Den of Thieves

by James B. Stewart

  “What’s that mean?” Wilkis asked.

  “For a guy who went to Harvard, you’re not very bright,” Levine said. “Can’t you figure it out? I’ll give you a hint. What mountains are in Europe?” Levine paused, as Wilkis looked baffled. Finally, Levine divulged his secret. “Bob, I’m all set up. I’ve got a Swiss bank account.”

  Wilkis was still puzzled; he thought only gangsters had Swiss bank accounts. “So what?” he asked.

  But Levine refused to say more. “If you don’t get it, I’m not going to spell it out.” He seemed disappointed at Wilkis’s lack of enthusiasm.

  Levine had a glaring weakness, however, that soon became apparent once he started work in the M&A department: his math skills were dismal. M&A work requires detailed calculations of discounted cash flow. Various kinds of valuations of business segments are necessary to arrive at the correct price for often huge transactions. Most of this work is done by junior M&A people. But Hill noticed that Levine invariably organized his team so that someone else had to do the math. Levine was a fast talker, and cut a swath through the fledgling department; but increasingly Hill sensed that Levine was, in his terms, a “bullshit artist.”

  Hill quietly asked around, trying to find out who was doing what on various deals. In Levine’s case, he learned that much of the math work was being handled by a young summer intern from Harvard Business School, Ira Sokolow. Unlike Levine, Sokolow was quiet and studious, meticulous almost to a fault, a perfectionist. Eager to make a good impression, Sokolow was easy prey for Levine: he’d work late at night, on weekends, whatever it took to complete Levine’s assignments. Sokolow never complained.

  Hill finally called Levine in. “You’re not fooling me,” Hill told him, adding that he wouldn’t advance in the department until he had mastered these basic skills.

  “But my role is more important,” Levine countered. “Anybody can do that.”

  “Dennis, you want to run before you can crawl,” Hill insisted. “You have to pay your dues. Most professionals can react swiftly and wisely in a crisis because ten–fifteen years ago, they did spreadsheets late into the night.”

  But Levine paid him little heed. That year, at his bonus review, Hill told him he’d be earning about $100,000, including his regular salary. Levine was furious that he wasn’t the top-paid associate at his level of seniority. “Dennis, you’re not treating this like someone who wants to learn,” Hill told him. “You seem to think the world is full of fools. You are sadly mistaken.”

  Levine complained to Wilkis that Smith Barney was full of white-shoe mediocrities who didn’t appreciate him, especially Hill, his boss. “Hill is anti-Semitic,” Levine told Wilkis.

  “That’s ridiculous,” Wilkis replied. “He just doesn’t like you.”

  Levine seemed obsessed with his bonus. He constantly sought out Hill, asking whether he’d reevaluate him, whether he’d cured his defects, wondering why he wasn’t advancing faster. Though Levine pestered him far more than anyone else in his department, Hill, by and large, considered Levine’s interest to be a healthy one. It showed Levine was aggressive. M&A was a business, he believed, that required people who were driven. What worried him slightly was Levine’s own inflated view of his skills and contributions.

  Then Levine scored what he considered a triumph. While others in the department concentrated on their spreadsheets, Levine began focusing on what he called “identifying opportunities.” One afternoon he rushed into Hill’s office with some shreds of ticker tape, noting that trading in a particular company’s stock seemed unusually active. “Let’s call and pitch the defense,” he told Hill. “This company looks like it’s going to get an offer.”

  Hill did some research and concluded that the company did look somewhat undervalued and could be a likely takeover target. He called the company and suggested that it could use some advice in anticipation of an unfriendly bid. While Smith Barney wasn’t retained, Hill began regular conversations, helping the company interpret spurts in its stock price and trading volume. Sure enough, the company did get a takeover offer, and Levine was ecstatic. While Smith Barney wasn’t assigned the defense work, it was hired to do a “fairness opinion” on whether the proffered bid represented the company’s true value. For that relatively modest assignment, which Levine attributed entirely to his early intelligence, Smith Barney earned a healthy $250,000.

