by Matt Taibbi
Man accuses company of being secretly underreserved/undercapitalized, man nudges regulators into investigating, man leaks news of investigation to journalist. Contogouris was developing a literary method. He was becoming a professional reality creator. And he liked the job.
After the Hanover experience, in which he proved his ability to move the needle on a stock, Contogouris was aided by SAC employees in getting a series of unpaid internlike jobs at a number of hedge funds around New York. From there he created a number of “independent research” firms, including one company with the international-man-of-mystery-sounding title “MI4.”
Then when Perry moved from SAC to Kynikos in the early 2000s, he decided to hire Contogouris again, paying him $25,000 per quarter to subscribe to his “research” service. In early 2005 Chanos asked Contogouris to focus on Fairfax, which Contogouris told others would be like “another Hanover situation.” Shortly afterward, in the spring of 2005, Contogouris was also hired by Sender at Exis, who also gave him space inside the Exis offices, his own telephone, and so on. Within months, Perry moved his operation again, this time to Dan Loeb’s Third Point Capital, and Perry convinced Loeb to become a “subscriber” to Contogouris’s service as well.
This was the crucial turning point in the story. Chanos, Loeb, and Sender were now all invested in crazy-ass loose cannon Spyro Contogouris—more than investors, they were his patrons, his bosses. Their decision to unleash this man on Fairfax was the moment when the fund managers went from being merely bent to being antisocial maniacs.
To aid in his efforts to “research” companies like Fairfax, Contogouris hired a New Jersey storefront accountant named Raymond Rekuc. Until he became the mastermind of what Contogouris pitched to the world as some of the most important research in the global investment community, Rekuc had just been an ordinary joe who did business tax returns for walk-in customers. His profile seems very much like David Friehling, the strip-mall accountant whom Bernard Madoff used for years to sign off on his bogus non-trades, with the only major difference being that Rekuc was from suburban New Jersey instead of suburban New York.
It would later come out that Rekuc forgot to file his own federal tax returns for four consecutive years, and he would be convicted of that offense in 2010, but nobody knew about it at the time. Instead, for much of the mid-2000s Rekuc played the part of high-powered international forensic accountant, and it was he, in conjunction with Contogouris, who helped craft the specifics of Contogouris’s central theory, that Fairfax was the next Enron.
In fact, Contogouris in the summer of 2005 managed to get an audience with the FBI and dragged Rekuc along with him, presenting him as an expert forensic accountant who had done a detailed analysis of Fairfax and discovered a sizable fraud. Years later Rekuc in a deposition would cheerfully admit that he wasn’t a forensic accountant, hadn’t done a forensic examination of Fairfax, and in fact had discovered no evidence of fraud at Fairfax or at Crum & Forster when he met with the FBI. But he helped Contogouris argue to the FBI for the need to issue subpoenas anyway.
These oddball characters—Contogouris, Rekuc, another “MI4” operative named Max Bernstein, and a few others—were apparently responsible for virtually the entire covert campaign against Fairfax. The letters, the phone calls, the FBI surveillance, the problems with PricewaterhouseCoopers, the spate of negative press stories, the weird visit by the phony reporter in London—virtually all of it had come from one of these specimens.
They had promised Chanos, Sender, Loeb, and others to bring down Fairfax. “Where Spyro crossed the line is that he actually promised these guys he would bring down the company,” says Roddy Boyd, the former New York Post reporter. “It’s like a reporter promising to win the Pulitzer prize. You can’t promise results.” Contogouris’s strategy would be to sink Fairfax by “closing access to the capital markets”—cutting off its access to funding by undermining its reputation. This was old-school Sun Tzu stuff, isolate-and-destroy tactics, “attacking by stratagem”: General Contogouris would cut off his enemy’s supply lines by, among other things, sullying the firm’s standing with ratings agencies and shareholders and others in a group he termed “FoF,” for “Friends of Fairfax.” He wanted to “get them where they eat,” cutting off their credit lines, particularly going after their ratings by agencies like A. M. Best.
