“Hey, Beeker,” I said to my roommate Dave Burke one night while we were cramming for an exam in our quarters. “Let’s start a business.”
“What do you mean, a business?”
I sat up on my bed. We had a nice-sized room with a sitting area, although the place was as bleak as a highway tollbooth.
“This school’s like a monastery, right? Nothing to do if you’ve got some downtime. Hell, with all this friggin’ snow, you can’t even get into town to catch a movie!”
“So, whatcha got in mind, Birkenfeld? A topless bar?”
I grinned and raised a finger. “A movie rental business.”
“You’re nuts.”
“I’m serious! Lots of guys got TVs, but half the time all we can get is a weather report or Mork and Mindy. Now, if we had a bunch of VCRs and a pile of movies … ”
Now Beeker sat up on his bed too. “But won’t we get busted for that? What about the regulations?”
“I already checked the regs.” I grinned. “Nothing against making money on campus.”
“You’re a wily bastard,” said Beeker.
“I know.”
That weekend, we pooled all our cash, drove down to Boston, and came back with four VCRs, thirty movie tapes, six movie posters, and a color TV. Then we measured our sitting room, went into Northfield, and bought wood paneling, hardware, wall-to-wall carpet, and three plush lounge chairs (we figured if cadets didn’t have a TV, they could pay the fee and watch a flick in our “theater”). Before long, we had our place looking like a French cinema, and soon the word spread like wildfire from our Kilo Company barracks.
They came in droves! The guys were thrilled to be able to plop down a few bucks, take a VCR back to their rooms, and watch the latest Stallone flick. Some of them only rented the machines, so I figured they had a stash of porn somewhere. But if they got gigged for that (army parlance for “chewed out”), it was none of my business. And for the guys who wanted to just rent a film and watch it in our theater, of course we supplied popcorn at a very reasonable rate.
So pretty soon Dave and I were enjoying that ultimate goal of all businesses, Return on Investment, with which we paid for our books, extra-fancy military gear, off-campus beers, and weekend trips to Burlington, Vermont. It was all going smooth as silk, until one night when a big fist hammered on our door. I cracked it open.
Shit! Colonel Carbone!
Dave’s eyes bugged out like a summer cicada, and as I pulled the door open we snapped to attention.
Carbone was a regular full-bird US Army colonel and our Commandant of Cadets advisor. His hair was high and tight, his buckles and brass like gold bullion, and he walked into our room and said nothing. We stood there like ice sculptures as his eyes scanned our wood paneling, the posters, the ordered stacks of VCRs, and a bookshelf lined with entertainment. He looked down at his spit-shined boots mashed in our high-pile carpet, and then at our fat leather loungers. Then he nodded.
“I’m impressed, gentlemen. This is considerably nicer than my own quarters.” Something akin to a smile crossed his lips. “Carry on.”
He spun on a heel and walked out. I turned to Dave and grinned.
“I told you there was nothing in the regs!”
“Jesus!” He laughed. “I almost pissed my pants!”
At the end of my sophomore year, I headed for home and applied for a few summer jobs in the Boston area. With a major in economics and a military bearing, I suppose I was attractive to the Human Resources folks, who were accustomed to rejecting long-haired college students with pot-pink eyes. I landed a job at one of Boston’s finest and oldest financial institutions, State Street Bank and Trust Company. The pay was fantastic, about four thousand bucks for the summer, and during three months of fetching coffee for money managers and running stock reports back and forth to the trading floor, I learned more about the real world of high finance than anything my professors could offer.
Somewhere in the back of my mind I realized that if I’d really been serious about becoming a fighter pilot, I would have sought out a job in aerospace. But the money in banking was seductive and I did have a weakness for cash. As it turned out, the writing was on the wall.
By the end of my junior year I was a senior cadet and upperclassman, barking at the Rooks, strong as a bull and breezing through the training routines and business classes. That summer I worked at State Street again, and in the early autumn I was back at Norwich for my final year. I was standing on the parade field one fine foliage day, watching the newbies try to figure out left face from right face, when I felt a presence beside me. It was Colonel Carbone.