  Levine now saw himself as a profit center. He began following the tape constantly, looking for similar trading surges that might signal an accumulation in anticipation of a takeover. He badgered Hill, demanding a bigger bonus, emphasizing the importance of the new role he was creating for himself. Thus, he was even angrier at his next bonus review when he again failed to get the top bonus, and was told by Hill that he wasn’t being promoted to vice president, as were others at his level of seniority. “I’m disappointed,” Hill bluntly told him. “You aren’t developing into a complete investment banker.”

  For Levine, the experience only reinforced his view that without extraordinary measures, he was never going to realize his grand ambitions. Not that he was particularly surprised. As he told Wilkis constantly, he was convinced that everyone was using inside information to get ahead; the game was rigged. At their frequent lunches, or walks through Central Park, Levine told Wilkis that nearly all the partners in Smith Barney’s Paris office had Geneva bank accounts, and frequently traveled to Switzerland on weekends. Even Hill, he alleged, was swapping inside information with an investment banker at Dillon, Read. Levine was convinced Hill also had a secret trading account. “I could bring Hill down with what I know,” Levine boasted, without ever being more specific. (Hill has never been accused of any misuse of confidential information.)

  One afternoon, on one of their walks, Levine asked whether Wilkis might be able to get him information about pending deals at Lazard which would help him identify targets and land business for Smith Barney. Or, he continued, he could use the information to trade in his Swiss account. It wouldn’t be detected. No one would suspect that Levine would have any advance knowledge of deals that his own firm wasn’t involved with. He paused to gauge Wilkis’s reaction, then continued. “You could do this too with information I could give you from Smith Barney. It’s easy. All you need is the right setup. You could get rich, get out of Wall Street. You could go to Nepal, become a Buddhist monk. Isn’t that what you want?”

  Now all of Levine’s insinuations about the Swiss bank account made sense. On some level, Wilkis had known what was going on, but he had preferred not to focus on it. Now he asked whether Levine was using his Swiss account to trade on inside information. Levine nodded yes, looking Wilkis directly in the eye. He’d opened an account with just under $40,000 at Pictet & Cie. in Geneva just before returning from Paris, he explained. Since then, he’d traded in four Smith Barney deals, admittedly in small amounts so as not to attract attention. Still, his account had grown to over $100,000.

  Wilkis was apprehensive. He knew that at both Lazard and Smith Barney, employees could be fired even for opening a brokerage account without telling the firm so the trading could be monitored by compliance departments. And there was no doubt that insider trading was a crime. “It’s illegal, Dennis,” Wilkis said. “I’m scared.”

  Nonetheless, Levine had shrewdly recognized that he ran little risk in revealing his secret to Wilkis. Wilkis felt even closer to him. His friend had entrusted him with a secret that could be used to destroy him. Levine’s fate was now in Wilkis’s hands, and Wilkis was flattered. Also, the germ of an idea had taken hold in Wilkis’s mind. He didn’t like his work at Lazard any better than he had at Blyth or Citibank. Maybe he could get rich, as his friend was suggesting—and get out of Wall Street for good.

  On one of their walks, Wilkis asked Levine about his trading profits. “How do you pay your taxes without giving away your trading?”

  Levine gleefully recognized that he had Wilkis on his baited hook. Wilkis’s thinking was shifting from the ethics of the scheme to the
chances of getting caught.

  “You dumb fuck!” Levine exclaimed. “You don’t pay taxes! That’s part of the beauty of this. All you need is a setup. I’ll explain it all for you.” And he did, mapping out the procedures for creating shell corporations with nominee directors to conduct anonymous trading, as well as bank secrecy provisions in the Caribbean, where many Swiss banks had branches protected by Swiss secrecy laws.

  It all seemed so easy. For several weeks, Wilkis thought of little else but Levine’s proposal. It was true, he rationalized, that everyone on Wall Street seemed to be turning confidential information to their advantage. What was the real harm? Didn’t the legitimate work he was doing often enrich the investment bankers with little or no corresponding social good?

  Levine’s scheme also seemed foolproof. His trading would be anonymous, and he wouldn’t trade in any deals that could be traced directly to him or his firm. He’d have to trust Levine, of course, but hadn’t Levine trusted him? Once they were in the scheme together, neither could implicate the other without destroying himself. In his constant calculations of risk and reward, the risks seemed minimal.

