Red Notice: A True Story of High Finance, Murder, and One Man's Fight for Justice (10 page)

The next day an overnight package arrived at my home containing twenty presigned travel authorization forms. I filled in the details on one of them, faxed it to the Salomon travel department, and got a ticket to Moscow for two days later.

Once I arrived in Moscow, I set up a makeshift office in a room
at the Baltschug Kempinski Hotel on the south bank of the Moscow River, across from Saint Basil’s Cathedral. The first step was to get the money to Russia, which meant we needed somebody who could receive the cash and help us buy the vouchers. Fortunately, we found a Russian bank that was owned by a relative of an employee at Salomon. Bobby thought that would be better than wiring our money into an unknown Russian bank, so he had someone from the back office organize the paperwork, and authorized the transfer of $1 million for a trial run.

Ten days later we began purchasing vouchers. The first step was to collect the cash at the bank. I watched as the clerks withdrew the cash from the vault in crisp $100 bills and loaded it into a canvas sack the size of a gym bag. This was the first time I had ever seen a million dollars in cash, and it was strangely unimpressive. From there, a team of security guards took it by armored car to the voucher exchange.

The Moscow voucher exchange was in a dusty, old Soviet convention hall across from the GUM department store
¹
several blocks from Red Square. It was organized in a series of concentric rings of picnic tables under an electronic trading board hanging from the ceiling. All transactions were done in cash, and, since it was completely open to the public, anyone could walk in with vouchers or cash and transact business. There was no security, so the bank kept its guards around at all times.

The way these vouchers found their way to Moscow was a story in itself. The Russian people had no idea what to do with the vouchers when they received them for free from the state and, in most cases, were happy to trade them for a $7 bottle of vodka or a few slabs of pork. A few enterprising individuals would buy up blocks of vouchers in small villages and sell them for $12 each to a consolidator in larger towns. The consolidator might then travel to Moscow and sell a package of a thousand or two thousand vouchers at one of the picnic tables on the periphery of the exchange for $18 each. Finally, an even
bigger dealer would consolidate them into bundles of twenty-five thousand vouchers or more and sell them for $20 each at the center tables. Sometimes individuals would bypass the whole process and lurk around the outskirts of the exchange, trying to find good prices on small lots. In this profusion of cash and paper, there were hustlers, businessmen, bankers, crooks, armed guards, brokers, Muscovites, buyers and sellers from the provinces—all of them cowboys on a new frontier.

Our first bid was $19.85 per voucher for ten thousand. After we announced our bid, there was a commotion on the floor and a man raised a card with the number 12 printed on it. I followed the bank employees and guards to a picnic table with 12 displayed on it, where our team presented the cash and the people at the table presented the vouchers. The sellers took our $10,000 bricks of hundreds and put them one by one into the dollar counter. The machine whirred until it stopped at $198,500. At the same time, two people from our side inspected the vouchers, looking for forgeries. After about thirty minutes, the deal was concluded. We took the vouchers to our armored car and dealer number 12 took the cash to his.

This exercise was repeated over and over for a number of weeks until Salomon had bought $25 million worth of vouchers—but this was only half the battle. After that, we needed to get the vouchers invested in shares of Russian companies, which was done at so-called voucher auctions. These auctions were unlike any other, since the buyers didn’t know the price they were paying until the auction concluded. If only one person showed up with a single voucher, then the entire block of shares being auctioned would be exchanged for that one voucher. On the other hand, if the whole population of Moscow showed up with all of their vouchers, then that block of shares would be evenly divided among every single voucher that was submitted at that auction.

The scenario was ripe for abuse, and many companies whose shares were being sold would do things to prevent people from attending the voucher auctions so that insiders could buy the shares cheaply.
Surgutneftegaz, a large oil company in Siberia, was rumored to have been behind the closure of the airport the night before its voucher auction. Another oil company supposedly put up a roadblock of burning tires on the day of its auction to prevent people from participating.

