The Buy Side

by Turney Duff

  The night of the Galleon party, I’m at a bar across the street from the Supper Club. Baby Arm asked me to meet him beforehand. He said he had a present for me. He walks in after I get my first beer. Shockingly, he’s wearing a sport coat: black, expensive, Armani maybe. But when he turns his back I see the coat is embroidered with a white Chinese dragon. “Turney Motherfucking Duff,” he says. He grabs me by the shoulders and forces me to hug him. He’s either unaware or doesn’t care about the beer I spill on him. Baby Arm orders a Heineken and some shots and then tells me to hold out my hand. He slaps something into my palm. I look down and it’s a tiny two-inch ziplock bag with white stuff packed into it. “Go nuts,” he says. I’m not quite sure what to do. I put it into my pocket and ask him how his day was. After we complete most of our small talk, he asks, “Are you gonna hit that in the bathroom or what?” I smile and set my beer down. I enter a private stall, lock the door, and reach into my pocket. I’ve never seen coke before. All I know is, when I was in high school, Len Bias, the college basketball star, used it and his heart stopped working, and also if you had a suitcase full of it, it was pretty much guaranteed that Don Johnson was going to knock down your door and blast a few bullet holes into your chest. I’m not even sure how to use it. Should I pour it out? Is he going to ask for it back? Will he know how much I did? I have to do something with it. Am I supposed to do the whole thing? I touch it with my finger and put a tiny bit on my tongue. My entire mouth goes numb. I close the bag and stuff it back into my pocket. I head back to the bar. Baby Arm waits a few moments and asks for it back. “Let’s hit this party,” he says. We leave our half-full beers on the bar. I hope he doesn’t realize I didn’t take any of the cocaine.

  The party’s insane. Seven hours later I’m standing outside. I see Baby Arm getting into his car. He stops when he sees me and walks over. “You need any more?” he says, pointing to his pocket.

  “No thanks,” I say.

  “Hell of a party, man,” he says. “Fucking epic.” He holds up his copy of the CD and shakes it like it’s hot. “The Good Ship Galleon” is a hit. Everyone receives a copy, and I hear people singing the catchy chorus: “… put your money on Galleon.”

  Baby Arm seats himself in the back of his town car but leaves the door open.

  “A hedge fund with a rap song can only mean one thing,” he says.

  “What’s that?”

  “Party’s over.”

  As great as the night has been, as unlimited as Wall Street’s ceiling seems, something feels prescient about Baby Arm’s words. All I can think of, though, is that for me, the party isn’t over. It’s just about to begin. As the sell side streams out into the street, I hear some of them call my name. “Great tune, Turney,” they say. And, all of a sudden, I feel my edge beginning to form.

  THERE’S A saying on Wall Street that being late is the same thing as being wrong. Technology stocks are like a nine-year-old boy with a wad of Bazooka in his mouth. The bubble he blows is so disproportionate, stretched so thin, that it has to snap. When it does, his face will be covered with a gooey, sticky mess. Betting on tech stocks is Raj’s forte, the reason he rocketed to the top of hedge fund earners. It’s against his very nature to have a negative view on the market. But it’s also against his nature to be late.

  I’m at my desk and the market is ripping. There isn’t a red symbol on my screen—it’s green everywhere. “Toe tags and body bags,” someone yells across the desk. “Anyone shorting this market is getting carried out.” And then the phone rings in Raj’s office.

  “Raj on the hop,” one of the assistants yells out. Raj walks past the trading desk and enters a small conference room with one of our analysts. He shuts the wooden door, but we can see through the glass window. He almost never shuts the door. Like a herd of deer that hears a shot in the distance, everyone’s ears are up. The traders exchange looks, wondering if the others know what’s going on. Raj and the analyst are talking to someone on the phone. This looks serious.

  Twenty minutes later Raj calls Gary and Dave into his office. The rest of us sit and wait. Just moments later, Dave strides out and throws a stack of sell tickets at me. All of the orders are tech stocks. I’m routinely given orders to execute, usually healthcare stocks. But normally it’s one or two at a time. Today, though, the stack is really big. “Sell these—don’t fuck around,” he says. “Get them done, now!” Every trader on the desk has forty sell orders. We’re having a garage sale—everything must go. Either we know something or we’re going out of business. Raj steps out of his office. He cups his left hand on the side of his mouth as if he’s about to whisper something, but instead yells over to an analyst: “Send me an email with fundamental reasons to sell Nortel,” he says. “Make sure you put something in it about them canceling from the Robertson Stephens conference.” Robertson Stephens is a boutique investment firm based in San Francisco. Once a year, it hosts a technology conference where all the big players and investors gather to press flesh and talk about the industry and the future. That Nortel, one of the biggest players, pulls out at the last minute doesn’t necessarily mean it has bad news. But it could certainly be construed that way.

