The Spider Network

by David Enrich

As the fees added up, Farr’s renown grew. Tullett Prebon tried to hire him, dangling a salary of nearly $300,000 plus roughly $200,000 in up-front cash. But Farr loved working at RP Martin, in particular its tight-knit, casual vibe. Mustard eventually convinced him to stay by handing him nearly $100,000 in cash as well as a roughly $100,000 interest-free loan. The loan allowed Farr, who regarded himself as terrible with money, to settle some of his outstanding credit card debts, as well as to cover some of the ballooning costs of a home renovation that had left him without an indoor bathroom for four weeks. And he was promoted to manager. (The elevated status didn’t mean much: Farr was managing only one employee, Gilmour, signing off on his expenses and making sure he showed up on time and didn’t take too many sick days.) Later, when rival brokerage BGC tried to stage a raid on RP Martin employees, Farr was singled out for a “loyalty bonus” of about $40,000. Before long, his son Sam would join dad at work as a broker-in-training.

  * * *

  To the frustration of some of his brokers, Hayes remained uninterested in being lavishly entertained. He preferred to sit at home with a bucket of fried chicken from KFC and a tall glass of orange juice, followed by a hot bath. One evening, a desperate broker showed up outside UBS’s Tokyo office and pleaded to let him take Hayes out to dinner; the broker needed to show his bosses he was entertaining the star client. Hayes finally relented—and then led him to a nearby Burger King, where the broker spotted a rat scuttling across the floor.

  That’s not to say Hayes was uniformly obstinate. In London, after he’d repeatedly rebuffed Noel Cryan’s offers of dinner, the broker had come up with an alternative: Hayes could take Ainsworth out for an expensive meal and then get reimbursed by Tullett. Read treated Hayes and Ainsworth to a similar Christmas feast in 2006, leaving his personal credit card details on file at the restaurant and then getting paid back by ICAP. As time went on, and Hayes’s stature grew, brokers became more creative about coming up with such goodies. They lined up expensive sports tickets for Hayes’s friends and family back in England. Nigel Delmar occasionally stopped by the home of Hayes’s brother Robin, delivering expensive booze or other gifts. (Robin told Hayes he thought the practice was weird; Hayes responded that it was just how the industry worked. Robin wasn’t convinced—it seemed a little like bribery—but there was no point in arguing with his stubborn older brother.)

  Another goodie came in the form of win-win trades. Brokers sometimes were approached about possible trades by pension funds or other long-term investors who weren’t sensitive to small price variations. These dumb-money clients, or “muppets,” which bought something and then held on to it for months, maybe years, didn’t fit into the industry’s carnivorous culture and weren’t especially good for the trading business. Brokers, face-to-face with one of these sloths, had the distinct pleasure of finding a predator to take the other side of the trade—and Hayes was increasingly hearing the words I’ve got a gift for you. The lucky trader (in this case, him) would be able to do the deal at a favorable price that a more sophisticated institution, such as a fast-moving hedge fund, would never accept.

  There was one final way brokers could thank Hayes for all the lucrative commissions. And that was by continuing to help him with Libor.

  * * *

  Hayes’s move to Tokyo had wreaked havoc on Darrell Read’s personal life. He had dropped his other clients in order to cater full-time to the increasingly lucrative—and combustible—Hayes. Read’s nocturnal office hours meant that he only rarely saw his family. Eventually, Joanna gave him an ultimatum: He needed to do something—anything—to regain a normal life. Read was inclined to agree; he was feeling like a failure as a husband and a father. The family had already been toying with moving to New Zealand, where Joanna had relatives. The original idea was for ICAP to temporarily keep him on the payroll as a favor, allowing him to get a visa, but not requiring him to set foot in the New Zealand office. But Hayes’s ongoing success in Tokyo sparked a new idea: Read could work from the brokerage’s small Wellington quarters, now only three time zones ahead of his client, so he could revert to a relatively normal schedule. The plan was for Read to do it for a year and then find something more fulfilling and less stressful to do with his life, perhaps teaching. In the meantime, his office hours would be scaled back to merely 10:30 a.m. to 9:00 p.m.

  The Read clan moved to Wellington in April 2007. The transition proved harder than expected. In the Southern Hemisphere, winter was approaching. Read missed the hubbub of ICAP’s frenetic London office; the Wellington outpost, staffed by perhaps a dozen people, was a morgue by comparison. Shouting matches—sometimes good-natured, sometimes less so—had been common in London, as were friendships with colleagues. Now heads would turn at any conversation that involved a raised voice.