Because these auctions were so bizarre and hard to analyze, few people participated—least of all Westerners. This resulted in an acute lack of demand, which meant that the prices were remarkably low, even by Russian standards. Although Salomon was effectively bidding blind at each auction, I’d carefully analyzed every major voucher auction in the past, and in each case the price of the shares started trading at a significant premium to the price paid in the auction—sometimes double or triple. Unless something changed, the firm was essentially guaranteed to make a sizable return just for participating in the auctions.

Once we started accumulating vouchers, I watched the government’s announcements of auctions like a hawk. In the end, I recommended to Bobby that we participate in a half dozen auctions, including the sale of Lukoil, a Russian oil company; Unified Energy System (UES), the national electricity company; and Rostelecom, the national phone company.

By the time we were done, Salomon Brothers had used these auctions to become the owner of $25 million worth of the most undervalued shares that had ever been offered anywhere in history. Bobby and I were convinced that Salomon would make a fortune. We just needed to wait.

And we didn’t have to wait long. In May 1994, the
Economist
published an article entitled “Time to Bet on Russia?” This laid out in simple terms the same math regarding the valuation of Russian companies that I had learned on my first trip to Moscow. In the following days billionaires, hedge fund managers, and other speculators started calling their brokers asking them to look into Russian stocks. This caused the nascent Russian market to move, and move dramatically.

In a short time our $25 million portfolio was transformed into $125 million. We had made $100 million!

With this success I became a local hero on the Salomon Brothers’ London trading floor, where I had finally found a desk. The same “buddies” who had stopped inviting me for lunch and drinks were now lining up at my desk each morning before I arrived, hoping I might throw them a bone to help them make five times their money in the Russian stock market.

In the weeks that followed, Salomon’s top institutional salespeople started coming around too, asking if I would be willing to meet their most important clients. “Bill, it would be a great favor to me if you could come and brief George Soros.” “Bill, Julian Robertson
²
would really love to hear about Russia from you.” “Bill, can you spare some time for Sir John Templeton?
³
”

Of course I could! It was ridiculous—here I was, a twenty-nine-year-old vice president,
⁴
and the most important global investors wanted to hear what I had to say. I flew all over the world first-class on the Salomon Brothers expense account. I went to San Francisco, Paris, Los Angeles, Geneva, Chicago, Toronto, New York, the Bahamas, Zurich, Boston. After nearly every meeting I was asked, “Bill, can you manage some money for us in Russia?”

I didn’t have a ready answer. Our desk was set up to manage only the firm’s money at that point and couldn’t take outside capital. “I don’t know,” I said to them. “Let me go back to the bosses and see whether they’ll let us.”

This type of decision wasn’t in Bobby’s domain. He may have been the firm’s best investor, but he had no authority to decide these types of organizational issues. So once I was back in London, I went to the corner office of the head of sales and trading, and pitched him the idea. Unlike my previous experience when nobody wanted to
know anything about Russia, he gave me a much warmer reception. “That’s a great idea, Bill. I like it a lot. I’ll tell you what. We’re going to form a task force to study it.”

A task force!
I thought.
What the hell?
Nothing was ever simple with these people. Here was a golden opportunity staring them right in the face and they had to bring their organizational nonsense into the picture.

I went back to my desk, and ten minutes after I sat down my phone rang with an unidentified outside caller. I picked it up. It was Beny Steinmetz, a charismatic Israeli billionaire whom I’d met on my Salomon world tour. Beny was in his late thirties with intense gray eyes and close-cropped, wiry brown hair. He had inherited the reins of his family’s rough-cut-diamond business, and he was one of Salomon’s biggest private clients.

“Bill, I’ve been thinking a lot about the presentation you made in New York a few weeks ago. I’m in London and I’d like you to come over to the Four Seasons and meet some of my colleagues.”

“When?”

“Now.”

Beny didn’t ask questions, he made demands.

I had some meetings scheduled that afternoon, but they weren’t as important as a billionaire who wanted to invest in Russia, so I canceled them and hopped in a black cab up to Hyde Park Corner. I went into the hotel lounge and found Beny sitting with a group of people who worked for him in his diamond business. He made the introductions. There was Nir from South Africa, Dave from Antwerp, and Moishe from Tel Aviv.