All this Contogouris promised to Chanos, Loeb, Sender, and others from the start. He pledged to “get the message of what I think is a massive fraud to these long term value holders” by creating a “crisis of confidence” that would frighten investors and “shake them out of the stock.”
In time, Contogouris would deliver regulatory attention, negative press scrutiny, and lots of doubt and hesitation among the “FoF.” But the middleman offered more than that to the hedge funds. He also offered the purely sadistic service of just plain old wreaking havoc on Fairfax’s employees, among other things with the late-night calls, for which Contogouris had a colorful descriptive term.
“We have to make this a rattle-his-cage ritual every night before we go to bed,” Contogouris explained to Sender, who out of all the hedgies seemed the most interested in this particular part of the operation.
According to Fairfax’s lawyers, Sender loved the cage-rattling phone calls so much, he asked Contogouris to conference him in, so he could listen while “Monty” or “P. Fate” made his after-midnight calls to Watsa’s cancer-stricken personal secretary. Contogouris, apparently moved by some obscure con man’s code of honor, refused, instead sending Sender the phone numbers so that he could make his own prank calls to Watsa’s inner circle.
The email records between Sender and Contogouris are twisted and disturbing. During the key period of the case, the spring of 2006, the two corresponded either by email or Bloomberg message service or by telephone five times a day, on average. The pair loved speculating about bad things that might happen to Watsa, whom neither had ever met. At one point, for instance, Contogouris asked Sender if he wanted Watsa’s marriage to fall apart:
Is it good if Prem Watsa’s wife divorced him?
To which Sender, the art patron, replied:
She probably can’t stand his nasty Paky smell.
But Sender wasn’t the only hedge fund titan to be enthralled by Contogouris. Chanos, too, spent an inordinate amount of time personally communicating with the man.
In fact, Chanos actually helped disseminate Contogouris’s work. Chanos personally sent the business school at the University of Toronto a Contogouris-penned “report” on Fairfax and, as Contogouris had done with Watsa’s priest, warned the university to be wary of interacting with the Fairfax CEO. “I am sending you this note on Fairfax because the author, who is doing the best work on this company (and believes it to be an Enron-like fraud) is Greek,” Chanos wrote. “I would just like to make two observations: First, if we are right, it would be wise to get Mr. Watsa’s future pledges or future gifts in cash. Also, keep in mind that no amount of support is worth besmirching a university’s reputation.”
That a New York billionaire would take time out to harass a Canadian business school with threats about its reputation would be surprising, except that the hedge funds seemingly had left no stone unturned in their efforts to intimidate anyone connected with Fairfax. At their direction, Contogouris stole confidential information from Fairfax executives and delivered dossiers to the Wall Street gamblers showing private bank account info, credit card information, cell phone records, brokerage account information, any private material you can possibly steal. They researched sexual habits and preferences and religious beliefs and even investigated a woman one executive met for dinner.
The hedge funds hired a former FBI agent, Gregory Suhajda, to conduct these “investigations.” The clear objective of researching things like sexual orientation was to try to smooth the way for blackmail. Suhajda explicitly outlined this idea in an email to Exis Capital’s Andy Heller in May 2006 that contained a background report on a Fairfax executive, expl
aining that possessing compromising information might lead to “an informal interview which would allow for the highest probability of success.”
And indeed, Suhajda and Contogouris tried repeatedly to “informally interview” current and former Fairfax executives. In one incredible episode that demonstrates the lunatic, fourth-rate Spy vs. Spy stupidities that Contogouris and his hedge fund buddies stooped to in an attempt to wrest inside information out of Fairfax employees, they targeted a Fairfax executive named Trevor Ambridge, who at the time was working for a Fairfax subsidiary in London.
Before approaching Ambridge, Contogouris and Suhajda had managed to get themselves registered as FBI informants. Again, they used real questions about Fairfax’s accounting and a paucity of public information about the relationships among the many subsidiaries of the umbrella company to pique the interest of authorities. Particularly in the wake of the superficially similar Gen Re/AIG case—which by the mid-2000s had developed into a full-blown Justice Department investigation (with another prominent insurance CEO, AIG’s Maurice “Hank” Greenberg, as the central prosecutorial target)—the government had a genuine interest in Fairfax. Nobody on either side of this story disputes that Contogouris for a time was genuinely working with the FBI in some capacity.
