Octopus

by Guy Lawson

  Marino could see Sam’s point, intellectually. What was really behind the Federal Reserve, after all? There was no gold standard, so the Fed didn’t have gold to pay for all the paper money it printed. If all of the liabilities of the U.S. government were taken into account—the federal debt, Social Security, Medicare—the country was indeed bankrupt by accounting standards. The American dollar, the global economy, all of it could be seen as one vast Ponzi scheme. But still: It sounded too good to be true. What was the real proof that the market existed? What if it was all a con?

  “So?” Sam asked.

  “You want me to make a judgment call about people I just met?” Marino said impatiently. “I have done no due diligence on them. I don’t know who they are.”

  The pair walked out the rear of the Grosvenor and turned toward Claridge’s.

  “I believe Bob,” Israel said. “I want to pursue this.”

  “I don’t know if it is real or not,” Marino said. “I do know if it is real, then you are talking about a conspiracy that’s bigger than the assassination of JFK.”

  “We have to do it,” Sam said, stopping on the sidewalk.

  Marino stopped as well.

  “I can’t trade my way out of the mess,” said Sam, with a heavy sigh. “I just can’t.”

  Marino stared at Israel in disbelief.

  “Thanks for telling me that now,” Marino said. “What choice are you giving me?”

  Sam didn’t reply.

  “If you pursue this, make sure you keep the money in Bayou’s name at all times,”

  Marino said. “Do not put it in anyone else’s name. You need to stay here and follow it all.”

  “I will,” Israel vowed.

  “I can’t stop you,” Marino said. “If you’re going to try, just make sure you keep the money in an account in Bayou’s name.”

  Israel and Marino walked the half-dozen blocks to Claridge’s without exchanging another word. Marino felt uneasy. Nichols’s tale was hard to believe. But what if Nichols was telling the truth? What if the Problem really could be solved so quickly?

  Israel and Marino had traveled so far together running Bayou. They’d reached a distant land only they knew existed. Perhaps the shadow market really did exist, Marino thought. Perhaps they could be saved. It was possible—maybe.

  ON APRIL 14, 2004, Bayou Funds wired $150,999,847.42 to an account at Barclays Bank in London. Under the terms of the Bene!cial Stewardship Agreement Israel had signed, he was now called the “Benefactor.” Sam believed he’d read the terms carefully.

  Lawyers had notarized the documents, providing a veneer of legitimacy. “The parties agree that the !nancial return to the Benefactor shall be one hundred percent (100%) paid every ten days,” it was stated.

  But the precautions he’d taken were woefully inadequate. It turned out that the money wasn’t in an account in Sam’s name, as he’d solemnly promised Marino. More than $150 million was now deposited in the account of the Humanitarian Coalition. It was an ominous beginning. The saving grace, it appeared, was the fact that the money was in a “nondepletion” account. It meant Israel’s signature was required for any withdrawals or transfers—unless Nichols or his cronies were sly enough to convince a clerk at Barclays to let the Humanitarian Coalition make a withdrawal. Sam was blissfully ignorant of the nature of the risk he was taking. He had con!dence in his own vigilance and instincts.

  “We went out for a celebratory dinner,” Sam recalled. “Bob said we were now in business together—we were partners. Bob took me to the Ritz, a private gaming club he belonged to. A doorman in a red uniform with a top hat opened the door to the taxi when we pulled up. The stairs down to the casino were carpeted red with ornate brass rails. The decor was ornate but not ostentatious—it was a beautiful and impressive place. The woman at the desk knew Bob, and it was clear that he was close to the owners. Bob introduced me as a big !nancier from America who was going to join the Ritz. We walked down a hallway to a heavy brass door and entered one of the prettiest dining rooms I’d ever seen, and I’d seen a lot as a kid. There were two large crystal chandeliers, and the ceiling was painted like the Sistine Chapel. The chairs were plush fabric and decorated with #owers and silver trim. First class all the way. Bob told the maître d’ that he expected me to receive the same care he got. We sat at a small table in front of a !replace and ordered a good bottle of wine—the place had a superior wine list.“I asked Bob what he had meant when he told me that nothing is the way it seems—to expand on what we’d discussed in my room at Claridge’s. He made a huge deal about me being able to keep a secret. I said that we were in business together so we had to trust each other. I’d put up a huge amount of money and that showed how much I trusted him. He should have the same confidence in me.”

