JM02 - Death's Little Helpers aka No Way Home (6 page)

Danes logged a lot of miles in the late nineties on road trip after road trip with Pace-Loyette investment bankers, pitching the prospects of one tech company after another that Pace was about to take public. A few of those firms would grow into real businesses, with actual products and profits, but most would not, and many were no more than cocktail-napkin doodles, tarted up with PowerPoint. But the Danes imprimatur pulled a lot of weight with investors who, if they didn’t always buy his hype, at least understood the buoyant effect it could have on a newly issued stock.

When the new millennium came, the market, like so much else, turned to lead. And though he had predicted the boom, Danes hadn’t foreseen the bust— or maybe he’d believed that his say-so alone would be enough to prevent it. While share prices plummeted, Danes and a handful of other analysts maintained their crazed enthusiasms, until many of their favorites became penny stocks or vanished altogether.

If the collapse of the market was a surprise to Danes, its aftermath was a whack in the head with a two-by-four. The hopeless tangle of quid pro quos and conflicting interests that bound together investment banks, their corporate clients, and the people who ran those corporations were open secrets on Wall Street. But when the particulars of these arrangements— the bartering of favorable stock ratings, personal loans, and shares of hot IPOs for lucrative investment banking engagements— were dragged out for the public-at-large to see, the public-at-large got sorely pissed off. While analysts hadn’t built the trough or gorged themselves at it as deeply as some, they were wide and obvious targets— and so often painted with convenient bull’s-eyes. The brightest one on Danes’s backside was Piedmont Science and its affable chairman, Denton Ainsley.

Piedmont Science was a software company, a supplier of billing systems to medical and dental practices. It was an undistinguished firm in its early years, with a share price that barely supported its NASDAQ listing and no coverage at all from stock analysts. When its president died in his sleep, it seemed as if the company might soon follow suit. Enter Denton Ainsley.

Ainsley was the star of a dozen infomercials that hawked the wares of Dentco, the consumer products company he had founded. Ainsley was lean and handsome, in a silver-haired, leathery sort of way, and his rugged wrangler persona was immensely popular with TV viewers in search of laundry soap and floor wax. They liked his cowboy hat and easy humor and imagined they heard something genuine in his broad Texas twang. No one seemed to question how a man raised in Connecticut had come by such an accent.

Friends on the Piedmont board had opened the door for Ainsley, and his disarming personality— and the sizable chunk of Piedmont shares that he purchased— secured his position as CEO. But Ainsley had more than just charm and money to recommend him; he actually had an idea— a vision of Piedmont’s future.

Ainsley saw that Piedmont’s marketplace was badly fragmented, with many small suppliers and no dominant player. He recognized that the market was ripe for consolidation and that, with the right financing, Piedmont could grow by acquiring its competitors, moving their clients to Piedmont’s products, and squeezing out costs. And there was another, more radical, aspect to his plan. Ainsley understood the growing reach of the Internet and saw in it an opportunity for Piedmont to transform itself— to become a provider not of billing software but of billing services. He saw, in short, an opportunity to get Piedmont out of the software business and into the outsourcing game. This was what had caught Gregory Danes’s eye.

Three months after Ainsley’s installation as CEO, Danes became the first analyst to cover Piedmont. He was unequivocal in his support for the company’s strategies and beyond bullish on its future value. His declarations attracted more research coverage to Piedmont, and more investors, and the company’s shares jumped.

None of this was lost on Denton Ainsley, who proceeded to cultivate close ties with the analyst and his firm. He invited Danes to speak at several of Piedmont’s lavish corporate retreats, solicited his views on takeover targets, and made him guest of honor at one of his celebrity-laden charity pig roasts. As for Pace-Loyette, Ainsley tapped the firm as Piedmont’s investment banker on all acquisitions and named it lead underwriter on the company’s secondary stock offering. Pace also became Ainsley’s personal banker, extending him hefty loans, collateralized by hefty chunks of ever-more-valuable Piedmont stock.

For a while, while the market climbed, all was well. Piedmont’s growth strategy proceeded apace, subscriptions to its new outsourcing service sold faster than planned, and the company’s stock became a must-have for anyone who wanted to invest in the Internet. Pace-Loyette collected its fat banking fees, Danes’s reputation shone ever brighter— as did his outlook on Piedmont shares— and Denton Ainsley undertook elaborate renovations to his newly purchased Napa Valley château. And no one paid much heed to talk of accounting irregularities and falsified sales figures at Ainsley’s old company, Dentco, or to questions about Piedmont’s subscriber numbers, or to complaints that its software just plain did not work.