We sat. Beny didn’t waste any time with pleasantries. “Bill, I think we should go into business together.”

I was flattered that someone as wealthy as Beny would react so strongly to my idea, but I looked at him and his diamond-dealer colleagues and thought there was no way I could be business partners with such a motley crew. Before I could say anything, Beny continued, “I’ll put up the first twenty-five million. What do you think?”

That gave me pause. “That sounds interesting. How do you see this business being set up?”

He and his people then launched into a rambling discourse that showed that they knew next to nothing about the asset management business. All they knew was that they had money and wanted more of it. At the end of the meeting, I was simultaneously excited and disappointed.

I walked out of the hotel thinking that this was exactly what I wanted to do, but exactly the type of people that I didn’t want to do it with. I spent the rest of that day and the whole night turning over this dilemma in my head. If I went out on my own, then I would need seed money, but there was no way a partnership with Beny and his guys would get off the ground because they had no asset management experience, and neither did I. Ultimately, I was going to have to turn Beny down.

I called him the next morning and braced myself for the difficult prospect of saying no to a billionaire. “Beny, I’m really tempted by your offer, but unfortunately I can’t accept. I’m sorry, but I need a partner who knows the asset management business. As accomplished as you are, this isn’t your field either. I hope you understand.”

People don’t turn down Beny Steinmetz, and without a trace of disappointment he said, “Sure I do, Bill. If you need someone with asset management experience, then I’ll bring in someone with asset management experience.”

I winced as he said this. I imagined him coming back to me with a cousin from some small brokerage firm and putting me in an even more awkward position as I turned him down a second time.

But twenty minutes later he called back. “How would you feel if Edmond Safra did the deal with us, Bill?”

Edmond Safra! Safra was the owner of Republic National Bank of New York, and his name was like gold in the world of private banking. If Edmond Safra was willing to join this venture, it would be like winning the lottery.

“Yeah, that would address the issue. I’m
very
interested, Beny.”

“Good. I’ll set up a meeting.”

The same afternoon he phoned back. “It’s all set. Fly to Nice and be on the Carlton pier in Cannes tomorrow at noon.”

But I have to work tomorrow
, I thought. “Beny, can we do this next week sometime so I can—”

“Safra is ready to see you tomorrow, Bill,” Beny interrupted, irritated. “Do you think it’s easy to get a meeting with him?”

“Uh, of course not. Okay, I’ll be there.”

I bought a ticket, and when I woke up the next morning, I put on my suit, went straight to Heathrow, and checked in for the 7:45 a.m. flight to Nice. Before boarding I called the trading desk, faked a raspy cough, and said I needed the day off.

I arrived in Nice, and, following Beny’s instructions, I took a taxi to the Carlton Hotel in Cannes. The bellman thought I was checking in, but instead I asked how to get to the pier. He pointed across the Boulevard de la Croisette at a long gray pier that extended past the beach and into the blue Mediterranean. I crossed the street squinting against the sun (I’d forgotten my sunglasses in cloud-covered London) and stepped onto the pier. I walked over the planks passing beautiful, tanned people in their tiny swimsuits. I was completely out of place with my dark wool suit and my pasty-white skin. By the time I reached the end, I was sweating. I checked my watch. Five minutes to noon.

A couple minutes later, I noticed a bright speedboat approaching from the west. As it got closer, I realized that it was Beny. He pulled his boat—a forty-five-foot, white-and-blue Sunseeker—to a chortling stop at the edge of the pier and yelled, “Bill, get on!”

Beny was dressed like a Côte d’Azur playboy in a light apricot shirt and white linen pants. The contrast between us couldn’t have been starker. I unsteadily hopped aboard. “Take your shoes off!” he ordered. I did, revealing black socks pulled above my ankles.

Beny maneuvered the boat away, and as soon as we were free of the no-wake zone, he punched it. I tried to talk about the meeting and
Safra, but the engine and the wind were so loud it was impossible. We rode east back toward Nice hard and fast for half an hour, rounding the Antibes peninsula and crossing the Baie des Anges before arriving at the port of Villefranche-sur-Mer.