  “The government has been keeping things from the public for years,” Nichols said.

  “The people you think are running things—politicians, bankers, diplomats—are not even halfway up the food chain.”

  “What are you talking about?” Sam asked. “The Illuminati? The Bilderberg Group?”

  “What do you know about these things?” Nichols asked.

  “I’ve heard that there are five families that run the world,” Sam replied.

  “Thirteen,” said Nichols. “There are thirteen families that are in charge of the planet.

  The families are famous, but no one outside the inner circle really understands what they do. The De Beers, the Mai Wahs from China, the Rothschilds. They are ‘the boys.’

  The boys are the ones with the gold to back the Federal Reserve—the ones who really own the Fed. The structure is as old as time. Even the Americans who are the most wealthy are at best second-or third-tier players. It is the only way to control the planet.

  If humanity is left to its own devices there will be chaos. There are reasons for everything. There is order in what seems like madness. Presidents are appointed by the families. Wars are sanctioned.”

  “Bob said the Fed was nothing but a front,” Israel recalled. “That was what the trading program was for. I told Bob that I was a Rothschild, on my mother’s side of the family. Not the ones involved in the market. Those Rothschilds were solvent, like the other families—they had trillions of dollars’ worth of gold on reserve. They issued the debt, backed the debt, and authorized the Fed to print money.

  “As we drank, Bob started to tell me what happened when a head of state didn’t do what he was told. Kennedy was killed because of his stance on Vietnam. After the Cuban missile crisis, Kennedy and Khrushchev met secretly and decided to de-escalate the cold war. The cold war was big business. There were a lot of people making a lot of money out of the arms trade. Bob told me about the Kennedy !lm—the one I’d read about in The Last Circle. He said it had been given to him for his own protection. I asked if I could see it and he said no—it was too dangerous.

  “The notion that we’re all controlled runs against what we’ve been taught and what we believe about how we live our lives. Believing that presidents are the pawns of the !nanciers seems like a stretch. But even FDR knew that the ‘!nancial element’ has controlled the United States since the days of Stonewall Jackson. I started to take notes as Bob talked. He told me about a book called Tragedy and Hope: A History of the World in Our Time, by a professor named Carroll Quigley. The book showed how there is an Anglophile network that operates the same way the radical right wing claimed that communists acted. Basically as a conspiracy. But this group is secret. It’s a cabal of global !nanciers who have created a world system of private !nancial control. There are secret agreements that are made at private meetings. The central banks of di"erent countries control treasury loans and exchange rates to dominate the political system.”

  ISRAEL AND NICHOLS negotiated a side agreement granting the CIA asset 5 percent of the pro!ts—a sum that promised to be hundreds of millions. To begin trading, all that remained was for Sam to meet the designated trader who had been assigned to the newly minted faction.
Emily Hardwick was !ve-four, blond, in her early forties. Nichols said she was expert in the programs. The meeting was in the Royal Club Lounge at the Grosvenor—Nichols’s base of operations. Hardwick spoke with an upper-class English accent and dressed in conservative business attire. But she had the blotched face and scratchy voice of a heavy drinker. Israel was told that her problems with alcohol had forced her to take a leave of absence from the market. She was back now, though, and she would be trading Sam’s money. To Israel it was evident that she was well versed in the bonds. Hardwick explained her ground rules. She didn’t want her real name disclosed under any circumstances. She wouldn’t allow any photographs of her to be taken. Secrecy was paramount.

  At midnight, Israel, Nichols, and Hardwick went to the o$ces of Barclays Bank at 54

  Lombard Street in London’s financial district.