And Contogouris used that status to entice Fairfax employees like Ambridge to come forward and spill secrets to the authorities. Showing off his familiarity with intelligence/cop lingo, or at least with cop movies, Contogouris boasted to Ambridge that while he couldn’t guarantee Ambridge immunity, he might be able to have a word with someone about getting him a “queen for a day” deal with the Justice Department—a one-day off-the-record agreement where nothing he said could be held against him. Contogouris urged Ambridge to come to a secret meeting at a hotel room in London, where he would meet with authorities.
Impressively, he managed to convince real FBI agents to come to the would-be meeting with the would-be inside whistle-blower, upon whom Contogouris constantly impressed the need to cooperate. “Believe me when I tell you that it is my best interest to try to insulate you from prosecution,” Contogouris told Ambridge. “The person who is first to cooperate usually gets the best deal and gets it put behind him.”
Contogouris had no idea of this at the time, but Ambridge was working with Fairfax security personnel. Fairfax by then had hired a New York law firm, Kasowitz Benson Torres & Friedman, to investigate its situation. One of the firm’s lawyers, the aforementioned Michael Bowe, traveled to London along with a former NYPD investigator to observe the would-be meeting with the strange character who was approaching one of Fairfax’s executives. “We wanted to see who this guy was,” Bowe says, laughing as he recalls the story. In the end, Ambridge, at their instruction, canceled the secret meeting when Contogouris refused to accede to a demand that it be conducted in a public place.
But the episode wasn’t a total loss for the Fairfax lawyers, who later discovered extraordinary exchanges between Sender and Contogouris about this would-be London spy meeting. As registered informants with the FBI, Contogouris and Suhajda had both had to sign confidentiality agreements with the government, promising not to disclose anything about their activities or, particularly, make any trades based upon their knowledge of the investigation.
But Contogouris was so constitutionally incapable of containing his excitement at all the hubbub that he blew off the confidentiality issue and continued emailing and texting Sender throughout the entire episode. On the very day Contogouris was supposed to meet with Ambridge, he sent Sender a preposterous coded message in which he described an upcoming government action against Fairfax using the metaphor of a hurricane about to hit the Gulf of Mexico. In the message, he describes Ambridge as the “Gulf of Mexico guy,” and while expressing disappointment that “GOM guy” isn’t showing up for the meeting, he still bubbles over with excitement about a coming “storm” being predicted by “U.S. meteorologists”—in other words, a raid by the FBI:
CONTOGOURIS: GOM guy acting finicky, can’t reach him. I got three peolpe [sic] trying its bad news. The good news is though the U.S. meteorologists confirm a hurricane coming. you get me …?*4
SENDER: When the hurricane comes its going 2 be nasty regardless.*5
CONTOGOURIS: Fuccckkk Ya. Its going to make Katrina look like a sneeze*6
Sender and Contogouris at one point in the middle of this dialogue realize that they can’t understand each other’s half-baked codes, and they have to email each other asking to clarify what the hell they’re both talking about. Sender sheepishly admits he’s not sure what Contogouris means by his message about the “GOM guy”—is it good news or bad news? After all, he’s got a ton of money shorted against Fairfax … er, his drilling in the Gulf was very large:
SENDER: Im a bit confused. Is the GOM Guy talking 2 u or not. Our position in Energy, driling [sic] is very large as u know. Not worried about this one, one second just curious?*7
CONTOGOURIS: He’ is very talkative but is very worried about some current hurricanes. executives from all over the world have flown in for emergency meetings and he can’t get out to talk to me. My meteorological crew can’t be in the field and in the open indefinitely waiting. Scheduling is the problem, but the gom guy appears to want to come in and tell my guys what he knows about these hurricanes that are due in August*8
SENDER: I wish it was Aug.*9
CONTOGOURIS: me too.*10
After this exchange, Contogouris exploded with a series of threats against Ambridge for not showing, promising to spill secrets about his communications with him. “Just think what I could do with your emails,” he hissed, adding that he, Spyro, was going to “consider all my options as maintaining our confidentiality,” and that if the executive didn’t cooperate, he could “no longer rely on my discretion.”
