Suddenly Kat was eye to eye with an irate six-foot-plus meth addict, his unshaven face covered with the telltale sores. Too late for the police, Kat thought. The addict lunged towards her with the knife. She raised her arms up to protect her face. No one would save her this time.
13
“Kat? Wake up!” Harry shook Kat’s shoulder and she awoke with a start. “Are you all right? What happened to the glass?”
“Oh, that.” Kat paused for a moment as she sat up and surveyed last night’s damage. So it hadn’t been a bad dream after all. “Had a run in with a crazed druggie looking for a place to crash.”
“Oh my god—your arm is all cut up! You need a doctor. I’m taking you to Emergency right now!” Three large gashes ran the length of Kat’s forearm. They were only surface cuts, but she had to admit they appeared a lot worse than they felt.
Harry eyed Kat with a mixture of worry and panic as she described last night’s events. The drug-crazed psycho had managed to get in the building after the janitors left. The police said someone had forgotten to lock the lobby door.
“Uncle Harry, don’t worry. The police came in time, although just barely. And my arm’s fine. It’s stopped bleeding and I think I’ll be okay. But I’m having second thoughts about this neighborhood.”
Kat hadn’t slept much. The cops had left at three in the morning, but the alarm company hadn’t arrived until seven. The glass company still hadn’t shown up. She had drifted uneasily in and out of sleep on the reception area couch, knowing someone could just walk right in. Although the building was supposedly secure (just like it was when the violent druggie got in), her office was still wide open to the hallway until the glass wall was repaired.
Water Street swarmed with homeless people in winter, especially after dark. They crept into the old buildings to escape the cold, damp Vancouver nights. Most were harmless, but some were violent, like the madman last night. Epidemic crystal meth and heroin turned Water Street into a veritable shooting gallery after dark. The cheap rent came at a cost.
“You hungry? Here, have one of my croissants.”
Kat peered into the open bag and chose one drizzled with chocolate.
“Is this your breakfast? You were going to have all these?” No wonder Harry was hyperactive. “Does Aunt Elsie know you eat like this?”
“Of course. I’m bringing the rest home.”
Kat doubted that, but didn’t say anything.
Instead she took a bite. Chocolate always helped her think straight.
“Did you find the Liberty money yet?”
That didn’t take long. There was a reason Uncle Harry was at the office at seven a.m.
“No. How much did you say you invested?” Kat studied him carefully as he averted his eyes, trying to avoid scrutiny.
“Enough.”
Kat was worried. Did Harry really have all his savings tied up in Liberty? Had he borrowed even more to make the investment?
“Well, the only lead I have right now is the falsified production scenario. The money trail goes cold in Lebanon. Since I’ve got nothing else, I’ll focus on who has the means and the motive to misrepresent production at Mystic Lake. The motive part is easy. Increased production pushes up Liberty’s stock price. Better mines also make Liberty more valuable. That’s how Bryant convinced the banks to give him the five billion dollar loan in the first place. The only parties that materially benefit are shareholders and company execs.”
“I get it.” Harry sat down beside her on the couch. “The shareholders, because their stock price will go up as Liberty’s value does. Liberty’s value goes up because with the diamond find the company is worth more. The company execs benefit with bigger bonuses when earnings increase, and they all have sizable stock options and shares. Actually, Kat, I did a bit of digging myself. There are a couple of people who really stand out. Don’t forget, I’m a shareholder. And a pretty good investigator too, I might add.”
“Really? That would have to be the insider shareholders, right? Arms-length shareholders don’t have the access to do anything. They can’t manipulate earnings, falsify financial statements, or do any of the things insiders can to impact the share price.”
Two guys in coveralls tapped on the mangled doorframe.
“This the wall?” the shorter one asked.
Kat nodded and they dropped their tools and got to work.
Kat and Harry moved to her office to escape the noise as the men hammered out the remaining glass shards.
“What about stock options?” Uncle Harry asked. “How do they work?”
“They give the holder the right to buy stock at a certain price. Usually it’s the stock’s market price at the time the options are issued. Many company insiders hang onto these options for years. Depending on how long ago they were issued, they could be worth tons of money.
“Exercising means you have the right to buy the shares at the option price. If that’s below the current market price, you’ll make money if you sell right away. The profit is the difference between the cost to exercise the options and the proceeds from selling the shares.”
Uncle Harry sat silent for a moment, savoring his second croissant.
“Isn’t there a special name for that? When your options are worth something?”
“It’s called ‘in the money.’ When the market price is above your option strike price, it’s considered to be in the money. It’s worth something. If it’s the other way around, it’s ‘out of the money.’ In that case, you would hang onto the options and wait until the share price catches up.”
“Didn’t Bryant have a lot of those in the money options?”
Uncle Harry really had done his homework. He must have pored over the annual report for hours, which was most unlike him. He had to have a lot at stake. Did Aunt Elsie even have a clue about this Liberty investment?
“Yes, he did. Bryant had the most in the money options of anyone.”
“Why not just cash those in if he needed money?”
