Octopus

by Guy Lawson

  “I’m not allowed on the fucking property,” Israel said. “She wants to divorce me and make my life miserable. She thinks there’s "fty million dollars hidden somewhere. She won’t take ten million. Ten million fucking dollars.”

  “I’m sorry to hear that,” Ryan said, moved to see Israel in such a pitiable state.

  “I didn’t threaten her,” Sam said. “I swear I didn’t threaten her. The only way for a woman to get a man out of the house in New York is to say they have been threatened.”

  Ryan sympathized. Sam had always been nice to her, and she hated to see anyone su#er so terribly. Two weeks later, she got a call from Israel’s personal assistant. He wanted her to come to his house and do decorations for him for when the kids came to see him over the holidays. Ryan expected Sam to be living in squalor, like most men who have just split from their wives. As she drove up to the Trump house, she stared in wonder at Sam’s new digs—the large Grecian sculpture in the water fountain, the chapel, the row of expensive cars. It was amazingly opulent, even to Ryan, who was used to working for wealthy clients. A maid ushered her inside.

  “Hell, dude, you’re supposed to live in a shack,” Ryan said.

  “I know,” Israel said with a smile. “Donald Trump had a place for me, so I’m renting it.”“What do you need this place for?” Ryan asked. “It’s huge.”

  “I can do it, so why not?” Israel said. “When you get to a certain status, when you have a hedge fund, you can’t live in a little house because the world is not going to look at you as being successful.”

  Israel gave her a tour, explaining that he wanted a twenty-foot tree for the chapel, along with the best in trimmings and seasonal wreaths. Israel set a budget of $15,000.

  Working late into the night on the rush job, Ryan and her assistant ended up sleeping over at the mansion.

  “There were four empty bedrooms,” Ryan recalled. “I’d never been in a bed as comfortable as that. It was like !oating on a cloud. There were big baths in each room, saunas, !u#y down comforters. I slept in a huge king-sized bed that belonged to Donald Trump. I didn’t want to leave.”

  In his own goofy and lewd style, Sam constantly hit on Ryan. She was able to de!ect his advances, but she enjoyed his company. Sam was unpretentious and down-to-earth, despite his obvious success. The German shepherd puppy Sam had just purchased was great fun, careening around the house and barking and nipping at strangers. Much of the time, Israel was con"ned to his bed because of his back pain. Ryan could see that her presence lifted his spirits.

  “I could tell he was really sick,” Ryan said. “He was a lovable guy. I felt sorry for him. The hours he kept were not normal. He was in a fog. We’d sit up in his bedroom and watch SpongeBob SquarePants together. Sam was like Elvis in a huge bed.”

  ON THE LAST TRADING day of 2003, Sam’s computer program lit up the way it had on September 11, 2001. All of the indicators pointed in the same direction. The last time Forward Propagation had o#ered such a prediction, Sam had been thwarted by the terrorist attacks. This time he was not going to be denied. Sam loaded up on SPDRs—known as “spiders,” they were bets on the S&P Index. He leveraged his position to the hilt. Then he waited. And waited. Days passed and the market didn’t take the turn Forward Propagation had foretold. The margin call from the clearinghouse SLK had to be met. Sam had no option but to sell to meet the margin call. Another $20 million was gone.

  According to Bayou’s audited results for 2003, the fund had a total investment of $323,000,549. Net income was $34,527,736. The incentive fee Sam had earned was $8,631,935. The line “Due from Brokers” was $117,960,120. Not that Marino had bothered to calculate that "gure precisely. There was the “real” loss of money, which ran to more than $50 million. The rest was “fake” money. Taken together, only a lightning bolt from the heavens could solve the Problem.

  At the end of the year, SLK created a list of the clearinghouse’s ten biggest losers.

  Three of Sam’s funds were on the list, including Bayou Superfund, which had lost $35

  million and thus earned the ignomy of top spot.

  “Do these numbers re!ect pure pro"t and loss or a combination with fund redemptions?” the managing director of SLK asked in an e-mail.

  “Pure profit and loss,” came the reply.

  “Ugly!”

  “No kidding.”

  But SLK took no steps to investigate how Bayou managed to stay in business despite the epic losses. In January of 2004 alone, the division of Goldman Sachs made $100,000 in commissions from Bayou. Speculation about the errant hedge fund led to an exchange of e-mails among traders at Goldman but no further.