  Meanwhile, we hit the phones. I give out four or five orders at a time.

  “Go to the market,” we say to brokers. “Just get ’em done.”

  Our phones light up like a QVC switchboard during a gemstone jewelry clearance. I take report after report, trying not to make any mistakes. I still haven’t given out all of my orders yet. The stack on my desk remains big. Everyone is yelling at everyone. I don’t know who is saying what. Slaine, Morgan needs you! Gary, you sold 250,000 CSCO. Ruby, don’t fucking touch the phones. Gary, call Merrill’s option desk. Goldman needs you, Keryn. Pick ’em up, pick ’em up. Turney, Piper only sold a hundred-k CTRX, whaddya wanna do?! Slaine, Morgan on the hop! Turney, J. P. Morgan has reports. Pick it up now! Fuck! Pick it up!

  It’s utter chaos. I’m trying to give out my entire stack of sell orders, take reports for everyone on the desk, and book them in our system. A normal busy day for Galleon is a total of one hundred orders, but that’s for the whole day. We’re in the midst of more than twice that in an hour. I pray I’m not making any mistakes. After an hour of complete bedlam, the room quiets. We did it. We sold more than two hundred positions. Now we’re flat; we don’t own any stocks. Unbelievable!

  While everyone else on the Street was buying, Galleon was selling. Earlier in the day, it looked like the market was going to be up big, but now, with all of our sell orders, it’s struggling to stay positive. I push away from the desk and finally exhale. I’m just glad it’s over. But it’s just then that Raj calls in Gary and Dave again. Now what?

  It’s like Groundhog Day. Dave comes back and throws forty new tickets on my desk, but now we’re shorting all of the names we used to own. Shorting is the same thing as selling, but without owning the stock. You sell first and hope to buy it back cheaper. Not only did we sell all of our stocks, but now we’re betting against them. Chaos again, but even worse this time because we’re racing against the closing bell, which is in thirty minutes. Traders screaming, phones ringing, Raj asking if we’re done. I can’t keep things straight. I don’t have time to think. At all times a phone is on my ear, I’m listening with my other ear to my desk-mates, and I’m trying to book trades. When the closing bell finally rings, Galleon is 100 percent short. Two hours ago we owned almost every technology stock, and now we’re short them all. This is uncharted territory, exposure this hedge fund has never had before.

  A hush holds the room. Raj stands behind Gary’s desk; they’re watching the news scroll across the tape. Two minutes after the bell, Nortel Networks reports terrible earnings, and their future earnings forecast is even worse. At the height of the tech bubble, the company grew faster than its expertise. Now their stock is being halted. This is not only bad for Nortel, but bad for the whole market. The aftermarket futures are getting killed, down huge. The bubble is about to burst and we�
�re going to make a boatload of money tomorrow. “Holy shit,” I whisper.

  Then Gary instructs me to book 10,000 Nortel puts (1 million shares) at $.25 per share commission to the broker—that’s ten times the normal commission. I start to feel like I’ve wandered into a heist and Gary just handed me a mask. If we didn’t have prior information, why are we paying extra commissions? It has to be hush money. I book the trade because Gary tells me to. But I can’t help thinking how thin that reason would be as a legal defense. When I show Dave the ticket, he tells Raj we’re all going to jail. “I didn’t authorize the trade,” Raj answers. “It’s Gary’s and Gary’s alone.” Oh my.

  Over the next few weeks, the atmosphere in the office is tense and suspicious. A couple of my fellow traders talk about lawyering up. Dave tells me the SEC called Raj and wanted to know why he sold all of his tech stocks. Raj told them he did it because Nortel was pulling out of the Robertson Stephens conference. In that moment, I remember Raj screaming to the analyst to include in his email the information about the tech firm backing out of the conference, and I realize Raj was creating a paper trail to support his alibi. And it worked. Raj’s excuse was good enough for the SEC. They probably even told him to have a great day before they hung up.