“Cadet Birkenfeld,” he said as a drill instructor’s cadence calls echoed across the field. “I’ve been meaning to have a talk with you.”
“Sir?”
“You’re a good troop; smart, disciplined, and determined. But I think you need to reconsider your future.”
I turned and looked down at him. When you’re my height, you pretty much have to look down at everybody. “How’s that, Sir?”
Colonel Carbone gave it to me straight, no chaser. “You’re never going to be a fighter pilot, Brad. Nowadays, all those guys are Air Force Academy graduates, engineering majors with four-point-oh scores. You’re good, but you’re a finance guy, and you’ve only got a three-point-oh.” He shrugged, almost an apology. “And besides, you’re just too damn big for an F-16 cockpit. They’d have to squeeze you in with butter and a shoehorn.”
I wasn’t really shocked. The cadets always talked about their realistic chances of getting what they wanted in the military, and I already knew my odds were slim. Carbone was just confirming my suspicions.
“Well, what do you recommend, Sir?”
“Adjust your sights,” he said. “Think of something else you’ll be happy with. If you carry on with this and join the air force, you’re going to wind up as a fucking missile launch officer one mile underground in Nebraska.”
And that was it. I took his remarks to heart, but I didn’t whine or get depressed or think I’d wasted my college years. I thought about that Clint Eastwood line from Dirty Harry, “A man’s got to know his limitations.” So, maybe I’d never be a fighter jockey, but I already knew I could be an ace in banking and finance.
In the winter of 1987, I packed my bags and gave one last salute to Norwich University (Exhibit 3). I’d been accepted to complete my last senior semester overseas at Richmond College in South Kensington, England, and I was totally thrilled at the prospect of immersing myself in an international center of finance, making new foreign friends, and absorbing a wealth of European culture. I was fully formed now, sculpted, ready. I knew I would never be a war hero, but I was ready to conquer the world.
And that’s how I embarked on that long road, which included a pit stop in a prison cell.
But if you’d told me back then that at the end of its twists and turns, pleasures, intrigues, and adventures, Schuylkill awaited, I would have said …
“You’re out of your mind. Birkenfelds never do time.”
CHAPTER 2
BOSTON MASSACRE
“A superior man is modest in his speech,
but exceeds in his actions.”
—CONFUCIUS, CHINESE PHILOSOPHER
STATE STREET BANK AND Trust Company—1989
The first time I saw Nick Lopardo, the Chief Executive Officer of State Street Global Advisors, I thought he’d walked off the set of some Godfather sequel filming down the street and wandered into the wrong building.
He came barreling through the analysts’ floor, six-foot-two and at least two-fifty, stuffed into a gleaming silver suit with a blood-red tie, and he was trailed by a beefy bodyguard with a prosthetic hook for a right hand. Lopardo had thick black hair, eyebrows like centipedes, a busted nose, and a jaw wider than his fullback neck. His face was red from some sort of meeting that had pissed him off, and as he stomped past the desks, making coffee mugs tremble, the first thing I ever heard him say was directed at some k
id who wasn’t quick enough to spot him.
“Get your feet off the goddamn desk! This ain’t a dugout at Fenway!”
The kid jumped in his chair and snapped his feet down so fast I thought he’d wet himself, and as we watched Lopardo storm though a pair of glass doors for the elevator, my buddy Rick James leaned over and whispered, “That’s the new boss.”
Nicholas A. Lopardo. Not the very model of a stuffy Boston banker.
The son of a scrap-metal shop owner in Brooklyn, he’d played shortstop in baseball and fullback in football while at Susquehanna University in Pennsylvania. He’d only gotten a bachelor’s degree in marketing and management, figured he didn’t need any of that Wharton B-School crap, and had taken the mean streets of Little Italy out into the world of high finance. He’d spent eighteen years at Equitable Life marketing institutional pension plans, and everyone at State Street knew he was there to turn the firm’s old-fashioned snobbery of catering to blue-blooded rich folk into something much, much bigger.