  Read figured the fact that he was working less and in a better mood would help with the transition, but Joanna, home alone without any adult interactions, missed her friends. The winter weather wasn’t helping. She found limited distraction by working on the design of a new house they were planning to build.

  The irony was that, just as the Reads started to settle down, Hayes was thinking about returning to England. Ainsworth, after getting off to a fast start in Japan, now was entertaining a fantasy of opening a clothing store back home. (“Independent woman,” Read remarked sarcastically. “Fantastic.”) Hayes, meanwhile, missed the food, his family, the ability to communicate relatively easily, the weather (he hated Tokyo’s hot summer days and longed for soggy England), and especially Queens Park Rangers. Maybe he could move back to London, enroll in business school, and pursue a profession less intense than trading. He gave himself at most another couple of years in Tokyo. “I will definitely need a rest,” he told Read.

  Once Read heard that, he decided that he would throw in the towel whenever Hayes left. If Joanna hadn’t acclimated to New Zealand by then, they, too, would return to England. If teaching didn’t work out, maybe he’d take up gardening or even become a postman three days a week to break up the monotony of early retirement. In the meantime, Read spent virtually the entire day at work on the phone with his lone client. They had a direct, always-on phone line connecting them, and Read would later estimate that they typically talked between fifty and three hundred times a day.

  * * *

  Back in ICAP’s London office, Danny Wilkinson oversaw the group of other yen brokers who catered to Hayes and his rivals. Seated in a T-shaped formation near the center of the brokerage floor, the group was surrounded by tall whiteboards on which a junior broker would scrawl all the prices the brokers were seeing so that they didn’t have to rely on hearing each other. (They used an elaborate series of hand gestures to communicate.) Wilkinson was fat, his hair buzzed practically to the scalp, with doe-like blue eyes accentuated by long eyelashes and a penchant for wearing button-down shirts that were only barely buttoned. He loved wine, stockpiling vintage bottles at home and happily recommending new varieties for Read to sample in New Zealand. Wilkinson’s watermelon-red complexion was the subject of vigorous ribbing. (A crimson-faced emoticon installed on an electronic chat program sometimes was used to make fun of him.) During a London lunch with Hayes and his stepbrother Ben O’Leary, Wilkinson boasted about his wild escapades, among them hosting a crazed party on a yacht in Marbella, Spain. O’Leary dubbed him “Danny the Animal,” and it wasn’t affectionate. Wilkinson’s colleagues didn’t impress O’Leary, either. He called the whole group “The Sycophants” because of how the brokers sucked up to Hayes. (The brokers were so offensive to O’Leary that he decided not to pursue a career in finance and to go into medicine instead.)

  Wilkinson had not always been so feral. He grew up outside London, the son of a welder. As a child, he was plagued by severe asthma and other ailments, confining him to hospital beds for long stretches. Bored with school, he dropped out when he was seventeen, hoping to go out in the world to earn some money. His first job, in the early 1980s, back when he enjoyed a relatively slim thirty-four-in
ch waist, was working as a clerk at a retail bank near his hometown. In 1985, some of his buddies had earned enough working in the City to buy themselves flashy cars; Wilkinson wanted one, too. He snagged a paper-pushing job in the London office of an Australian bank, and eventually was promoted to the role of a junior trader. But he was required to take a regulatory exam, which he failed multiple times, precluding him from being a full trader. After taking some time off to work as a DJ on the Spanish island of Majorca, he decided to become a broker, for which there were no test-taking requirements. Wilkinson dashed off dozens of letters to prospective employers. He got a single reply, from a brokerage that would become part of the ICAP empire. He started in November 1989 as a trainee, reporting to Darrell Read. The twenty-three-year-old’s annual salary was £8,000—hardly the road to riches or sleek sports cars. But after a year or two, he was promoted to a full-fledged broker. That meant he could do things like speak to real live clients—once he got some. Wilkinson flipped through a financial services directory book and started cold-calling banks. He was gregarious and persistent and had street smarts and eventually landed a small handful of clients. Wilkinson had found his calling. Tethered to some successful traders, his career took off. In the late 1990s, he was promoted to running the yen desk. He managed about a half-dozen employees, including Read. ICAP’s hierarchy was so flat that Wilkinson was only a few rungs below Spencer.

