Offerings (16 page)

Tracking each deal in such minute detail was painstaking work, but it was the only way to see if some pattern would emerge. And, in time, it did in the most toxic of ways. Kate was so frightened by what was on her computer screen she felt beads of water running down her back. Her head began to drown in a bog of concern that she’d been duped by Andrew, led into a trap by her old friend and mentor. She dialed Peter’s number.

“Peter, I’m sorry to be calling this late, but I need to talk. Pick up your phone. Please.” She was unable to get her right shoulder to stop twitching. It was after two. Peter would be asleep. She had no idea where he last put his cell phone. “Call me at my desk if you get this message.”

What was up on her screen couldn’t be ignored. Rules had been shattered; investors had been scammed. It wasn’t that the first money in Steve’s deals came from the same sources. The early money came from a number of funds. Steve didn’t seem to play only a handful of favorites. It was the second and third round of money—the fresh money that didn’t appear until around noon or one on the first day of the offering and that served as the rocket fuel for the first day’s rise by creating the appearance of outsiders taking notice that caught her eye. The names that poured in the new cash on the other deals were the same as those she’d seen on Metrasonics.

Promising your friends the right to come in the door was bad enough because it left the average Joe out in the cold, but that could be explained away by the fact that Drake turned with some repetition to houses who proved they had the intellectual and working capital to execute the necessary trades so it wasn’t reinventing the wheel for every client. Inventing the appearance the deal was hot by getting other friends to invest as the stock moved up in price was where things got dicey.

Steve’s noon money didn’t have the traditional names of the investment funds Kate had dealt with in her years at Greene Houseman or even those with whom Drake had a record of doing business. They were the Jessica Trust or the Samuel Trust, or the Evan Trust, the kinds of names moneyed grandparents give the college endowment fund they open when one of their kids has a baby.

There were six trusts in all that fired money into each one of Steve’s deals somewhere between eleven and one on the day they first went public. Each deal had the same arc in its earliest days. The trusts didn’t take their money off the table—sometimes twice what they had put in—until the second or third day after the opening of the public offer. But in each case they never came back once they collected their winnings.

Steve and his buddies were pouring money into the early hours of his offerings to create the appearance of market interest and then scooping up their winnings before the poor saps that followed with their 401(k)s knew what was going on. It’s called laddering. People could go to jail for it, but Steve and whoever else was behind this knew all their political contributions were paying the dividends they sought. Wall Street had both Washington and Albany so deep in its pocket they knew no one would bother to look at these records. This was nickel-and-dime stuff, a few hundred thousand skimmed off a skyrocketing deal. But now that Kate had this information she couldn’t keep it quiet.

She wondered how Andrew knew to tip her off to this. There was nothing in the records to suggest either he or Greene had any involvement in these trades. Maybe someone said something over too much liquor. Andrew made tens of millions of dollars on the little bits of intelligence he picked up in the bars around the trading houses drinking club soda and lime.

The names of the trusts were familiar to Kate. She knew exactly where to look to verify her suspicion this was an inside deal. She opened her address book, pulled up Ed Roth’s entry and clicked on the section that listed his personal information.

For all his private bluster, the public face Ed presented was of a man who doted on his family. The holiday cards he and Bea Rose, his wife, sent were a collage of pictures of their grandchildren, with a long narrative updating their activities. Kate had entered all of their names into her database so she would never be caught short if Ed started talking about them.

The names matched the trusts from Stephen, the oldest, down to Evan, who at the age of seventeen months made the incredibly smart move of investing thirty thousand dollars in Metrasonics on a Tuesday morning that was worth fifty-seven thousand by Thursday afternoon. What a fool she’d been to allow herself to be so willingly wooed to his shop.

“Peter. It’s me again. Call me as soon as you get this message. Please. I’m at my desk. Please.”

It was a little after three in the morning. Kate wished she could wind the clock back eleven hours, will herself back to four in the afternoon outside Greene’s office, get on the subway to Grand Central, and head home. But she had her electronic fingerprints on evidence Ed and Steve acted as though the rules didn’t apply to them. Silence would make her part of the cover-up.