When Lopardo arrived at State Street in 1987, the money-management arm had $18 billion in assets. When he finally left in 2001, he’d grown it to over $700 billion. We were all in awe of him. We all wanted to be him. He was loyal to his employees and protective as a Doberman, but also demanding as hell. Nick Lopardo took no prisoners. You had to be careful around the guy. Whenever he boomed, “People, we’re gonna make a killing,” no one was ever sure if he was talking about profits or planning to garrote some goon like Al Capone.
So, Nick Lopardo set the tune, and the rest of us danced to it.
State Street Bank and Trust Company was my first landing on the shores of big-time finance. I’d been there before, working a summer job between college semesters, but I had pretty much been in the basement along with the other Warren Buffett wannabes. We were glorified messengers, hauling piles of files for bankers we only called “Sir,” delivering sandwiches and sodas to meetings about subjects way over our heads, taking notes for quick-talking superiors, and then running them off to whoever needed them, fast. For the most part I’d felt like a kid running chits for bookies, but the pay was great and the summer weather in Boston was hot and steamy. There were more than seventy universities and colleges in and around Boston, and the girls who stayed on for summer internships wore practically nothing.
Now I was a full-time employee, and after that last semester in London I was puffed up. Like most fresh-out-of-college kids, I thought I was pretty damn slick and super knowledgeable about all this finance stuff. But this was the big time, the real deal. I was going to soak it all up like a sponge, work my butt off, and climb that ladder to riches.
State Street handled some big domestic and international pension funds, and under Lopardo’s marketing genius the firm’s fingers were reaching out and grabbing huge corporate accounts. I’ll explain that banking business paradigm briefly.
For example, let’s take a multibillion-dollar corporation like General Electric. A big company like that has a structure for making retirement payments, which start getting paid out when a loyal employee wraps up his twenty-five years, gets his gold watch, and goes home to fish. During that employee’s tenure, the company puts a tiny part of its profits into his pension fund, and in some cases, the employee can also choose to put part of his salary in there, so on the back end he’ll get more money for boats and poles.
Now, a company like GE has thousands of employees, so the pension fund is enormous—billions of dollars. But you don’t just let all that money sit there earning a lousy street bank interest of three percent. You invest it, preferably in something with a much bigger return, like stocks and bonds. And that’s where State Street would come in, taking over management of GE’s pension fund and making a ton more money for everybody. And of course State would take a cut for all those management and custody transactions, which is how the bank made its nut.
So, that was the business we were in. And that’s where I started, at twenty-three, working as an entry-level grunt for the international money managers, who had impressive resumes with MBA and CFA designations after their names, who worked for Nick Lopardo. I was so low on the totem pole that I had to look up to see the bottom, but that’s how new kids learned.
“Birkenfeld, add up these numbers, check ’em three times, and don’t fuck up!”
“Birkenfeld, run this purchase order over to Currency and make sure those clowns know which one’s the buy rate. And move your ass! It’s for deutsche marks and Europe’s closing in half an hour!”
“Birkenfeld, if you walk out that door tonight before Chicago confirms that sale, they’re gonna find you facedown in the aquarium tomorrow!”
I loved it. It was fast, raucous, profane, and nonstop. I was immersed in the company of investment professionals, an atmosphere I really enjoyed. Every day, no, every hour, I learned something new. We all worked on a trading floor, sort of a mini version of a Wall Street battle zone, with phones ringing off the walls, keyboards hammering, fax machines churning, papers flying, kids like me hustling up and down the stairwells, and plenty of practical jokes. Spitballs flew, whoopee cushions farted, desk drawers got superglued shut. At one point, one of the guys got a recording of Meg Ryan doing her orgasm deli scene from When Harry Met Sally and rigged it from his computer to the sound system. Somebody closed a big deal, Meg came like a freight train, and everybody yelled, “I’ll have whatever she’s having!” (That only happened once—a lady in the office, of Middle East extraction, complained.)