  In November 1979, Wilkis persuaded Elsa to take a vacation to the Bahamas. She would have much preferred Miami, with its large Cuban-born population. He withdrew all his savings—$40,000 in cash—and stuffed it into a suitcase. They flew to Nassau. The weather was terrible during their entire stay.

  If the trip was a failure as a family vacation, its real mission was easily achieved. Wilkis followed Levine’s instructions to the letter. He incorporated as a Bahamian corporation he named Rupearl; he used an alias and introduced himself as “Mr. Green.” Rupearl’s officers and directors were all nominees of Wilkis; its assets were his $40,000 in cash. He interviewed at three different branches of major Swiss banks, finally settling on Crédit Suisse. No one looked askance at his arrangements. By the end of the vacation, he was “set up,” in Levine’s words.

  Wilkis, isolated in Lazard’s international area, hadn’t been paying much attention to what was going on in corporate finance or M&A. Now he began to listen, to develop contacts with other investment bankers, and to pass on everything to Levine. Levine, in turn, passed information from Smith Barney to Wilkis.

  Wilkis was nervous at first, afraid that the weak link in the scheme was the possibility that his relationship with Levine might be detected. So Levine suggested that they speak in code, using false names when they called or left messages. Wilkis became “Alan Darby”; sometimes Levine used the same name, or “Mike Schwartz.” Using codes was fun; it gave their insider-trading scheme the aura of a Hardy Boys escapade. Soon they were engaged in conversations so riddled with codes they would have seemed ludicrous to any listener.

  Levine—“Mr. Darby”—would call on the phone. “Hi, Bob. We’ve got to talk company business.” Company business meant the trading scheme. “I’m taking a peck at Jewel” meant Levine was accumulating a modest position in Jewel Companies. “Textron is looking OK” meant Wilkis should pay more attention to that situation, gleaning additional information for Levine.

  Some of their code names displayed a certain wit. John Fedders, then head of enforcement at the SEC, was known as “the air conditioner” because of his surname. Levine’s nemesis, Hill, was called “the three sticks,” lampooning what they deemed a pretentious use of the Roman numeral III at the end of his name.

  Lazard was much more active in mergers and acquisitions than Smith Barney, and now Levine tried repeatedly to get hired there. Wilkis did what he could to help, even conducting mock job interviews with his friend. Although Levine was interviewed several times for jobs at Lazard, no one was interested. The rejections only fueled his desire to trade on information from Lazard. “They fucked me over,” he told Wilkis. “I’ll make them pay.”

  Levine was impatient with the flow of information Wilkis was providing. In May 1980 he called Wilkis and, after the requisite codes, mentioned that “Wally says Lazard is busy.” Wilkis was startled. Earlier that year, Levine had intimated that he was cultivating a source within Wachtell, Lipton. Levine had often boasted that his relationship with Wilkis would be just the beginning; he envisioned a ring of information sources including collaborators at the key investment banks and at the two big merger law firms, Wachtell and Skadden, Arps. The more disparate the sources of information, Levine reasoned, the less likely any pattern would emerge in their insider trading, and the more money they’d make.

  Wilkis wondered if “Wally” had been ensnared by Levine, but knew better than to pursue the matter on the phone. “We’ve got to get busy,” Levine continued. Now that he knew something was afoot at Lazard, Levine wanted Wilkis to find out what it was. He’d even been pressing Wilkis to break into Lazard offices and look through files, and he renewed his plea. “It’s easy,” Levine said. “Go through the desks.”

  Wilkis shuddered at the prospect. “I can’t do it, Dennis,” he insisted. “It’s too risky.”

  “Then I’ll have to do it myself,” Levine said impatiently. “I’ll meet you at your office tonight.”

  Levine arrived around 8 P.M. It was a Friday evening, and the Lazard offices were deserted. Levine seemed relaxed, in command. He began sweeping through the offices, going through papers on desks, opening drawers and files, examining the diaries and Rolodexes of partners he knew. He even stopped to admire a cache of Cuban cigars in partner Louis Perlmutter’s office.

