by Guy Lawson
Barry McNeil and Tim Conlan led Sam and Nichols into a conference room to meet with one of the principals of ODL, Garrett “Graham” Wellesley, Viscount Dangan, the only son of the seventh Earl Cowley and a great-grandnephew of the Duke of Wellington.
Unlike the various poseurs Sam had met in recent days, the viscount was the genuine article. In his early forties, tall, correct in his manners, Wellesley had an uncanny resemblance to the Duke of Edinburgh, husband of Queen Elizabeth II. At a glance it was obvious Wellesley was an actual aristocrat, though he was far from pretentious.
“Do you know who the Israels are?” Sam asked as they were introduced.
“Yes, I do,” replied the viscount.
A friend of Wellesley’s had worked for Sam’s uncle’s business before it had been purchased by Goldman Sachs. Wellesley knew the Israel family was one of the truly elite clans in the business. The viscount’s history reached back to the Napoleonic Wars, but it paled in comparison to Sam’s when it came to trading—which made Sam’s behavior all the more puzzling.
“Sam put his feet up on the table of our conference room,” Graham Wellesley recalled. “He was wearing rubber boots—the kind you go duck hunting in. He was big-shotting it large. He portrayed himself as someone who came from a world few people even know about—the Rothschilds and the others. He told me his mother was a Rothschild. He was extremely cocky.”
Barry McNeil had already pitched the secret bond market to Wellesley. The viscount had been dubious about the existence of the shadow market. He’d never heard of bonds being so radically underpriced. But ODL was small and entrepreneurial, and Wellesley and his partner had only recently obtained control of the company, so he was reluctant to turn his nose up at any business. As a brokerage, ODL didn’t take responsibility for what was being traded, after all. Provided the parties were matched—there was a willing buyer and a willing seller—why refuse to trade the securities? Provided certain requirements were met, of course, like full disclosure, and the assurance that no laws were being broken.
“So much money was being talked about that even my broker was going to make an absolute fortune,” Wellesley recalled. “I thought we’d make the trades, subject to this, that, and the other thing. I was interested to see if Barry could !nd the bonds. There are mispriced things in the world. Everyone in the market spends their life looking for arbitrage.
“If one hundred million was leveraged to three—which was a very conservative estimate—Sam would be able to buy three hundred million in bonds at forty and sell it for eighty. So now he could buy six hundred million and then $1.2 billion and $2.4
billion and so on. It was astonishing. For ODL the commissions would have been astronomical. It geometrically increased in size. If we got 1 percent for brokering the deals, it would add up to a hell of a lot of money.
“I didn’t believe it entirely, but it wasn’t my place to care. It wasn’t up to me to question a hedge fund manager like Sam Israel who was running hundreds of millions of dollars. This was real, that was for sure. Who was I to doubt the trades? I was just an executing broker. I was the equivalent of a bank teller questioning a depositor why they are withdrawing money.”
On December 7, 2004, Sam wired 90 million euros to an account in ODL. At the exchange rate of the day, it amounted to $120,879,000. Now that the trading was about to commence, McNeil invited Sam and Bob Nichols to a signing ceremony. The event was held at the Rothschild House in Berkeley Square, a neighborhood that had long been home to London’s beau monde; Winston Churchill had grown up there, and it was the home of P. G. Wodehouse’s !ctional upper-class twit Bertie Wooster, as well as the swashbuckling Victorian character Harry Flashman. The house was going to be the headquarters of ODL, McNeil told Sam as he greeted him at the entrance. Once the trading started, ODL would move from its run-down trading #oor to the luxury and elegance befitting a multi-billion-dollar trading entity.
“It was a beautiful mansion,” Sam recalled. “It was worth at least !fty million. There was an anteroom. There was a grand staircase with a gorgeous chandelier. The house was obviously hundreds of years old. We were led up the stairs to the second #oor and through a labyrinth of rooms. We got to the dining room and there were papers laid out for signing. We were going to do a couple of really big deals with the Rothschilds themselves. There were ten of us in the room, including me, Bob and Ellen, and Paul Rothschild.* It was funny because Rothschild and I were trying to !gure out if we were related in some way. My mother was born a Rothschild, so we probably were at some point. We signed the documents, and bottles of Cristal champagne were brought out.