She sent Clive an email asking if he had some time in the morning.

TWENTY-SIX

Kate met with Clive at ten. By three she was sitting in the offices of Clive’s former law firm with him, Jack, and two lawyers from the firm’s white collar practice group.

The younger of the two outside lawyers was a thin man of around thirty in a dark blue suit and soft red tie. His hair was cropped short, as if he had some involvement with the military. He wore no wedding ring. He looked at Clive when he spoke. “There will have to be some sort of disclosure, probably a fine. If there’s any good news in this it’s that we’ll get some leniency for self-reporting. It’s come out in some of the Bennett Brothers litigation that they were doing the same thing. Half of the firms on Wall Street probably were. The SEC is embarrassed about being caught asleep at the switch on so many fronts it’s now hammering Bennett for keeping it under wraps.”

Clive didn’t seem cheered by the suggestion of leniency. “I hope you’re correct, but I’ve nonetheless ordered Ed’s and Reed’s capital accounts frozen.”

“That’s certainly appropriate.”

Jack seemed at sea over how clinically the men were picking apart his brother’s life’s work. When they’d left the army after the Korean War, Jack and Ed had pooled twenty-five thousand dollars from every relative they could find to open the doors at Drake Carlson. Ed turned down nearly a billion dollars from Bennett Brothers when the market was frothy. And now this.

“I hope there’s enough in them to cover whatever we can’t get the insurers to pay.” Clive shoved a piece of paper across the table. “We’ve run a back-of-the-envelope damage analysis. We think our exposure could be under fifty or sixty million because in most cases the stock held its value long enough that finding a link between this aberrant behavior and a loss will be difficult.”

“I’m surprised your internal auditors didn’t discover these patterns earlier, particularly after the Metrasonics litigation, but now that they’ve been exposed, Drake needs to take immediate steps,” Clive continued. “Todd is right. The cover-up is worse than the crime.”

The older of Clive’s former partners fingered Kate’s spreadsheets. He was in his mid-forties, a former United States Attorney who’d cashed in on winning a couple of high-profile insider trading trials for a seven-figure income defending the same rascals he once sought so vigorously to remove from society. “The investments Ed made through his grandchildren’s trusts were timed to assure whatever stock Reed was touting didn’t lose its traction. We ought to make certain this pattern is limited to the deals Ms. Brewster reviewed,” Todd said. The man’s initials were embroidered on his right cuff. His nails were freshly manicured. “The crazy thing about all of these deals is they were roaring out of the gate with so much velocity and the public’s appetite was so insatiable they didn’t need any artificial stimulants. They would have gone through the roof on their own.”

Although she was now the de facto number two at the company, Kate said nothing. Having loosed all this poison through Drake’s arteries, she didn’t want to make it appear she had so anticipated the fallout from her findings she already was in full stride to take charge.

“Let’s get the information to the SEC, FINRA, and to the D.A. as quickly as possible.” Clive looked at Kate. “Any more surprises before we all go off to do what we now have to do, Kate?” If hatred had a voice it would sound like the brittle edge of Clive’s. Kate said nothing. There was no point reminding Clive it had been Steve and Ed who brought all of this upon Drake, and no one else.

“Clive, please. Not now.” Jack shook his head at Clive’s comment as he rose from his chair. He turned to Kate. “If you have a moment, I’d like to see you privately.” One of the lawyers said a conference room two doors away was open.

Jack extended his arm. It was a gesture Kate found surprisingly gracious. The name Roth was about to be labeled as corrupt in the business pages of every newspaper and on every business news show on every cable station in the world because of what she’d dug up. And yet the man still remembered what it meant to be civil.

Kate would not have been surprised by Jack’s wrath. But Jack’s face didn’t suggest anger so much as it displayed his profound sadness, perhaps confusion, on where to take the conversation, and the firm.

“Do I begin with disappointment, frustration, anger, or fear? Take your pick, Kate, as my heart is overflowing with all those emotions.” Kate wanted to hold the man, just as she would wrap Mack in her arms when he needed to be told everything was going to be all right. She wanted to comfort him, but not to apologize. She was guilty of nothing except uncovering what was kept from him for years.