  “What is the dealio?” one SLK employee asked of Bayou.

  “In out,” said the reply, describing Sam’s frantic trading style. “A real Wizard of Oz kind of place.”

  “Down on the BAYOU baby.”

  “We love them. Only question is if Bayou is a one hit wonder or real?”

  As the losses mounted, Sam’s mood swings were growing more violent. His sense of dread was deepening as if he were caught in quicksand. After struggling out of bed to see a psychiatrist as part of his desperate attempt to remain in contact with his children during the divorce, Sam su#ered a full-blown panic attack in the doctor’s o$ce. Unable to breathe, unable to speak, Sam was convinced he was about to die. When he went to a heart specialist, he discovered he had a severe case of sick sinus syndrome. The anxiety from running the scam had slowed his metabolism down—the opposite of what might be expected. He was at risk of having a massive stroke.

  “My body was falling apart,” Sam said. “I couldn’t tell my investors or else they would freak out and there would be a run on the fund. The doctors performed open-heart surgery and implanted a pacemaker. I took time o# work, but I didn’t tell anyone about my health. It had to be secret.”

  As Sam recovered from yet another surgery, his father called to say that the family was going to develop a tract of real estate they owned in New Orleans. The acreage was going to be turned into a residential subdivision. To get "nancing, all of the Israels had to "ll out "nancial disclosure forms. Sam completed the document, stating that his income for the prior year had been $8 million. When Sam returned the application, his father immediately called his son in alarm. The elder Israel was concerned about how much money Sam was making. What was Sam doing to make $8 million? The sum was too big, Sam’s father said—with well-justified concern. But all Sam heard was criticism.

  “It was the biggest moment of my life,” Sam recalled. “I was making it big-time. I was vindicated. I was "nally showing my old man that I could really do it on my own. But he wouldn’t give me any approval. All he said to me was ‘It is too much money.’ I was at the fucking peak, and my father still couldn’t be proud of me.”

  CHAPTER TEN

  Octopus

  Investing in Bayou Funds entails substantial risks,” the marketing material for Bayou released in February of 2004 stated. Investors were told that they were essentially entrusting their money to one person: Sam Israel. “Bayou Funds are single-manager funds,” it was said. “This eliminates diversi!cation of viewpoint and expertise. This risk is heightened by the facts that (i) trading strategies and tactics are essentially set by Sam Israel III; and (ii) such strategies and tactics are developed and implemented on the basis of his judgments about the market.”

  From the marketing material, tying your !nancial fate to Sam’s judgment appeared to be an excellent decision. An investment of $1,000 in 1997 was worth $4,000 by the beginning of 2004. Like Bernard Mado"’s “split-strike conversion” strategy, Sam’s Forward Propagation independently arrived at the pluperfect Ponzi performance: 18

  percent. The number was calibrated to be incredible, credible, and irresistible all at once. There were other ways the men unconsciously mirrored each other. Both had legitimate broker-dealers inside their funds. The sight of a busy trading #oor gave Mado" and Israel the invaluable ability to seem as if they ran function
ing and normal businesses.

  But the two men were fundamentally di"erent. Mado" didn’t try to solve his problem: The hedge fund was a fraud from its inception. Mado" gladly feasted on the entire life savings of many of his investors. Like Charles Ponzi, Mado" also never actually traded. Not Sam. When he was physically able, Sam traded and traded and traded. He constantly searched for a solution to the Problem—any solution. But the harder he looked the more lost he was. He wasn’t just caught in a tangled web; he was wandering in a labyrinth of his own design, a maze as ornate as the one the legendary arti!cer Daedalus constructed in ancient Greece—a structure so cunning in its conception that even he himself could not find his way out.

  Sam’s torment was made in!nitely worse by his brutal ongoing divorce. He could no longer safely indulge in illegal drugs. A single dirty urine sample would mean the loss of visitation privileges with his children. Now that he was forced to sit as he peed because of his back pain, the humiliation and peril involved in the simple act of urination perfectly illustrated the compounding impossibilities of his situation.

