by Tom Connolly
“I’ll talk to my partners. But you have to give me more than this.”
“I thought you had control?” she asked somewhat surprised.
“I do.”
“Then let’s make the deal right here, right now!” she said raising her voice.
The waitress, paused, as she was about to put the coffees down, not wanting to interrupt. Alice pulled her hands, which had been flailing, back so she could place the cups down. She thanked her and the waitress left.
“Ten percent of the net,” he said, overriding his deal-doing capabilities.
“It’s worth more than that,” Kraft insisted.
“How much do you figure I can buy?”
“Three to four million shares at ten.”
“Ten.” He had it; a solar stock that Blackthorn was heavy into had to be Rocket Solar. He had to stay focused.
“And what do you think it will go to?” he asked matter of factly.
“Twenty in two days, that’s what your buddy Sid Rogers says.”
“Sid’s driving this?” Crane said. It was almost too good to be true. He could take the whole thing right out from underneath the bastard Rogers, the bastard that drove him out of Blackthorn.
“He and the client exec on the investment banking side, they’re buying shares, lots.”
So much for separation of church and state, Crane thought. It was one of the biggest lies on the street; that there was even the slightest separation of investment banking and research from the trading side of the house.
Alice decided to press the issue. “When you hear what’s going down, you’ll agree.”
“I need the afternoon. By five I’ll get back to you.” Lenny lied. He needed every moment to drive this. While Alice saw this as her opportunity, it definitely was Lenny’s chance to score very big.
Alice misread the stall, “OK, but here’s what I want. At least 10 percent, plus one million. The one million must be deposited within four days in this Swiss account under the name Nora Hodge,” and she handed him a piece of paper with the notation, “UBS account 19-24601.”
“Who’s Nora Hodge?” Lenny said, now humoring her.
“It was my mother’s maiden name; I set the account up last year, preparing for a day like today. And, the 10 percent within a month after you sell,” she said confidently.
“And you must begin buying tonight; otherwise, you’ll lose some of the high profit. Lenny, this is so good. It can be worth forty million to you guys. For four days work, maybe two weeks selling it out. Asking for three to four million isn’t too much, is it?” she said confidently, but tailed off with “is it?”
“Alright then, let me get working on it,” he said conclusively
“Lenny, here’s my cell phone number, let me have yours. These are the only phones we should use since they are looking at everything after Galleon.”
“You’re right, here’s mine. I’ll call you by five.” He handed her his card.
From the time he left the Roosevelt till he showed up in Edward Wheelwright’s office, nine minutes had passed, and Leonard Crane was out of breath as he closed Wheelwright’s door.
Chapter 41
There’s a point in your life when you openly talk about your dreams and what you hope to accomplish.
There is a time somewhere after that you realize you’re only here for so long and there are only so many prime years. Then you do one of two things—you pick up the pace or you give up.
Edward Wheelwright was picking up the pace. He was behind in the race. His father’s career got cut short at Oceans Bank when he might have risen to the top. All of Wheelwright’s friends were “there” where Edward wanted to be. He could feel the tug of failure, and every time he did he slapped it away. But it was there—the fear of failure, the failure to achieve, but most clearly, the failure to keep up with his friends whose wealth now far outshone the Wheelwright’s.
Once the revised charter for Brunswick Fund had been approved for hedge fund status, Wheelwright set out on the search for investors beyond the funding of forty million put up by the seven original partners. Sebastian Ball controlled roughly 30 percent of the fund as he put up his and Tray’s additional assessment of two million each—which he did tell Tray about and which Tray objected to but Sebastian halted further discussion, telling Tray they could settle up later after profits. “For the time being,” he told Tray, “it’s important that you concentrate on killing Taliban.”
Each of the other partners came up with the two million assessment, mostly from their own personal funds as their parents had been transferring large sums of wealth to them each year as the very rich do. Only Parker Barnes had difficulty gathering the funds. His father was one of the few not bought into the transfer of great wealth to the young, and his father believed that young Barnes had to earn it from his own merit. Jonathan Barnes did not go along with much of what the Brunswick School group did with their wealth. He viewed it as taking initiative away from the young.
Since young Barnes was now deeply invested in Barnes Construction as a corporate vice president and managing their New York City properties, he did have considerable access to funds and made four payments into Brunswick Fund of five hundred thousand dollars each, the signature approval level he possessed. The journal entries showed up as property purchases, but the funds were not retrievable in the event Barnes needed to repatriate them back to the company since there was a three-year tie up required with the Brunswick Fund terms. Since Barnes Construction found itself flush with new projects and revenues hitting record levels, Parker saw there would be no issues.
Wheelwright also had tasked the seven to identify potential investors in family, friends and businesses to gather an additional ten million in investments for Brunswick Fund to bring it to a respectable fifty million dollars, which Edward figured would be substantial enough to attract very large funds to off-load a portion of their risks with Brunswick Fund, particularly since they had a track record of successful growth. Sebastian Ball was so committed to Brunswick Fund he added the ten million from his personal funds.