“I will start with disappointment. I am entitled to know what motivated you to look through those files. It doesn’t justify what Ed and Steve did, but the fact you felt compelled to review those files is troubling.” The color was rising on Jack’s neck. He seemed a frail man. The skin on the back of his hands was almost translucent, busy with blue veins that bulged when he tightened his fingers. “What exactly were you hoping to find?”

“Did you know what was in those trading records?”

“No, and now that I do, I’m convinced my brother was a damned fool, but that’s not the question.”

Kate hardly could tell Jack it was Andrew Butler who whispered something in her ear. Doing so would acknowledge she either had been played for a fool by someone who wanted to take the competition down a notch, or coached on palace intrigue. She defended herself in terms of the Majik deal.

“Do you have any idea, Jack, what’s been going on in the trenches involving the painting tied into the Majik deal? I seem to be the only person at Drake interested in being more candid with the people who likely have a legitimate claim to it.” She held her thumb and forefinger an inch apart. “We’re this close to being labeled Nazi collaborators.”

Jack shook his head in disbelief.

“I’ve been troubled for some time why Ed, Steve, and Clive were so closed to the idea of handling the questions about the family’s claim with some decency. Candidly, I’ve been just as troubled by my own silence. The way Steve behaved in Barcelona was more than offensive, but Ed would hear none of it. It was as though Ed was willing to protect Steve no matter how wrong they were.”

Kate’s voice became gentler. “If I erred because I stumbled onto something, I apologize, but only to you personally for causing you this pain. I owe no apology to Ed or Steve for discovering their little scheme. In hindsight, I should have asked those questions last December when we first began talking to each other.”

“Well, we’re certainly stuck in a grand way now with what you found. I don’t imagine this is the way you saw yourself taking over Ed’s seat at the head of the table, if that’s even possible in this environment. I’m not sure I agree with them, but I can’t imagine a number of the board members offering the opportunity to you. There’s not much of a table at the moment, in any event.” Jack rubbed the back of his neck with his right hand. He swept his left toward the door. His fingers were shaking, as if overtaken by palsy. “We have two hundred people back at the shop who depend on us. What are we supposed to say to them? I hadn’t planned on spending my final days at Drake overseeing the dismantling of the firm, so I don’t have a speech ready.”

Kate was touched by the words Jack chose. She searched for words of her own that might raise his spirits. “What we just discussed doesn’t have to lead to that, Jack. There will be a rough patch of road we’ll have to cross, but we’ll have our PR people get the story out in a way that contains whatever possible damage could come of it.”

Jack said nothing. Kate found herself needing to continue to talk up Drake’s prospects both to buoy the man’s spirits and to convince herself. “We have a marvelous trading desk. Our research group can hold its own with anyone on the street. We have an enormous talent pool.” She was no more schooled than Jack in the protocols of picking apart an organization like Drake.

Kate couldn’t recall when she’d spoken so highly of Drake Carlson since the Majik deal was thrown at her or with such a personal stake in her words. But then, vulnerability will do that.

Jack spoke so softly Kate had to lean forward to capture everything he was saying. “Thank you for that. I wish your optimism were justified, but we haven’t had a marquee deal in over a year. Things are beginning to pick up a bit, but the only offering that’s more than a few steps down the pipeline is the one you’ve been working on with Steve and that’s hardly going anywhere. And now we’re exposed for millions of dollars in loans to Majik, which appears to be a company with very few prospects. Ed and I were looking at staff reductions even before this hit.”

Jack rubbed his left elbow. “Our capital is eroding. Our funding is drying up. This news will be the last straw for Harvard. I can’t see how we won’t start losing that marvelous talent you’re talking about, Kate. We may need to put ourselves up for sale before everyone else starts picking us apart and we experience a run on the bank. As long as we’re talking about things that are close, we’re this close to losing control of our own destiny.” Kate walked next to Jack and took his hand in both of hers.