Contogouris seemed to be playing a triple game. First, he was genuinely trying to deliver an informant to the FBI and set himself up as an FBI informant. Second, he was trying to deliver confidential information to the hedge funds, to whom he had set himself up as an expert at information retrieval. And third, he was playing secret source to “reputable” journalists, to whom he had promised to deliver stunning exposés. Contogouris even referenced one of those contacts in his adolescent coded emails to Sender sent from London that day:
CONTOGOURIS: We have been rapping here about the postman. He’s going to deliver mail. The senders want a message delivered*11
“The postman” here was Boyd of the New York Post, with whom Contogouris had been working to prepare a major “exposé” on Fairfax. Boyd in the late spring of 2006 had spoken to Chanos himself, who introduced him to Contogouris, who in turn began working with the journalist on a series of exposés about Fairfax’s supposed Enron-like machinations in offshore accounts.
Like others who met Contogouris, Boyd says he was initially impressed by the man’s energy and magnetism. “He’s a different kind of guy,” Boyd says now. “Unbelievably obsessive and driven. A very hard worker.” Boyd says he met with him four or five times, and although he denies that Contogouris was an important source for the stories he would ultimately write about Fairfax (Boyd claims he had already begun pursuing a different theory about Fairfax, a tax-evasion angle, than the one Contogouris was pushing), he was initially receptive to Contogouris’s information. At the very least, the two were in contact before Boyd ran a story about Fairfax that summer, and Contogouris could plausibly tell his bosses that a devastating exposé from a prominent journalist was coming.
Thus throughout July 2006, Sender, Chanos, Loeb, and others were joyously writing to one another about the imminent demise of Fairfax, among other things because they knew that Boyd was planning an exposé on Fairfax that would accuse the company of self-dealing. Contogouris would even tell them the publication date of the first piece: July 22.
And in the days before that piece ran, the hedge funds gnashed their collective teeth in orgiastic expectation. As always, the men wrote to one another in gh
astly pidgin English, full of bad sex jokes and comic misspellings. Contogouris wrote to Chanos:
Oh ya … FFH just about rapped up like a skandanavian mistress love slave
The billionaire wrote back:
I bet Prem is a nervous as a goat in a Greek monastery … lol
Nothing like a little goat-fucking humor between Greek stock scammers. While that conversation was going on, Sender was joking to Loeb:
SOUNDS LIKE WHAT’S GOING TO HAPPEN TO PREM IN SING SING
The next day, however, Fairfax’s stock disappointingly went up, prompting Sender to write:
MAKES ME SICK, BUT … PREM DOESN’T HAVE MUCH MORE TIME 2 FUK AROUND SO I HOPE HE IS HAVING FUN WITH HIMSELF
The Post story came out as planned on July 22, but the stock didn’t crater. Contogouris blamed Boyd, among other things for not getting the story up on the Web fast enough. “Stocks up a dollar,” he whined to Boyd. “Your guys really fuk you with this not on the internet BS.”
It was around this time that Boyd started to have a change of heart about Contogouris. He says the Fairfax story came out while he was on a vacation, and when he came back, he found certified letters from Spyro jamming up his mailbox, and his answering machine lit up with messages. “There were like nineteen messages. It was crazy. He was getting increasingly more difficult,” says Boyd, who decided to freeze out Contogouris for a while.
The day after the story ran, July 23, Sender’s nerves were so raw that he exploded at Contogouris. Spyro had texted him that he was working on another project that day, because his “brain is fairfax fried.”
“NOOOOOOOOOOOOOO,” Sender moaned in an instant message. “FAIRFAX #1 UNTIL WE C THE CORPSE.”