  Wilkinson, by then married and with two sons, fit right into ICAP’s frat-house culture. Brokers were openly rude to each other, even to their bosses. Profanity-dense shouting matches were common. Wilkinson sometimes would slap David Casterton—one of ICAP’s top-ranking executives, just below Spencer—on his hairless head and call him “Baldy.” (Casterton’s more prevalent nickname was “Clumpy.” When he went bald, his hair had fallen out in clumps.) Wilkinson’s brokers would occasionally, and affectionately, refer to him as a “cunt.” On the frequent occasions that he showed up to work with a severe hangover and fell behind on the constant flow of trades and data pouring in, he would lie to clients that ICAP’s computer systems were suffering technical problems.

  With Hayes, Wilkinson was confronting one of the strangest clients he had ever encountered. He noticed that Hayes would make bids or offers in the market, but would specify that they were only good for certain banks or even individual traders. In other words, he might be willing to do a specific trade at a certain price with a Deutsche Bank trader and the same trade at a less favorable price with a Merrill Lynch trader. At one point, Hayes simply refused to consider any trades with Morgan Stanley. This was basically unheard-of—not to mention financially irrational. (It made sense to Hayes, who didn’t see the point in doing business with traders he found objectionable.) Wilkinson came to view Hayes as a brilliant, obsessive nutcase, perhaps the most talented trader he’d ever encountered. He wondered whether Hayes was autistic.

  Wilkinson was hardly the only broker perplexed by the star trader’s behavior. When Hayes got his mind set on something, he wouldn’t let it go. When Tradition was planning to dismiss a broker he liked, Hayes intervened, proclaiming that if the broker wasn’t given a generous exit package, Hayes would sever his relationship with Tradition’s Tokyo unit. The threat worked. In the eat-what-you-kill finance industry, it was a rare example of someone using his own leverage to benefit someone else. The broker’s mistreatment offended Hayes’s sense of justice: There was a difference between right and wrong, and this was wrong, and Hayes had the power to make it right.

  But while Hayes was loyal to those he considered to be his friends, others were terrified of his propensity for unpredictable blowups and retribution. One day, Danny Brand, in Tullett’s Hong Kong office, tardily responded to one of Hayes’s queries. Panicked, Brand explained his absence by claiming he’d been kidnapped. Hayes believed him.

  Hayes didn’t seem to care what anyone thought about his behavior. Over the squawk box, he would bellow his and other banks’ trading positions to anyone within earshot. (He was aware of other banks’ positions because, as a market maker, he sometimes had helped them amass those positions.) This was not a good way to make friends. Once, Wilkinson had been on the phone with a client at HSBC when Hayes started shouting about that bank’s trades. “Who the fuck is that?” the HSBC trader demanded, hearing Hayes in the background. “Who’s telling you what we’re doing?” On another occasion, Colin Goodman was strolling around ICAP’s brokerage floor. As he walked past the derivatives crew, he overheard a voice booming through a squawk box: “Get those fucking Libors down.” It was Hayes. Someone promptly silenced the line. Goodman exchanged awkward glances with a couple of colleagues, then walked away, shaking his head. “He’s got to be stupid,” Goodman thought to himself.

  Still, the whole ICAP crew was pulling for Hayes—the money was just too good not to. In October 2006, Hayes’s first full month of trading, the 129 trades he transacted through the brokerage had generated £72,889 in fees. By the end of the year, the fees were flowing so fast that the two companies decided it would be simpler for UBS to automatically pay a flat fee of £70,000 (at the time roughly $140,000) a month to cover his commissions, not an uncommon arrangement for banks and brokerages to strike.

  When Read couldn’t get his way with Goodman, he often enlisted Wilkinson to lobby on his behalf. Wilkinson generally complied, although he tended to be more subtle than Read in the way he worded his requests.* Other times Read turned to different ICAP colleagues.

  “Try to hold it [six-month Libor] please at 0.86,” he requested in July 2007.

  “Colin says his shoulders are aching holding them up!!!” a colleague replied.

  “He’s a strong lad, I can smell him from here!!” Read joked.