We made a toast to the deals and what we were doing together.”
“To our mutual pro!t,” the celebrants said, chinking glasses. “To the pro!t of the world.”
But the house was not the future home of ODL. Nor was it the place of business for the Rothschilds, or the Carnegies, or the Knights of Malta. The house was for sale. Barry McNeil had told the realtor he was going to buy it—a"ecting indi"erence to the multi-million-pound asking price. Drawn by the promise of a huge commission, the real estate agent had agreed to let McNeil use the house for the night. The deception was pure genius. Sam and Bob sipped their stems of Cristal and soaked up the atmosphere. It was as if an entire age of excess had been brought to life under one roof—the frauds within frauds within frauds within frauds turned into an epic delusion.
“I wasn’t fooled by it all,” Wellesley said. “Real aristocrats would never drink Cristal champagne. It was nouveau riche. Gauche. I didn’t rate Sam intellectually. I thought his behavior was bizarre for a big-shot hedge fund trader. He came from a highly accomplished family, which can magnify any sense of insecurity or lack of self-worth.
Nor did Nichols appear to be the sharpest knife in the drawer. But Barry was extremely clever. He had someone inside a Swiss bank working for him. He disguised the deal in layers of international companies and legal documents. I could see it would be impossible to attach any responsibility to him.”
WITH ISRAEL SIGNED ON, McNeil was able to use the participation of a major New York hedge fund trader as a marketing tool to bring in other high–net worth individuals. If a trader of Sam’s lineage and accomplishment was investing such a massive sum, prospective investors should feel lucky to be in on such a rare and lucrative deal. For weeks, ODL teemed with wealthy people coming to learn more about the magical new bonds. Investors from Italy, South America, the United States, and Switzerland came to ODL. McNeil had hundreds of prospects on the hook, many of them tax-evading expatriates living in London. He had created his own string of introductory brokers, self-styled !nancial consultants chumming the waters with promises of extraordinary returns. They didn’t just target the rich, they went after their lawyers and accountants—people who were very often just as unsophisticated as their clients, and just as easily seduced by the promise of easy money.
Holding meetings in a conference room at ODL, McNeil was very matter-of-fact as he explained the mechanics of the trade. He had a clipboard and a #owchart on a blackboard showing how the trading worked. Investors would double their money in a matter of weeks. Because $100 million was too rich for all but the super-rich, McNeil thoughtfully agreed to lower the entry-level investment to $10 million. It was an a"ordable way to access the kinds of returns titans like Sam Israel received, McNeil said. McNeil could turn $10 million into $20 million in a matter of weeks. All at no risk!
As the owner of the brokerage, Wellesley stopped in to say hello to new investors. It was a goodwill ambassador gesture. It was also a way to track the commotion.
Wellesley watched with curiosity as McNeil and Conlan conducted tours of ODL’s premises. It was very odd to give a tour of a brokerage to a prospect. There was nothing to see, apart from rough-edged men sitting behind computer screens cursing and slowly building up plaque on their arteries. The traders weren’t swapping mythical secret bonds; real securities were #itting across their screens. But that wasn’t the impres
sion evoked for the more impressionable. McNeil was insistent that his new clients see how real ODL was—proof that the shadow market really existed.
The money began to pour into ODL’s co"ers. However unlikely the investment strategy McNeil proposed, there was no denying the substance of his clients. Like the former owner of Manchester United, who had recently sold his shares in the soccer team, netting nearly $200 million in cash, and was looking for ways to invest the money. Then the chairman of one of the world’s largest food service companies arrived at ODL. He was followed by a man who represented himself to be a director of the bank Credit Suisse and said he was going to introduce his Swiss clients to ODL. It all seemed preposterous to Wellesley—but there it was before his eyes. The black comedy reached a new height when ODL was visited by a priest dressed in a #owing red robe who claimed to be a cardinal from Rome representing the Vatican; no less than an agent of God’s representative on earth wanted to hear McNeil’s pitch.