In Wheelwright’s initial discussion with Kish Moira and Lenny Crane, they took inventory of which clients they would be bringing with them and in what amounts would they be investing. This discussion yielded more than they expected: Wheelwright had five clients, including a university endowment, which together brought forty million. Kishenlal was bringing three of his former team members with him and between the four brought eight clients and fifty-five million in investments. Lenny Crane had two former team members from Blackthorn join him and twelve million between the three.
Over the course of the next several months, the more moneyed members of Brunswick Fund, namely Sebastian Ball, Winston Trout, and Gideon Bridge, also scouted up clients for the fund to the tune of 240 million. Four hundred fifteen million dollars in total was very good for a new hedge fund, but nowhere near the likes of Blackthorn or Steven Cohen’s former SAC whose assets under management were in the twenty billion dollar range and in the new form (after cheating) still amounted to fifteen billion.
Other topics that Edward Wheelwright focused constantly on besides sources of funds were sources of leads and where to put the money in the fund. There were four parts of the firm—marketing and bringing money in, investing and analysis of where to put the money, technology and the tools for investing and reporting, and general administration of the firm like compliance, finance and personnel. In those first months, Edward and Kish hired eight additional staff bringing Brunswick Fund up to twenty-two members in total with the core focused on investing and trading.
Wheelwright spent the majority of his time with his traders and their managers, Kish and Lenny. Monday mornings were the worst. Wheelwright would bring all traders into the conference room and begin quizzing them on investment strategies, which industries, which companies, what countries, “where are you putting our money and why,” he would begin, and then call someone out, “You, Jim Keough, you blew it last
week on the trade for Johnson Controls. You stayed too late. Damn it, you made your profit target, why weren’t you out. You’re costing me money.” Jim Keough needn’t answer; the question was rhetorical, until he heard, “Well Keough, what do you have to say, where the fuck is your head?” Then Mr. Keough needed to answer.
This went on from 7 a.m. to about eight-thirty, getting all the traders in a killing mood. Then he would set them free on the public. It was never a pretty sight—in this short period of time, Brunswick Fund had become one of the most aggressive traders on the street and were developing a reputation for fantastic timing and ruthless execution. They usually followed the old FIFO accounting rule, first in and first out. You did excellent analysis of where to put your money, and you got in and out quickly, driving the price relentlessly until the general public caught on and the price went viral. And as the investment would gather steam, you were the first one out. You don’t violate that rule, as Mr. Keough did and try to stretch to get a larger bonus. “Next time you’ll find your ass out on the street, Mr. Keough, you got that?” “Yes, sir, Mr. Wheelwright!”
Yes, sir, Mr. Wheelwright. You bet your ass, Mr. Wheelwright thought.
It was also necessary to discuss the quality of investment development theory. Benjamin Graham, the economist and father of value investing, taught that you needed to make a decent return on any investment but that you also needed to protect the underlying asset from loss. So Wheelwright drilled them all on hedging strategies to protect the capital of the firm. But he also went into deep lead development with the managers of the firm; defined weekly sessions occurred with Edward, Kish and Lenny and of the unsaid but common use of insider leads, how they would be identified, couched and what the sources would be. For the sharks of Wall Street, all investments were made on insider information; it was just a matter of how cleverly you could cover it and keep any paper and technology trails at arm’s length. The information was everywhere; everyone had it. They would brag about it over tennis, slobber it out late over drinks, and be screwed out of it by some hustling trader with big tits. Wheelwright’s favorite saying was, “No one on the Street can keep a secret, no one. We just have to keep listening, eventually we’ll be told.”
For teaching examples of how not to trade on inside information, Wheelwright would use the weekly scandal as evidence. Galleon Group was a favorite late example.
“What we’re not going to do is pay for any inside information,” Wheelwright said. “If it falls in our laps, we don’t need to know the inside source. Then it’s not inside information. It’s like air; it’s just there, known. Information always has to be a one-off, which Galleon refined. But they were dumb in execution with paper, phone, and text trails everywhere leading back to who their suppliers were.”
Kish added, “Roomy Khan, what was Raj thinking. He knew the Feds had her from her helping him before. He had to know she was being watched.”
Leonard the liar joined in, “We can’t use anyone that careless. The approach I have used pretty well is a rolodex that includes about fifty sources. These are in our core industries, tech, solar, finance, and pharma. I classify the sources as a, b or c.
“A sources spread inside information to drive the price of the stock they already bought. As it keeps going up, they’re selling all the time. They’ll be invisible in an SEC action.
“B sources are those that share but want some information in return. This is easy, because you just give them all your A source stocks, driving those stocks higher. But the trade is a mutual exchange.
“C sources are ‘the’ insider, and what they want is something tangible in return. They want the cash. What Galleon did with the secret payments to Swiss accounts worked brilliantly. Some traders also want the cash done this way.”
Kish nodded.
“The C stuff is the most dangerous,” Edward said, “We don’t do C. Ever. Everything one off. Is that clear?” he said firmly, staring at Crane, red faced.
That was the way Edward operated. And now here stood Leonard Crane with his tip from Alice Kraft.