“Good question, Uncle Harry. It doesn’t make a lot of sense, does it?” Kat didn’t wait for an answer. “The fact that he didn’t is suspicious. Maybe he’s not our man.”
“Who then?”
“Alex Braithwaite also had a lot of in the money options. Seven million, as a matter of fact. Susan’s are at two million, but they aren’t vested. There’s less of a motive for her to forge mine production numbers as she can’t cash in the options for another two years.”
“And Braithwaite was murdered.” Harry scratched his head.
“Right. He had a motive to increase Liberty’s stock price, but never exercised his stock options. He’s also a beneficiary under the Braithwaite Family Trust, who is a majority shareholder. So is Audrey Braithwaite, his sister. But Alex left everything to her in his will.
“So Audrey has nothing to gain by killing Alex. And she didn’t have options. Do you think Alex knew something?”
“Possibly.” Kat remembered her conversation with Alex. “Killing trust beneficiaries doesn’t change stock ownership. The trust still controls the same amount of Liberty stock, so maybe it was to silence him.”
“What about the other shareholders?” Harry asked as he grabbed a third croissant. There wasn’t going to be anything to take home to Elsie.
“The Class B shares are very widely held. There’s no one in particular that has more than five percent of those shares, meaning none of them could control or significantly influence Liberty.
“The A shares are another story. Since they have ten times the voting power of the B shares, Nick effectively controls forty percent of the company, even though he owns just four percent of the combined A and B shares. The Braithwaite Family Trust also has a pretty big holding in Class A shares. With three-point-five percent of total shares outstanding, the Trust controls thirty-five percent of the voting shares.”
“So together, they own enough shares to outvote any of the other shareholders?”
“That’s right. The L
iberty company charter requires a sixty-six and two-thirds supermajority to approve major corporate resolutions. So, as long as Nick and the Braithwaite Family Trust vote the same, they have seventy-five percent of the shares and render the other shareholders powerless. The minority shareholders can’t determine who sits on the board, approve or stop a merger, or influence other important decisions shareholders can normally make.”
“So me and the rest of the shareholders don’t really have any ownership rights, do we? We’ll always be outvoted. Why would anyone consider buying a company with multiple voting shares? Why the heck did I buy them?”
“Good question. I suppose as long as things are going well, you might not think about the implications. Most people don’t.” Kat never understood why anyone would want to invest in a company that allowed some shareholders more votes than others. Investors never considered voting rights until things went downhill. Only then did they realize how little power they wielded as a shareholder group.
“It sure is a surprise to me. I thought my shares would have the same vote as any other shareholder. One vote per share. Not that the A shares would have ten votes for each B share. That’s not fair. Us Class B shareholders never get to have our say.”
“It can still work in your favor, Uncle Harry. If the trust and Nick disagree, then the other shareholders do have a voice. The trust and Nick will mostly cancel each other out. If they vote together their shares total seventy-five percent, but if they offset each other, Nick’s forty percent offset with the trust’s thirty-five percent will only net a five percent vote. Then the other shareholders’ vote will matter.”
“I never thought of it that way. If neither the trust nor Nick Racine control Liberty outright, they can veto each other’s corporate resolutions put before the board.”
“Yes.” Kat was surprised again by Harry’s knowledge. “So if they don’t agree, they have serious problems. Unless they can garner the support of many Class B shareholders, they could have a stalemate.”
“It still seems like someone wanted Alex Braithwaite out of the way. Even if he didn’t control the trust, he might have had influence over the decisions it made.”
“It’s definitely a possibility,” she said. “But don’t forget that the shareholder is the Braithwaite Family Trust, not Alex Braithwaite. Even if someone did want to get rid of him, his replacement would still probably vote the shares the same way. The vote would be for whatever results in the most money for the trust.”
“So, except for the seven million in stock options, he’s probably not our man?”
“Probably not. With the dual-class voting structure, Nick has the most to gain from a higher share price, although he would have to sell his shares to benefit.” Kat doubted Nick would do this. He identified so closely with his co-founder father and had spent his entire career at Liberty. He was also very hands on as director. Selling out his stake in Liberty seemed unlikely. Unless forced to.
Still, even without selling, a higher share price increased his net worth on paper, which at the very least probably boosted his ego. This alone might be achievement enough to a power hungry tycoon like Nick.
“So, Kat, I guess the stock price manipulation and false production points to Nick and Alex. Although Alex didn’t have voting control, he did have influence indirectly through his family trust.”
“That’s right. We’ve got a strong motive for both of them. Lately there had been disagreements between the two. Seems Alex was not too happy with some of Nick’s decisions. Things like hiring Susan and expanding the Mystic Lake mine. Although he didn’t control enough shares to swing the vote, thirty-five percent is enough to block any corporate resolutions he doesn’t like. Which the Braithwaite Family Trust has started to do.”
Secretly Kat was amused that Nick and Alex had been butting heads. The dual-class share structure was backfiring on the two largest Class A shareholders as they couldn’t agree on the direction of the company. It was democracy in action with an ironic twist.
