At about ten minutes to ten he calls again. “Looks like it might open at forty,” he says. Five minutes later, our First Boston light is glowing again. “Looks like sixty-two!” Three minutes go by and First Boston is lit again. “Eighty, maybe higher!” he says, his voice electric with excitement.

When the stock opens, the office erupts in a joyous scream. “Free money, baby,” Gary yells. I look at my computer screen and see SLTC just opened at $94. It’s trading hundreds of thousands of shares a second. The last sale on my screen is trading so fast, the figure is literally dancing. It’s already through $100.

It becomes clear to me then how the game is played, and why Gary wanted me to trade in and out and didn’t care if I made money for the firm. It’s quid pro quo: the bigger the commissions we pay the sell side, the better information and allocation we receive in return. The seventy-five grand I lost for the firm the day before is just part of a business model that generates huge profits. With the stock now at $110, we make eight million bucks. It’s like they just handed it to us. And there’s nothing wrong with it from a legal standpoint, I guess. Wow. What a business.

But then Gary calls over to me: “Turney,” he says, “call Baby Arm.” Baby Arm works directly on the floor for himself. With his nighttime open-collared silk shirts that reveal a chest filled with curly black hair, and his fondness for gaudy jewelry, he looks like he’s right out of the cast of
The Sopranos
. If he went to college, he’s never mentioned
it. He’s a big guy—supposedly
all
his body parts are big, hence his nickname. Whenever we need tickets, a favor, or anything, he’s available. He’s in the favor business, like a concierge service that also trades stocks. “Tell him to cross a hundred thousand SLTC,” Gary says. In simple terms, crossing stock is a transaction with one buyer and one seller. Typically, you only cross stock with another client or broker. But what Gary wants me to do, using Baby Arm as the facilitator, is cross the stock with ourselves. We’ll buy and sell the same stock—I’m not even sure this is legal. Though I don’t understand why he wants me to do this, I do as I’m told. There’s a lot, I realize, that I have to learn about Galleon. Baby Arm, when I get him on the phone, has no problem with buying and selling the stock—he stands to make six cents’ commission on both sides. A hundred thousand shares of SLTC at the same price, one trade, two sides, make him a quick twelve grand. That’s a lot of silk shirts.

It is later, maybe that night or soon after, that I realize what I’ve become a part of. The new deal was priced at $30, and I booked the buy of 100,000 shares at $30 in the admiral’s account. Our money. When the stock reached $110, I called Baby Arm on the floor and asked him to buy and sell 100,000 shares for me at the same price. I booked the sale of 100,000 shares out of the admiral’s account and booked the buy in the main fund, where investors have their money. The only trace of the trade left in the admiral’s account is the $8 million profit.