  * * *

  When Read moved to New Zealand, the UBS fee was split four ways. A chunk went to Wilkinson’s team in London. Another slice went to ICAP’s New Zealand office. A third portion went to ICAP’s Japanese affiliate, which shared the relationship with Hayes because he was based in Tokyo. The remainder went to Read himself.

  That worked out well for a lot of people, but Colin Goodman, who wasn’t part of Wilkinson’s team, wasn’t one of them. Still, his daily run-throughs were an important part of why ICAP was so valuable to Hayes. And by early 2007, the requests to tinker with the run-throughs were so frequent—from Hayes and other traders—that Goodman christened himself “Lord Libor,” replacing his previous sobriquet of Lord Luncheon. (Read played along, deferentially addressing Goodman as “my lord.” When Hayes first heard the nickname, he figured maybe Goodman hailed from a line of aristocrats.) Goodman fumed about not getting a cut of Hayes’s lucrative commissions. While Read in 2006 pulled in £202,780 in compensation—a figure that would more than double the following year—Goodman’s salary was just £80,000. (He received a small bonus, too.) “They were kind of like Formula 1 drivers and I was a little guy in a pedal car,” Goodman reflected.

  One day in 2007, Read e-mailed his latest Libor request. Goodman had a snappy retort: “Tell Dan, broker number 103”—a reference to Goodman’s employee number in ICAP’s internal computer system. That system was used, among other purposes, to assign commission payments to specific brokers, and Goodman was instructing Read to instruct Wilkinson to allocate him a cut of the action or risk noncompliance with Hayes’s requests. A few days later, Wilkinson gave Goodman commissions on a trade—likely funneling at least a few thousand dollars into the latter’s paycheck. But Goodman, who had mentored Wilkinson when he first became a broker, had a nagging feeling that he wasn’t getting his fair share—an impression that Hayes reinforced back in London that spring. Out for beers with some ICAP brokers, Hayes and Goodman found themselves talking alone. After a few drinks, the conversation shifted from market trends to money. “Perhaps you ought to get a slice of the action,” Hayes suggested.

  That sounded about right to Goodman. Over the next several days, he sent a series of increasingly agitated e-mails to Wilkinson. “I get the dribs and drabs,” he gro
used. “Life is tough enough over here without having to double guess the Libors every morning and get zipper-de-do-da.” When another big trade from Hayes landed, with no cut for Goodman, the broker finally lost his cool. “Happy days for you,” he told Wilkinson. “Fuck all for me again!!” He signed his e-mail: “M’lord no more, Mr. Libor,” stripping himself of his noble honorific.

  That got Wilkinson’s attention, although he detected a pattern of Goodman getting especially worked up after he’d had a couple of lunchtime drinks with his colleagues. “I have been thinking of ways of sorting you out,” he said. He proposed lunch. At a high-priced sushi bar in the bottom floor of ICAP’s building, Wilkinson agreed to pay Goodman a regular bonus for his efforts.

  Wilkinson then shifted his attention to a scheme to wring more revenue out of UBS. The plan was for Read to plant the seed with Hayes that Goodman might pull the plug on the whole Libor-assistance arrangement if UBS didn’t agree to fork over even more money to ICAP. The tactic worked. On July 1, UBS agreed to pay ICAP a monthly fixed fee of £75,000 pounds—£5,000 more than the prior arrangement. There was no doubt about whom the agreement was being negotiated for. Goodman was to be “recognized for his help with calling Libor fixes which UBS found invaluable,” David Casterton, aka Clumpy, e-mailed a colleague.* Goodman thought the £5,000 payment was nothing more than “a scrap” that amounted to a “bit of a kick in the teeth.” To supplement, on a trip back to London, Hayes took him to a vintage wine shop and bought him a couple of bottles of nice champagne.

  * * *

  If Hayes had realized what was really going on, he might not have been feeling so magnanimous. While Read at times was genuinely trying to help him with Libor, he had stumbled upon an enticing shortcut in his efforts to please a crucial client: Read didn’t need to tell the truth. Hayes had no way of checking whether Read was, for example, actually passing on his Libor-moving requests to his colleagues or if those requests actually had their desired effects. And even if he did have a way of checking, the gullible, literal-minded Hayes wasn’t one to detect dishonesty. So he had no clue that much of the assistance that Read claimed to be providing was illusory. Read was lying to Hayes, and it wasn’t just once or twice—he was lying habitually, as a matter of course.