All this, of course, unless Nick Lopardo or one of his minions showed up on the floor, and then it instantly turned into a library: straightened tie knots, erect spines, and oh-so-professional demeanors. You had to look good for Lopardo. He made that clear when he paid off a bootblack across the street and put out a company-wide directive: “Show up in the morning with your shoes shined, or don’t show up at all. It’s paid for.” One portfolio manager interpreted that as a “license to shine” and brought his entire shoe collection to work.
Lopardo, an ex-jock and huge Boston Bruins hockey fan, knew how to handle a team. He wanted us to win every game, but he didn’t need to see the locker room antics. He expected esprit de corps, and that filtered down through our managers. You didn’t dare shut down your computer at five o’clock and go home. You went out with the boys (and our few girls) to catch a Bruins game, or to some joint like Brandy Pete’s, Tia’s, or Clarke’s just down the street, where we’d eat, raise a ruckus, drink till after midnight, go home, crash, get up six hours later, and be back at work, on time. If you didn’t do that, you’d get the dreaded “Pink Pump” treatment, finding a lady’s pink stiletto propped on your desk in the morning. Too many pink pumps and the guys would start looking at you like you had herpes.
Having come from the atmosphere of a military academy, this was just my style; work hard, play hard, and never miss an opportunity to have a few laughs. I earned a fearsome reputation as a “Pantser.” Send some guy over to the bar to get beers for the ladies, and he comes back with his hands full, defenseless! I’d sneak up behind him and “pants” him right there, down around his ankles with his boxers flapping. I organized the State Street softball team (aptly named Liquid Assets), where we played other banks and sometimes the Boston PD, and I pantsed them all at one point or another. The guys started calling me “The Pantser Commander.” Of course, I knew they were going to take revenge, so I tightened my own belt.
But back to the serious business at hand. As my time at State Street progressed, the firm was acquiring management contracts for more and more international and domestic institutional pension funds. We were handling the pension assets of multibillion-dollar corporations such as Amoco, IBM, General Electric, and NYNEX. In order to grow in value, those assets had to be invested in stocks, bonds, and currencies. My responsibilities began with corporate actions, working with portfolio managers to decide on actions to be taken relating to mergers, takeovers, rights issues, dividend reinvestments, and so forth. This also meant
establishing relationships with brokerage houses and helping “pick the right horse” when the starting bell rang.
From there I moved over to the International Proxy group, where we applied firm guidelines to the voting of international corporate proxies to ensure such decisions would benefit our pension clients (basically advising on which way shareholders should vote on corporate actions, such as mergers and acquisitions). I voted the first-ever institutional proxy for a Japanese company. This was all part of the institutional investment arm of State Street, initially known as the Asset Management Division. But as it grew in importance, the division was rebranded State Street Global Advisors, or SSgA, and I finally wound up in the Currency department, which we created. The currency men and women were sophisticated, slick; some had multiple languages and they operated all over the world. Their stock in trade was foreign currency—establishing trading relationships with other banks, setting up credit facilities for our clients, and then executing foreign exchange transactions to settle foreign equity transactions and adjust currency hedge positions. I dove in headfirst to learn everything I possibly could.
To explain the foreign currency concept, you didn’t want to merely invest in American securities. In the event of an economic downturn, diversification greatly reduced the risk. There were deals to be had all over the world, and often a foreign market could offer greater returns than the New York stock exchange. However, in order to purchase a foreign stock, you had to first own the proper foreign currency.
For example, if you wanted to buy the French pharmaceutical stock Sanofi, you had to do so using French francs (the European Union and its dreaded “euro” were not yet in play back then). But first you had to purchase those francs using US dollars, and since the buy and sell rates of foreign currencies fluctuated just like stocks, you had to know what you were doing, think fast and move fast, or wind up with Nick Lopardo’s boot up your ass.
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