When people did take notice, the unraveling was fast and violent. The SEC announced its inquiry into Dentco one Monday early in the new millennium; the following day came its notice of an inquiry into Piedmont. Wednesday saw a class action suit by a group of Piedmont customers; on Thursday the Justice Department declared its interest in interviewing Piedmont board members. On Friday, the first shareholder lawsuit was filed.

On Saturday, Denton Ainsley’s bright Italian car was fished from a pond on his Napa estate, and Ainsley’s body was fished from the car. Suicide by Ferrari was the unofficial finding of one cop on the scene— an opinion bolstered the next day, when the coroner established Ainsley’s astonishing blood-alcohol levels.

The forensic accountants took a bit longer on the autopsy of Piedmont Science, but when they were through their report revealed massive fraud, hidden debt, and systematic looting of the company’s coffers— all orchestrated from the very top. By which time the company had largely decomposed.

Piedmont had little in the way of assets, and its executives and directors relatively shallow pockets, and it wasn’t long before irate customers, investors, and regulators turned their torches and pitchforks on Piedmont’s bankers. At the time, their claims were novel: Pace-Loyette and Gregory Danes were either fools or criminals, negligent incompetents if they were unaware of Piedmont’s true financial condition, despite extensive dealings with the company, or co-conspirators in Ainsley’s fraud if they knew but didn’t tell. And either way, they were horribly conflicted: Pace’s interest in keeping Piedmont as a client, and in keeping Piedmont’s shares inflated, led it— and Danes— to distort research reports and to mislead investors.

Though they made for fun reading, the allegations were difficult to prove. There was no trail of memos or smirking e-mail to indicate that anyone at Pace-Loyette had known of the fraud, or to suggest that Danes had not believed his own research reports. And there was the fact, besides, that Pace had lost a large pile of dough on its loans to Ainsley. But the absence of a smoking gun hadn’t deterred the lawyers, and it hadn’t saved Gregory Danes’s reputation. Pundits, politicians, and op-ed columnists feasted on the Piedmont affair— and on Danes— for many months, until a host of larger and more garish frauds came along.

The search engines returned links to interviews that Danes had given over the years, and I skimmed through a few of them. There was something almost quaint in his rosy pronouncements— on e-commerce, broadband, data mining, and a dozen other jargon-soaked topics. It was like reading about eight-track tapes or bongs. I read farther down the list of links and stopped at something called LindaObsession.com. I clicked, not knowing what to expect.

It was a disturbing and aptly named site. A page entitled “Our Mission” summed it up:

We are here to appreciate and adore the most beautiful and intelligent and most totally HOT host/reporter/superstar/diva on television today (OR EVER!)— the Amazing, Incredible, Spectacular LINDA SOVITCH! We Are Totally Linda!!!

Linda Sovitch was the blond glossy host of Market Minds, the Business News Network show that offered analysis of the day’s market action and features on investing, the economy, and politics. In recent years, Sovitch had also become the glamorous face of BNN itself. Gregory Danes had been a frequent guest on Market Minds, practically a fixture there since the show’s debut in the late nineties, and this was why LindaObsession had come up in my search.

Along with the fevered deconstruction of Linda Sovitch’s physical charms— the cornflower eyes, the ash-blond hair, the delicate nostrils and bee-stung lips and swelling bosom— and the meticulous parsing of what seemed her every utterance, there were stills and video clips from the Market Minds show. In among these was Gregory Danes.

There was Danes on the show’s premier segment, and when the Dow hit 10,000. There he was when Cisco surpassed GE in market capitalization. And there was Danes on the first anniversary show and on every subsequent one— except for the last few. I clicked on a video clip.

It was fuzzy and jumpy but watchable nonetheless. The topic was the significance of adding Microsoft and Intel to the Dow Jones Industrial Average. Sovitch was smiling and flirty and pitching softballs; Danes was arrogant and preening and knocking the hide off them. But there

was a twitchy, adolescent quality about him too, which came through even on the murky video— like the class wiseass who’s suddenly found himself captain of the football team. Even so, his message was simple and clear: It’s a whole new world, and there’s no place to go but up. For sure, Greg.