“I felt like I was living inside a comic book,” the viscount recalled. “The Italian prince was talking about the powerful interests he represented. The head of the Knights of St.
John was in our o$ces. I was getting scared. I’d been in business for years and I’d never made easy money fast. It was always hard work. The more money involved, the harder the work gets. This was just too easy. It was too good to be true.
“Then Barry started to talk about investing in ODL. One day he said to me, ‘My conglomerate would like to purchase shares in ODL.’ Barry knew that ODL was a small company—forty million pounds in revenue, earnings of around ten million pounds. So I started to tell him about our operations—the number of clients, how the business worked. We were sitting in my o$ce. Barry didn’t seem particularly interested in the value of the business or how it functioned. It was unusual. He didn’t ask about earnings or multiples of earnings. It was like he was saying, ‘Don’t worry about the price. We’re going to make so much money it won’t matter.’
“What he did say, explicitly, was that he wasn’t valuing ODL on its current income.
The money that was going to be made from his trading would be factored into the price.
He wasn’t trying to talk down the value, or !nd a way not to have to pay up front. The opposite. Barry was trying to hit the greed button in my head—like he was with everyone else. It looked to me like he feasted on people who thought they could change their lives with ten million—or in Sam’s case billions.”
EAGERLY AWAITING DELIVERANCE, Israel and Nichols were in the Royal Club one evening when Sam said he had a confession to make. An event had been nagging his conscience for weeks. Sam decided to come clean. Lowering his voice, Sam said that he’d talked to the FBI in New York. Nichols reared back in alarm, his eyes #ashing with anger and fear. Only a couple of times, Sam said. He had no choice—he couldn’t refuse to talk to the FBI. They had come to him after the money was frozen in Germany. There was nothing Sam could do but answer their questions. Sam conceded that he’d told them about Bob’s CIA history and the shadow market. He’d also told them about the $10 million loan. Trying to calm Nichols, Sam said he’d deftly dealt with the FBI and there would be no further problems. It was taken care of, Sam said; it wasn’t a problem.
Nichols freaked out. He knew from previous bitter experience that once the FBI was involved in your a"airs it was virtually impossible to get them to go away. Sam’s talking to law enforcement had put Nichols in direct legal jeopardy, though he didn’t tell Sam the nature or extent of any criminal charges he feared. Nichols said he needed legal protection—retroactive protection, showing that the money Sam had “loaned” Bob was a real transaction. Nichols needed to show that Sam hadn’t exchanged $10 million for a briefcase !lled with Federal Reserve bonds that might be worthless. Sam was eager to placate his insistent partner. Together they wrote a Financial and Security Consultancy Agreement that recited Sam’s desire to enter “certain buy/sell relationships in Europe” to “maximize pro!ts for himself.” The agreement said that in return for $10
million Nichols would act as a security consultant for Israel for five years.
The document was backdated to July 11, 2004—the day before Sam had transferred the funds to Nichols’s accounts. Then Nichols had Sam execute an “Acknowledgment”
that required him to agree to discuss the “tangible articles” issued by the Federal Reserve that he had stashed in a safe in the Queen’s Vault with only “credentialed authorities of the U.S. Treasury, the U.S. Federal Reserve, or authorized o$cials of top tier banking institutions.” The contract was ludicrous: How was the con man going to enforce its terms? But Sam signed, attesting, “I fully understand and acknowledge the sensitivity, confidentiality and risks associated with this matter.”
BY THE END OF THE YEAR , Sam had no choice but to return to New York to deal with the legal formalities of his divorce. On New Year’s Eve, Tim Conlan called from London.
He was ecstatic. The Soc-Gen paper had arrived. McNeil had done it. Only a limited amount of paper was issued at the end of the year, to enable banks to settle their capital accounts. But McNeil had managed to find a tranche.