  Nichols accompanied Sam as bodyguard, minority partner, and handler. Despite the late hour, the trio had to pass through security. Upstairs, there was a large trading room, with thirty or forty desks. The room was empty and the computers were turned o". They walked through to another room in the back. This was the secret shadow-market trading room, with high ceilings and dark wood furniture and the formal decorations of a boardroom. On one wall there was a bank of screens. Bonds were stacked on a desk—embossed and sealed and stamped documents with the U.S. Federal Reserve mark. Israel paged through the !nancial instruments. They appeared legitimate. Nichols pointed out the CUSIP numbers—the ten-digit security identi!cation given to securities—and Sam concluded they were real.

  “We were given a trading desk,” Sam said. “There was a computer on the desk, showing how regular bonds were trading in the overnight markets. Then there was another computer showing where these other bonds were trading. Emily was a stand-alone trader. She’d been trading with the Fed for years. She was a secret squirrel. She didn’t want to be known in any way. So Emily and I started to bid on the bonds. We were the only ones in the room, but I could see the other traders on the screen. The German bank Postbank was trading. HSBC. Mellon. There were sixteen or seventeen banks approved to do these trades. They were the night traders. Not because it was done at night—though it was. They were night traders because the business was invisible. No one on the outside could see what was going on. Emily introduced me online as a new night trader. I was trading for my own program—for my $150 million.

  “It was like regular trading. There was a quote, a bid, an ask. The denominations ran up to billions. I was just a little guy in this market. But I was buying and selling. Prices were moving from forty-four points to !fty points. Because of the spreads there was lots of room to trade. Bob was with me in the room. He never left my side.”

  At dawn, trading ceased. Sam retired exhausted to his hotel room. He was pleased to be started on the new market. But he was impatient to see tangible results—actual pro!ts that he could send back to Marino. The pace of night trading in the program bonds was slow. Trading took place only every third or fourth night. Sam wanted to hurry up, but Hardwick insisted on patience.

  Under the agreement, Hardwick was required to give a weekly report on her trading activity. On April 29, one week after Hardwick began, she said that the pro!ts from her trading program were $942 million. Israel listened to her with amazement—then joy.

  Sam was entitled to a third, after paying the Humanitarian Coalition and Hardwick. The sum meant that with the return of Bayou’s $150 million from the Barclays account, Sam had $450 million. The money was more than enough to solve the Problem. Bayou was back in the black. Israel was ecstatic. The Problem was gone. The evil genie on his shoulder that had been taunting him for years had vanished!

  “I knew no one would care about the fraud if I got the money back,” Israel said. “This is America. No one cares how you make money, as long as you’re making it. I knew no questions would be asked. As far as I was concerned, I was going to close Bayou and get the whole thing over with. There was the chance to make billions in this market. It was happening the way Bob said it would. I wasn’t going to trade through Bayou anymore. I was going to do these trades on my own.”

  Eager to share the incredible good news, Israel called Marino. Bayou was saved, Sam shouted into the phone. The shadow market was real. Marino was skeptical initially. He didn’t understand the details of the trade—how it worked, how the trades were cleared, how the money was transferred. But Israel was knowledgeable about trading and he was utterly convinced. Israel’s enthusiasm was infectious. Marino could scarcely believe this turn of events. They could shut Bayou down and end the nightmare. In the meantime, the pair agreed that Sam should stay in London to see that the trades were completed and he received the money he was due.

  “Sam said we were going to be wealthy beyond our wildest imaginations,” Marino recalled. “We would start with one hundred million in cash each. Sam’s attitude was very much ‘I told you so,’ mixed with giddiness. I became giddy too. I wanted to believe him so much. I went out and celebrated with a lady friend. We went to the Post House in Manhattan for steak. I bought drinks for people I knew at the bar. I bought cigars. I easily spent a thousand dollars on dinner that night.”

  Days passed. Hardwick failed to deliver the funds. Then she disappeared. Nichols and Cassidy and Finch were infuriated—or feigned being infuriated. Hardwick was ripping them o", the trio told Sam. She was making fantastic sums using the money in the Barclays account as collateral, they said, but she was refusing to share the proceeds.

  Cassidy sent a sternly worded letter of notice to Hardwick detailing her breaches of contract. “You are hereby given FORMAL NOTICE to produce a detailed accounting of all transactions, including all private placement buy/sell transactions,” Cassidy wrote.