Most of the references that turned up in my search were several years old, and they were all business. There were no references to him in the social pages, and— apart from Ainsley’s posh barbecue— no reported sightings of him at any of Wall Street’s many charity events. Even the few magazine profiles of him mentioned nothing more personal than his fondness for classical music.

The only exception was a mention of Danes in a 1998 article from a Newark, New Jersey, newspaper. It was a short piece, reporting on an administrative action by the SEC against a tiny Jersey City firm and a broker there named Richard Gilpin, for a slew of violations that seemed to stop just short of outright fraud. Gilpin, the article noted, was the younger brother of “prominent Wall Street analyst Gregory Danes.” The reporter was almost right; according to Nina Sachs, Richard Gilpin was Danes’s creepy half brother. Gilpin was on my list of people to talk to, assuming I could find him, and I took down the details.

I went to the kitchen and warmed my coffee in the microwave and looked out the window as I drank it. The sky was a soft, even gray, and the gulls, wheeling slowly over the building across the street, were nearly lost against it. I had a lot of windows opened, and a small breeze wandered in with the street noise.

I thought about Danes and the traces he had left behind on the Web— his footprints across the big stage of Wall Street— and I thought about the other actors recently brought to heel. I recalled the televised hearings and the faces, pale under their golf-course tans. Some had been annoyed at being called to testify and others had been downright angry, and a few, perhaps, had been something close to scared, but regardless of demeanor they seemed to share a common sense of astonishment that questions had been asked at all.

Thoughts of arrogance and money and Wall Street led me, inevitably, to my family. Money is the family business— on my mother’s side, at least— and it has been ever since my great-grandfather founded the merchant bank of Klein & Sons. One of my uncles runs the bank these days, with help from my eldest brother, Ned. My other brother, David, and my older sister, Liz, work there too, along with the rest of my uncles and countless cousins. Not every Klein offspring has gone into banking, though. My baby sister hasn’t, and through the years there’d been heretics who’d wandered off into medicine, law, and academia. But there’d never been a cop or a PI before— not until me.

This was not a source of particular family pride, but I was used to that. By the time I’d found a career— or it had found me— I’d already amassed twenty-two years’ worth of underachievement and unfulfilled expectations. Even now I could hear my mother’s chilly tones: You surprise me, John, only in the particulars of your choices, not in the degree of their foolishness. She’s gone now— both my parents are— but her sentiment lingers like a ghost around my family.

Not that I’d never toed the family line. I had, albeit sporadically. In college, I was a business major for about ten minutes, and for several summers I’d interned on the trading floor of a big broker-dealer. I’d gotten coffee, answered phones, run pricing models, reconfirmed trades, and tended my hangovers there, and I’d listened quietly, over long expensive lunches, while people barely older than I tried to sell me on a future with the firm. It didn’t take. The avarice, egotism, and self-delusion I’d seen there approached caricature, and when the dismay wore off, Wall Street had bored me to tears.

Several times in recent years clients and cases had led me back there and afforded me a darker but more interesting view of the place. In seven years as a cop I’d seen what greed and arrogance could do when they were mixed with desperation and opportunity; that was old news. What was different on Wall Street was the stakes that people played for, the variety of their games, and the particular mix of brains and vanity they brought with them to the table. I took a deep breath and let it out slowly.

I topped off my coffee, found the Pace-Loyette phone directory that Neary had given me, and turned to the listings for Gregory Danes’s department, Equity Research.

Research wasn’t a big group at Pace-Loyette— fewer than thirty analysts in all— but it didn’t need to be. Pace-Loyette wasn’t a big firm, and they didn’t cover every sector of the market; technology was the specialty of the house. Danes’s name appeared at the top of the page, with the title Director of Research. Immediately beneath his name was his assistant’s, Giselle Thomas. Neary had put a check alongside it. Below her, also with a check by her name, was Irene Pratt, Assistant Director of Research. Halfway down the page, another name was marked: Anthony Frye, Telecommunications Research. Leafing through the rest of the directory, I found only one other name with a check beside it: Dennis Turpin. According to the directory, Turpin was head of the legal department— the chief in-house counsel. Turpin, Neary had told me, was the guy who had had the shouting match with Danes, right before Danes’s sudden vacation. I carried my coffee to the table and picked up the phone.