  Wilkis was petrified, hovering in the corridors while Levine searched, anxiously looking toward the entrances. How would he explain this if someone came in? Suddenly he heard a noise at the door and saw the knob turn, and his heart leaped. “Dennis,” he whispered, trying to alert him. But it was a cleaning woman, who passed them without showing any interest.

  Finally Levine found what he wanted: a cache of documents outlining the acquisition of Kerr-McGee, a large oil company, by the French oil giant Elf Aquitaine. If it happened, it would be the largest takeover ever, a tremendous opportunity to profit from inside information. Levine quickly copied the documents and returned them to the file. “See how easy this was?” Levine laughed as he and Wilkis fled the offices for the weekend.

  Levine was thrilled with his haul from Lazard. Besides the documents on the Elf Aquitaine bid, he had found, and photocopied, a seating chart showing the position of every investment banker at Lazard. Now, armed with as little as a tip from “Wally” about who from Lazard was working on a still-secret matter, he could target the exact desk likely to hold confidential documents identifying the target and suitor, minimizing the time needed for the theft. And Levine was confident that he was about to fully ensnare “Wally” in the scheme.

  Ilan Reich hurried across Manhattan’s Grand Army Plaza. The square in front of the Plaza Hotel, bustling with Saturday shoppers, seemed like the crossroads of the Western world. Reich took up a position under the Plaza’s multicolored flags, flapping in an unusually warm late-March breeze.

  Reich paced nervously, wondering just what he was getting himself into. He’d been a lawyer at Wachtell, Lipton less than a year, but he was already making over $40,000, more than just about any other associate with his seniority in New York. Why was he risking his career? Before he could think further, Levine was at his side, all smiles, all reassurances. He even remembered to ask about Reich’s family.

  The two men walked across 59th Street and went into Central Park, strolling past a small lake, and sat down on a bench overlooking the ice-skating rink. Late-morning skaters swirled around the rink; the Plaza loomed in the distance, towering above bushes and trees just turning green.

  Reich had promised Levine inside information on the phone the previous day, but now Levine didn’t push. He reminded Reich that the scheme was foolproof; he promised to handle all of Reich’s trading in an account that wouldn’t even bear the young lawyer’s name. He’d start Reich with $20,000, and execute the same trading strategies he was using himself. Whenever Reich wanted cash, all he had to do was ask. Levine wo
uld pass it on to Reich.

  Reich seemed convinced. He told Levine that a secret takeover bid was in the works for a large American oil company, Kerr-McGee. Reich wasn’t working on the deal, but its size had generated much attention and comment at Wachtell. It was going to be the first hostile takeover bid ever to top the $1 billion mark. Wachtell was working with Lazard, which had been retained by Elf Aquitaine to explore the possibility of a bid for Kerr-McGee. Now it looked like the deal was going forward. He thought Levine would be dazzled by the intelligence.

  Reich was wrong. Levine played the moment as high drama, putting his arm over the back of the bench and leaning toward Reich. “I know,” Levine said gently, smiling at Reich. He proceeded to reel off financial data he’d absorbed from the purloined Lazard documents, proving that he already knew even more about the transaction than Reich did. Reich was astonished. Levine must have been right when he said everybody was already spreading inside information! Levine reassured Reich that the Kerr-McGee tip was the kind of information that could be useful to them, but that Reich would have to do better. He’d have to be discreet, but he needed to gain access to confidential information that wasn’t already the subject of rumors.

  Levine’s technique worked beautifully. Reich had always been competitive, struggling constantly to catch up to his older brother Yaron. As he left Levine in the park, Reich vowed that he’d prove himself to his new partner. He’d produce better, more useful information the next time. Once Reich set his mind on something, he’d almost always achieved it.

  Law review at Columbia, for example. Yaron, a year and a half older than Ilan, had excelled at Columbia Law School, and was chosen for the prestigious law review on the basis of his high first-year grades. Ilan’s grades were good, but not as good as Yaron’s. He entered the writing competition for those students not chosen on the basis of grades. He didn’t make it. In a virtually unprecedented effort, Ilan entered the writing competition again a year later, as a second-year student. Yaron helped him write his entry. This time he was chosen.