  Debra Ryan watched in distress as Sam’s mental health spiraled downward. Without knowing the cause of his misery, one evening she suggested Sam talk to her psychic, an English spiritual consultant named Bernard Ilsley. A telephone conference was arranged with Ilsley, who was based in London. Ilsley told Sam that as part of his craft, he communicated with a Native American spirit named Silver Cloud, as well as an Oriental avatar called Dr. Chan. On the call Ilsley said that the anger and recriminations of the divorce proceedings would not stop. “But in your career good things will happen in the next month or two,” Ilsley said. “I see March or April being a time when you will have good luck. A !nancial opportunity will present itself that could make a big change for you.” Ilsley said that a man named Robert was going to enter Israel’s life and have a big impact. Ilsley couldn’t quite hear all that Silver Cloud was saying about Robert—the spirit’s voice was too faint. But Sam should prepare for Robert’s looming arrival.

  Afterward, Debra Ryan eagerly asked how the session had gone.

  “It was a bunch of bullshit,” Sam said, rolling his eyes.

  DAYS LATER A MAN named Robert did enter Sam’s life—and change it forever. Jack O’Halloran was the conduit to the foretold Robert. One evening Sam and O’Halloran were eating Chinese food in the chapel. Sam talked about Wall Street and the life of a trader. Running Bayou wasn’t interesting anymore, he said. The hedge fund business was tedious and grueling. He was looking for a trading strategy that could change the game—and make him billions.

  “There are paradigm shifts on Wall Street every ten years,” Israel said. “When I started in the early eighties, it was insider trading and soft-dollar scams. Then it became IPOs and the dot-com bubble. Now it is high-frequency trading. The banks are front-running the market like crazy. I’m trying to figure out what’s coming next.”

  “There’s a technology I have heard about that might be good for your trading system,” O’Halloran said. “But the guy who knows about it is really secretive. I shouldn’t even be talking about him. He’s very deep into CIA black ops.”

  Sam’s interest was piqued. O’Halloran said the man’s name was Robert Booth Nichols.

  He was a real-life Jason Bourne, a black ops national security asset who had worked on the dark side of America’s covert activities for decades. According to O’Halloran, Nichols was a stone-cold killer, an agent who functioned at the absolute highest levels of government.

  “Bob is a keeper of the secrets of the world,” O’Halloran said. “He knows how the world really runs. That’s the only reason he is still alive. Anything happens to Bob, the secrets get released.”

  After midnight, alone in the silence of the night, Sam turned on his computer and typed the name “Robert Booth Nichols” into his Internet search engine. Hundreds of links appeared. Nichols was an Internet celebrity, it appeared, his various operations turning him into a conspiracy theory superstar. There were references to “the Octopus”

  and multiple unsolved murders. Websites speculated about Nichols’s ties to illegal black ops and organized crime. Sam clicked on a link to a book called The Last Circle. It was an unpublished manuscript written by an amateur author using a pseudonym to protect her identity.*

  Exploring the intersection of organized crime and conspiracy theory literature, The Last Circle was written in dense, insistent prose. The chronology of events was overwhelmingly detailed, and it was often di$cult to follow the complex, interwoven narrative. But it was evident the book required more than just suspension of disbelief: An entirely new way of seeing the world had to be embraced. Nothing was the way it appeared, the book seemed to claim. American covert foreign policy, the criminal justice system, the reach of computer technology—all of it was part of a web of deceit spun by a secretive murderous elite called the Octopus.

  At the center of the story was Robert Booth Nichols. According to The Last Circle, Nichols was a CIA assassin, illegal arms dealer, mob associate, and con man. He carried himself with the air of an old-school Hollywood actor—Clark Gable, the book said, without the mustache. He was an international man of mystery with a smooth, sly, enigmatic manner, a cigarette dangling from his mouth, an American with the Anglophile habit of using words like chap.

  According to The Last Circle, Nichols had been involved in virtually every nefarious covert plot carried out by the U.S. government for the past three decades. Iran-Contra, the October Surprise, the CIA’s mind-control experiment called MK Ultra—Nichols was the Zelig of the conspiracy theory world. When the CIA dealt heroin to fund the war against Hezbollah in Beirut in the 1980s, Nichols was there. When Ferdinand Marcos of the Philippines smuggled billions of bullion into Swiss bank accounts, his “facilitator”

  was Nichols. When three people were murdered on the Cabazon Indian reservation outside Palm Springs in the summer of 1981, Nichols was there developing illegal biological weapons and machine guns to arm Nicaraguan rebels.