  In the office, there are internal meetings with the partners. Everybody wants to have their stories straight. I realize Raj has his alibi, the email from the analyst listing the reasons to sell the stock. And I’m told to keep my mouth shut. But far too many people on the Street know about the trade—“the Nortel trade,” they call it—and their reaction ranges from jealousy to awe. Galleon has just pulled off a billion-dollar flip.

  BY THE fall of 2000, we have hired two young guys. Rob and Chad, twenty-somethings who have even more to learn than I did, including trade breaks and making sure everything is recapped correctly. I can see the worry in their eyes every morning when they arrive. The market has spent all summer trying to rally from the burst bubble. Galleon is holding serve. We aren’t going to be up triple digits like we were, not even close. But we now manage billions, so we don’t have to be.

  But though I’ve come a long way in the short time I’ve been with Galleon, I still haven’t broken through with a big trade, or secured a steady flow of information. Then one day the Leerink Swann light rings. They’re a tiny brokerage firm in Boston, focusing on healthcare. I’m the only one who answers their line because everyone else thinks they’re useless. I’m starting to think the same thing. There is shorthand we use on the desk. Brokers who call are either an MG or a YG, “my guy” or “your guy.” By default all of my MGs are the people no one else wants to talk to—the Island of Misfit Sales Traders. I’m still the low man on the trading desk besides Rob and Chad, who don’t talk to anyone. Funny thing about Misfit Island, though. Every once in a while you find a Cabbage Patch doll in the mix.

  Besides, the girl who covers us from Leerink is fun. She can trade locker room stories with the best. Whenever she’s in town we go out. I pick up the phone on the second ring. She’s in a complete panic. She says something about Eli Lilly, but I’m not exactly sure what she’s rambling about. After I hang up, I can’t stop thinking about her call. It’s not so much what she said but how she said it. My gut tells me to call her back. I do and she’s just as breathless as the first time. Tell me again, but slowly this time, I say. “Eli Lilly is on the tape,” she says, her words finally catching up with her excitement. “They’re discontinuing generic Prozac.”

  “Okay,” I say. I’m hoping for more. So what if Eli Lilly is discontinuing a brand? They do that all the time. Generic Prozac is lunch money to them.

  “You’re not getting it,” she says. “Sepracor had sales of twenty-two point seven million last year and had expected to earn fifty to one hundred million in royalties from generic Prozac by 2003.” Now I’m really lost. “Wait,” I say. “Is Eli Lilly the trade, or is it Sepracor?” “It’s Sepracor,” she says. “They’re partners with Lilly developing generic Prozac. Sepracor is fucked.”

  Now it clicks. Sepracor is partners with Eli Lilly, which is pulling the plug. Sepracor basically has nothing. The share price of Sepracor should go down huge. I call my Citigroup trader and buy 500 puts in SEPR (Sepracor), the equivalent of shorting 50,000 shares. The stock started the day around $120 and is now trading right around $105. Already down over 10 percent. Sell side healthcare traders start calling me to ask why SEPR is getting killed. “I’m not sure,” I say. I buy 500 more puts; it’s down another five dollars. I buy 500 more. The stock is now trading around $99. I have no idea how much the stock should be down, but if they were expecting $50 to $100 million in royalties and the number is now zero, the stock should be down much more. I buy another 500 puts. Now I’m short the equivalent of 200,000 shares at an average of $99 and the stock is at $98 … $97 … $96 … Sellers in the market start to panic. Several brokerage firms have begun making a negative call on SEPR. I call my girl at Leerink and ask what SEPR’s value should be. She yells over to her analyst. Ninety is the right price, he tells her.

  I call back my Citigroup trader and tell him to sell my 2,000 puts. Selling a put is like buying the stock. “Sell them right now, get it done,” I say. He calls me back with a report a few minutes later and the stock is at $94. I just made 5 points in ten minutes on 200,000 shares. A million dollars. “Nice trade, dude,” my Citigroup trader says. I was guessing. A guess that when everyone else figured out what was going on it would turn into a massive move downward in the stock. Who needs research? I look around because I want to high-five someone. I fight an urge to yell “How ya like me now, bitches!” But I don’t. It won’t fall on the right ears anyhow. Raj and Gary are both out this morning and Dave and Krishen are back in a conference room. When they return to the desk, I casually mention I made some money. When they look at the P&L on their screens they’ll see.