“Barry made everyone believe they were on the cusp of making a killing,” Graham Wellesley recalled. “There were faxed con!rmations from banks. There were signed documents. People were coming and going. It was just about to happen. Everyone thought they were going to be on Easy Street—clients, brokers. Everyone was wound up on greed extraordinaire.
“I told Conlan that I wanted a list of every aspect of the bonds McNeil was going to trade. Then I called my compliance o$cer. I told him to physically walk over to the Soc-Gen o$ce in London and meet with them personally. I wanted everything con!rmed—the yield, the maturity date, the bond number. Something smelled o". So when my compliance o$cer checked, the numbers of the bond didn’t match. There were discrepancies. I wasn’t going to let the trade go through. My !rm would be liable if the wrong bonds were purchased and Sam lost his money. That night, Sam called ODL. He was furious. There was only a kid from the back o$ce working that late. Sam tore the kid a new asshole. He was screaming at the kid, saying, ‘You fucking idiot, you do what I say.’ The next day I went to Barry and told him that I had refused to do the transaction.”
“There were a lot of disappointed people,” Conlan recalled. “Expectations were high.
Mine included. I expected the trade to work. So did Sam. It was hard to know what was really going on. It was a murky world. Whether it was true or not, I didn’t know. But the paper wasn’t delivered. Barry was supposed to deliver the bonds. There was always an excuse. The exit wasn’t ready, he said. They were still ‘cutting’ the paper. We obviously didn’t have the correct people to deliver the paper.”
SAM BROKE THE BAD NEWS to Marino at the Trump house: They were still trapped.
Their fates were tied together. Each had the ability to destroy the other. It was an idea that was starting to crowd Marino’s thoughts. “I was angry with him,” Marino said. “He kept saying it would work, but I started to lose hope. I didn’t have any belief in him anymore. I wanted to stop the fraud, but I was scared of Sam. I thought he would hurt me physically. I didn’t know what was real and what wasn’t. If I went to the FBI and the bond market was real—then I’d ruined our lives because I wouldn’t believe him. At the same time I had so many questions and concerns and I couldn’t get a straight answer out of him. I thought he’d go ballistic if I didn’t do what he asked.”
Marino thought Sam had become like the lead character in “The Secret Life of Walter Mitty,” the James Thurber short story about a mild-mannered man who fantasizes about his grand adventures—like being an assassin on a suicide mission, or a !ghter pilot on a dangerous raid deep in enemy territory. “Sam always exaggerated the stories he told people, even in front of me when he knew that I knew they weren’t true,” said Marino.
“I would know the precise facts, which di"ered from his story, but he’d still go on and on. It was
what supposedly made him a character. He was the hero of each and every story he told. The di"erence between Walter Mitty and Sam was that Mitty only daydreamed about his exciting life. Sam went out and actually lived his adventures.
Only things didn’t happen the way Sam described them. He couldn’t help himself. I spent a lot of time trying to catch him in a bona !de lie that I could document. But I wasn’t able to do it.”
* Probably an impostor.
CHAPTER SEVENTEEN
Yamashita’s Gold
In January of 2005, Sam received an invitation to the inauguration of George W. Bush.
The invite was a token of the political IOUs Sam had accumulated by donating hundreds of thousands of dollars to Bush. Sam wasn’t particularly political. He considered the contributions to Bush to be a form of life insurance. The president was the only person in the country with the power to commute federal prison sentences.
Sam wanted to know he could reach Bush through his cousin John Ellis if the day came when he needed a favor.
Sam didn’t bother to attend the inauguration or the balls he was also invited to. It was freezing in Washington and his back was killing him. Besides, there was the weight of the depressing news about Bayou. The Problem was more than $150 million, if the fake performance for the previous year was included.
Bob Nichols remained in London trying to get Barry McNeil’s trade completed. Then came word that 22 million euros had been transferred out of Bayou’s account at ODL.