“I don’t like the sound of it,” Edward Wheelwright was telling Crane. “It’s inside information. You’re not sure who the company is and it’s happening in a few days. What am I missing, Crane?” he said in a rather irritated tone looking up from his desk.
“Wait. How can it be inside information when we don’t even know what company it is or even the industry?” Crane said defensively yet confidently.
“You said it yourself,” Wheelwright came back, “you can figure it out.”
“But that’s not the same as insider information. We do not have a name.”
“Maybe,” Wheelwright paused between the may and the be.
“We have to try. It’s a gift.”
“Your friend won’t see it that way.”
“I can end that right now.” Crane said.
“How?”
“I call her back and say we’re not interested. She said she had others to take it to. Done deal.”
“And then what?” Wheelwright wondered what Crane was planning next.
“I go after it with everything I have. I’ll get Fallon who was with me at Blackthorn on it.”
“No. If you’re going to start looking, you do it all by yourself,” Wheelwright said, no longer indifferent to the idea.
“And what you need to be doing is freeing up some capital so we can go after it, once I convince you its right,” Crane said, more peer to peer than subordinate to owner.
“Don’t worry about anything but your end. You need to do two things: one, get on the phone right now with your friend and close it out. Slam the door, but politely.
Second, come back in here by six with three possible names and why it could be any of the three, but why we need to buy just one.” Wheelwright said seeking comprehension.
“But it will only be one, “Crane said.
“Do your homework, damn it. If you want to buy this, it’s got to be air tight,” Wheelwright finished.
“Got it,” Crane said, rising, and as he exited, “See you at six.”
“Catch the door,” Wheelwright said.
As Crane closed the door, Edward Wheelwright sat thinking about what Crane was proposing. Then he picked up his phone and pressed one of the six programmed numbers.
“Trout Solar, Mr. Trout’s office,” the female assistant answered.
“Is Winston there, please,” Wheelwright asked.
In the meantime Leonard Crane made his call, “Alice?”
“Lenny?” Alice Kraft answered.
“Yes. Alice, I talked with my guys, and there is no interest here. Sorry.”
“What do you mean no interest?” Alice Kraft said irately.
“They don’t want to get involved.”
“Lenny, what are you talking about? It’s a no brainer,” she came back at him.
“Alice, they don’t want to pay the money; it would be too difficult.”
“Then you can pay me separately from your share,” she persisted.
“I couldn’t make it worth your while, Alice. You did say you had other sources,” Crane said curtly.
“I do but I trusted you. We talked about this, about doing one of these. It is a way to kill it.”
“Alice, if it were my money I would,” Crane said hoping this exchange would soon end.
“Lenny, you fuck. I know you. You’re going ahead with it, aren’t you?” she said, now steaming.
“Alice, I don’t even know the company.”
“So no one can tag you with insider info, right Lenny.” She waited, and there was no reply. “Well it’s Rocket Solar. So now you have insider info. Better not use it, you bastard,” and she was gone.
“Alice,” Crane said into the emptiness of the network. “Goddamnit,” and he slammed phone down on his desk. “Fuck.”
Crane went to work doing research on Blackthorn clients from an old database listing he lifted before he left the company. He found five solar firms in the
eight to twelve dollar price range. He quickly eliminated two based on price. The other three he began pulling the numbers: number of shares, float, revenues, earnings per share, profit. He zeroed in on margins, particularly gross and operating. He dug down through Bloomberg, Gartner, and Reuters databases tracking ratings and expectations.
He went to the analyst reports on those following the solar stocks. Two of the companies were followed by four analysts each, the third, had three that reported on it. He pulled up the analyst reports on his desktop and quickly skimmed each.
Of the three companies, two made solar wafers and panels. The third, Rocket Solar, made the reactors that converted sand to silicon and furnaces that turned the silicon into solar ingots that were then sliced into wafers. One of the analysts writing about Rocket Solar stated what Crane felt were two very promising comments. The first mentioned that “in viewing the landscape of solar, the producers of solar wafers and panels have recently seen large increases in orders from Germany and Spain, thanks to the generous subsidies for their solar industry.” It was dated one week earlier. The second comment stated, “If the demand continues for solar modules, pricing will dramatically increase since all major Chinese manufacturers are reportedly operating at capacity.” That confirms it, Crane thought.
Crane also noted the share volume on Rocket Solar had risen 35 percent; for the other two solar companies, one had share volume remaining the same and the other increased slightly, about 3 percent.
At 5:45 p.m. Crane was standing in Wheelwright’s doorway.
“I’ve got it,” Crane said.
“Show me,” Wheelwright said, and he moved to the round conference table by the window overlooking Madison Ave. He gestured to Crane to have a seat.
Crane proceeded to show the eight solar companies that Blackthorn followed, reported on and invested in. He narrowed it to the three in the general price range of ten per share. He then went through comparisons of each company’s business and all key statistics. “But here’s the clincher on Rocket Solar,” Crane said enthusiastically. “In addition to heavy demand and full capacity, Rocket Solar is the only one of the three making the solar reactors and furnaces.” He then proceeded to share the analyst comments.