  When they do see the trade, they ask me how I did it. I think about my girl at Leerink, and then Mr. Whisper. “I saw the news come across on Eli Lilly and I just put the two together,” I say. Although Dave and Krishen seem proud and happy for me, I can tell Gary and Raj especially are wondering what else I knew about the trade. But they won’t get that information from me. I own the Leerink light now.

  THE FIRST six weeks of 2001 have been difficult. We chased a rally in January, but missed it. Now the market is selling off again. We’re losing money. Let me repeat that—we’re losing money. It’s a time when all hedge funds must navigate to survive. Well, except for maybe Madoff. For a hedge fund, a long stretch of bad luck or poor decision making will lead to negative returns, causing binary consequences. The first is hindsight: The Friday you took off last week means you’re lazy. The stocks you could have sold last month at a profit and didn’t now symbolize your stupidity and worthless view of the market. Every employee is under review. Every trade, thought, or mistake from your recent past gets highlighted and double underlined. The second consequence is a bit harder to describe. Think of it as “looming clouds.” It’s like how dogs behave, barking and crawling under a table an hour or two before a massive storm hits. It might be because of the change in barometric pressure or the buildup in electricity. It could be because of their heightened hearing and sensory capacities. Or maybe it’s just because they pay attention. Regardless, in early 2001, if Galleon had an office dog, it would have been barking loudly and seeking shelter beneath the trading desk.

  It’s under these looming clouds that I enter the office on Valentine’s Day. A handful of KISS ME candy hearts sit on my desk. I don’t hate Valentine’s Day, because that would suggest I care. I’m a single, thirty-one-year-old trader on the buy side. And though I get verbally abused sometimes in the office for not having a serious girlfriend, my life is moving far too fast to fall in love. Besides, I’m having too much fun. I spend money without worry. I hang out with my roommates whenever I want. I’m not ready for a girlfriend.

  I flip on my computers and pop a pink heart into my mouth. I check my email
s. When I look up, Gary is sitting at his desk. I didn’t even hear him come in. He has a welt above his eye. The gash is fresh and glistens with bacitracin in the fluorescent lighting. His head is bowed, the posture of a beaten man. He picks up the phone.

  “Gary,” I shout over. He slowly rolls his eyes up to meet mine. He’s lost a shade of skin tone: he looks ill. He looks like he didn’t sleep last night. The obvious question is on the tip of my tongue, but then I hear a voice inside say, Don’t ask, don’t ask. I quickly turn back to my email and say, “Never mind, I figured it out.”

  One by one, the rest of my coworkers enter the office. Each sees the welt over Gary’s eye, his dour expression, and turns quickly away. Some of them already know what’s happened. Cell phones were buzzing right after the incident. Gary, no doubt, called Keryn; Slaine had probably already spoken with Ruby, since he was with them. It’s ironic: I was first in the office but am last to know. And although cellular connections burned with gossip, the office is enveloped by an eerie silence. Slaine lumbers in last, a half hour later than usual, and sits down next to me. He doesn’t look at me. I glance his way to try to get his attention. He rubs his phone with a disinfectant wipe the way he does every morning. I keep trying to make eye contact, but to no avail. He knows I’m looking at him. He finally turns his head toward me and leans in close. “I bitch-slapped him,” he whispers to me. I shove four candy hearts into my mouth.

  Of course, in this moment, I have no idea of how dramatically those four words will affect my career. All I know is, I’m consumed with a mix of emotions and curiosity. No matter the reasons that precipitated the event, Gary had it coming. No one knew this more than me. But why now? And why Slaine? These are the questions dancing tantalizingly in my brain. Then it strikes me. It was just a few days earlier that Raj had started needling Slaine. “Why do you take shit from Gary?” Raj had said. Though Raj often pits one employee against another—his cockfight model—he hadn’t up to that point done so at this level of management, at least that I knew of. But this is an extraordinary time. We aren’t making money, and Raj isn’t used to that. Maybe he thinks a small internal war will stir things up. He likes that Slaine and Gary compete for his attention. He gets off on it, like a hot cheerleader might get off on fielding several suitors. But I doubt Raj expected his little manipulation to escalate as far as it did.