Kat and Harry split up to work on the share angle. Harry was no forensic accountant, but he was helping a lot. His labor was free, and his enthusiasm and curiosity were assets as long as she kept an eye on him. Unsupervised, he could get into a lot of trouble.
Harry would review the board meeting minutes and make a list of which resolutions were brought forward, who voted for or against, and which ones were pending. Kat would review the insider buys and sells to see if there was any unusual activity.
Kat really needed to talk to Takahashi. He still hadn’t returned her numerous messages. Friday’s board meeting was coming up awfully quick, and she needed something to substantiate her suspicions about the doctored Mystic Lake mine production. She would have to pay him a personal visit.
Kat checked the trading volume on Liberty, something she was doing daily ever since being assigned to the case. The share price was on a roller coaster ride, mostly down, but there were a few pops as some optimists decided the new lows were a bargain.
The short interest had increased over the last week, but what she saw on the screen today gave her pause. The shorts were now more than sixty percent of the total shares issued. Selling short meant selling stock you didn’t own. If you were right and the stock dropped in value, you could make a lot of money. On the other hand, if the underlying stock increased in value, you had to buy the stock at a higher price than you paid to cover your losses. Your potential loss was theoretically unlimited.
Who was shorting such a massive amount of Liberty shares? And what did they know that she didn’t?
14
Ortega gazed out the window of the six-seater Cessna as the pilot taxied down the runway. The small private airstrip was carved out of the jungle a few miles from Ciudad del Este, Paraguay’s lawless Triple Border town. From here a car would be waiting to drive him into the black market capital straddling the triple borders of Paraguay, Brazil, and Argentina. It was doubtful any legitimate business at all took place in Ciudad del Este.
Ortega was making the trip twice a month, but the risk was escalating as his face and movements became known. He tried to vary his route and timing so as to not draw unwanted attention, but it was difficult. And he trusted no one enough in his organization to inspect the diamonds and agree on a price. Trust could always be bought, a lesson he had learned the hard way with Vicente.
Ciudad del Este was not only the source of most contraband goods into Brazil and Argentina, but also a major global center for black market weapons and the rough diamonds that financed conflicts and wars. It was a microcosm of international terrorists, spies, and organized crime, a melting pot of criminal activity where you could buy everything from Chinese counterfeit goods to cocaine and Kalashnikovs. Everyone was represented: Hezbollah, Al Qaeda, Hong Kong triads, and lately, the Russian mafia. Even the CIA and the Mossad found it worthwhile to keep a permanent presence here. It was where Ortega made his money.
It was closely watched by the CIA and policed in varying degrees by Argentina, Brazil, and Paraguay. The local police were bought and paid for, and Ortega wasn’t worried about the CIA in the short term. Although they had the ability and influence to shut down his operations, they were unlikely to do so. The web of international terrorism and money laundering was intricate, and as far as they knew, Ortega was simply a middleman.
The CIA had their hands full and had no jurisdiction in Paraguay anyway. But increased law enforcement presence meant that Ortega needed to find new sources in the longer term. At some point the border town would cease to be a contraband dealers’ mecca, and that day was fast approaching. For the moment though, law enforcement focused on the terrorists, not on Ortega’s financial pursuits.
Ciudad del Este seemed an unlikely spot for deciding the fate of Middle Eastern history, but since 9/11 it had become a haven for terrorists. If they were wanted in Europe or America, they would not be found. Here they lived within gated compounds, wanted terrorists ensconced in safe houses and protected by the sanct
ity of the mosque. They used the time of lying low to learn English, fabricate identities, and build up trade and financing networks. There were even rumors of a training camp nearby, further along the Paraná River.
Ortega worried most about the competition. The larger shipments were much more profitable for him, but they were starting to catch the attention of some of the other players in town. Every two weeks when the diamonds arrived he breathed a sigh of relief. He tried to vary the schedule, but that proved difficult with such large amounts. He needed volume to make his plan work and maximize his profits. So the shipments got bigger, which increased the magnitude of the loss if they were seized or stolen. The last thing he needed was for his competition to find it and intercept it, or for the police to demand a larger payout. He needed to find another way to move the diamonds. His primary contact was Abdullah Mohammed, a short stocky man who appeared to be in his late forties, although his full, graying beard probably added a few years.
Ortega’s sedan pulled up to Mohammed’s Lebanese grocery store. A small weathered sign above the store indicated it was an importer of Arabic foodstuffs. The scent of cardamom and cloves rose from burlap bags filled with spices outside the store. The scent wafted into the car through his open window. It betrayed no hint of the lucrative business taking place behind its façade.
Ortega exited the car and ignored the huddle of Middle Eastern men eyeing him curiously from the Turkish coffee shop next door. The men had too much time on their hands, hanging around at all hours of the day and night, another problem brewing in Ortega’s view. The Lebanese seemed to be a conduit for everyone from Hezbollah to the Nigerian mafia.
A stray dog outside the store regarded him hopefully, searching for food. Ortega scowled and delivered a swift kick to the dog’s flank, causing it to whimper and slink away in fear. Everyone wanted something from him, he thought in disgust. Mohammed was another example.
[Katerina Carter 01.0] Exit Strategy Page 7