  The unsolved triple homicide in Cabazon formed the premise for The Last Circle. It had become part of an investigation taken up by a freelance journalist named Danny Casolaro. In the early nineties Casolaro had been reporting for a proposed book on the CIA’s alleged theft of a computer program named PROMIS. The program had been developed a decade earlier by a company called Inslaw for the Department of Justice to turn the !les of the federal court system into a searchable database. The program had been so successful that American intelligence agency apparatus had secretly stolen the software to put it to use covertly. The CIA had recon!gured the code and installed it in 32-bit Digital Equipment Corporation DAX minicomputers. The agency had used front companies to sell the new technology to banks and leading !nancial institutions like the Federal Reserve. Hidden inside the computer was a “trapdoor” that enabled intelligence agencies to covertly monitor !nancial transactions digitally for the !rst time. The highly classi!ed initiative, known as “Follow the Money,” had allowed the Reagan administration to trace the Libyan government’s secret funding of a terrorist group that had bombed a disco in Berlin in 1986, killing an American soldier and wounding two hundred civilians. In Bob Woodward’s book Veil, former CIA director William Casey said the secret money-tracking system had been one of his proudest achievements.

  But it was done illegally by pirating the software—an act that led to a lawsuit by Inslaw. Casolaro believed the theft of PROMIS was only a small part of a vast conspiracy run by an extremist element inside the American intelligence community.

  The cabal killed, stole, dealt drugs, all with complete impunity. Nichols was part of this secret lawless group. According to The Last Circle, Nichols had been connected deep inside the White House during the Reagan presidency. Nichols had also acted as the go-between for the Gambino crime family in its dealings with the Hollywood studio MCA.

  Nichols had traveled the world as a hit man on behalf of the faction bent on world domination. Then there was this:
The Last Circle reported that Nichols possessed the “real” Zapruder film, which showed who had really killed President Kennedy.

  Sitting in the dark, Sam felt like his head was going to explode. There really was a “real” Zapruder !lm? Was it possible? Conspiracy theories appealed to Sam’s sense of how the world worked. He believed Washington was just as corrupt as Wall Street; power was just as dirty as money. Danny Casolaro had given a name to this cabal. He called it “the Octopus” because of the way its tentacles were wrapped around so many aspects of society. The name made perfect sense to Sam. He had seen !rsthand how the “giant vampire squid”† called Goldman Sachs manipulated the market. The Octopus was the same beast, only it was run by American intelligence agencies. Just as Goldman front-ran the market and created fraudulent derivatives, so did the CIA deal drugs and assassinate President Kennedy. It stood to reason that men like Nichols existed to do the bidding of the elite few who ran the world. To Israel, Bayou’s fraud was his own secret manifestation of the deceit he saw everywhere.

  So it was that Sam entered the lunatic world of Robert Booth Nichols—a house of mirrors in an upside-down universe that made the Bayou conspiracy look tiny by comparison. In The Last Circle Sam read how Casolaro believed he was about to expose a massive conspiracy that would solve the great puzzles of modern history. The Octopus was the title of the book Danny Casolaro planned to write. But Casolaro wasn’t able to make his story make sense, not on the page or in his mind. It was as if the tentacles of the Octopus had wrapped themselves around Casolaro’s imagination and dragged him to the bottom of the sea, where he drowned in paranoia.

  As Casolaro descended ever deeper into the unfathomable Octopus conspiracy, he’d fallen under the spell of Nichols. The intelligence operative was an expert in mind control, according to The Last Circle, trained in hypnosis as well as the powers of intimidation he’d developed as a racketeer. When Casolaro said he intended to reveal the machinations of the Octopus, Nichols said he would be killed if he continued his investigation. The murder would be done in a way to ensure that no one was caught, Nichols said. It appeared to be a threat in the form of a warning. Terri!ed, Casolaro turned to law enforcement to ask about Nichols. He learned that Nichols was indeed CIA, at least to some degree. The nature and extent of his connections were classi!ed, so the FBI agent and federal prosecutor who had investigated Nichols in the past didn’t have access to the information. The prosecutor told Casolaro that Nichols had twice applied for Top Echelon status with the CIA. The status was granted only to the agency’s highest-level informants. So Casolaro knew that Nichols had been a snitch—information that could get Nichols killed if his mobster friends found out.