  But there was no reply. The sense of elation Israel had felt began to dissipate. By this time, according to Israel’s calculations, Hardwick had made billions. Cassidy told Sam that Hardwick had disappeared because she had a “woman’s problem,” namely a hysterectomy. Israel believed she had relapsed and was drinking again. There was no explanation for the disappearance of the money she had supposedly made. Sam was crushed. He had no choice but to call Marino and share the devastating news.

  “When he said the trade hadn’t worked out, I was so disappointed and confused I became inconsolable,” Marino said. “He wouldn’t tell me the details on the phone. He just said that the woman who was doing the trade had gone nuts. I never got the story straight—why she went nuts, why the trade was reversed, what was the next step.”

  Sam was stuck. But Nichols wasn’t going to give up without a !ght—not with Bayou’s $150 million still sitting in an account in London. Nichols told Sam they could still trade in the secret market. With Hardwick out of the picture, Nichols suggested that Israel could do the trades by himself. The trading he’d done earlier had been under Hardwick’s authority. But Nichols believed that Sam could qualify to become the designated trader for their faction. Sam took the bait. He’d spent enough time studying the shadow market to know how it functioned. He’d made trades alongside Hardwick.

  He figured he could trade anything.

  “So I stepped into her place as a trader,” Israel said. “I started to become the man—or I tried to. I knew it could be a fraud. I kept looking around at the trading room. It was a crème de la crème place—a real trading floor, not some bucket shop.”

  Because of the vagaries of the high-yield market, there were only two other active traders the night Sam started to trade on his own. One was in Germany, the other in France. Israel spoke to them on the phone as they made the market on the bonds. But they didn’t exchange names—or at least real names. In the business with no name, no one used a real name. It was too dangerous. Code names were used instead.

  “I called myself Daedalus,” Israel said. “From the Greek legend. Daedalus was the father of Icarus—he made the wings for his son. I thought the name !t. I was #ying too close to the sun. I knew there was a good chance my wings wo
uld melt.”

  CHAPTER TWELVE

  The Big Lie

  Con!dence men are not thieves, at least not in the conventional meaning of the word.

  The true con man practices an art, a mixture of improvisational theater, mind control, and mimetic misrepresentation. His most basic insight into the human condition is that it is impossible to con an honest man. It is the larceny lurking in the soul of his victim that he must prey upon. This was true of Sam Israel, who understood the irrational expectations of Bayou’s investors and satis!ed them to perfection. So was it true for Robert Booth Nichols. The con!dence man o"ers a deal that is too good to be true and makes the mark believe it to be the truth—the urgent, lucrative, top-secret truth. The sophisticated long-con artist sets out in the manner of a novelist, creating an entire universe for his mark—or Babbitt, as the victim is called in the business. The Savage.

  The Fool.

  The modern American con!dence game was created in the 1890s in frontier saloons and riverboats by grifters with names like Lime-house Chappie and the High Ass Kid.

  Their scams revolved around gambling on !xed horse races and prize!ghts—cons known as the Rag and the Wire. The con unfolded in a choreographed series of steps: telling the tale, putting the mark on the send, taking o" the touch, the blow-o", putting in the !x. The Babbitt usually came from a wealthy family. Or he was a self-made man with little formal education. He had outsized opinions of his accomplishments and intelligence—as well as his facility for making money. The con artist hung out in the best hotels and bars looking to befriend a high–net worth individual with enough money to make the long con worthwhile. The best Babbitts considered themselves visionaries, even geniuses—the type who might run a hedge fund fraud.

  It may seem as if only a fool could fall for a pantomime like the shadow market, but the contrary was true: The smarter and more cunning the mark, the quicker he was able to see the potential riches. The more greed lurking in his soul, the more likely he was to suspend his disbelief in return for the promise of a fast fortune. “Very shortly the victim’s feet are quite o" the ground,” David W. Maurer wrote in his 1940s classic The Big Con. “He is living in a play-world which he cannot distinguish from the real world.