We would never let Adam have any discretionary authority on trading, but as far as pushing a buy button when we told him to? Well, even Adam couldn’t fuck that up. It was easy business for Adam, and Whitney gave us a healthy discount on the rent.
When it came time to start raising money for Incremental, Whitney always told us he wanted to be a part of it. And it was Whitney’s interest that forced us to wrap our heads around what we were worth, when we had basically nothing.
I went to Zvi about it.
“How do we come up with a number? What are we worth? What’s even the mechanism for determining it?”
“Tell Whitney that for $200K, we’ll give him 1 percent, or 5 percent for a million.”
I laughed out loud. “So we’re only valuing ourselves at $20 million?”
“Is that the math?” Zvi asked. “Sounds fair. Generic-Carlin sold that worthless chunk of shit firm to RBC for $100 million.”
“Look, there’s potential, and then there’s reality,” I cautioned. “Do I think we could be worth that at some point? Yes, of course. I wouldn’t be here if I didn’t. But right now it’s just me and your brother and a few junior traders. A $1,000,000 valuation would be generous.”
“I work for Raj, the King of all Kings,” Zvi said mystically. “Franz is going to recruit some hedge-fund level A-talent for us. You were the top trader at the last two firms you’ve been at and know more about this business than anyone I’ve ever met. That’s not worth $1 million. That’s worth ten today, and it’s a steal at that.”
I liked being flattered, but I still thought the number was ridiculous. There was no real revenue yet, and we were currently trading out of a glorified walk-in closet with leaking ceilings. But then again, finance always contains that hint of fantasy, of mystery, of what might be. Companies without profits go public all the time. Remember Yahoo? Early stage conceptual companies raise millions in venture capital money every year without even having a prototype. So-called “value” in a market is ultimately nothing more than what one side is willing to pay for it. It’s all about perception.
Zvi suddenly decided to compromise: “Look, start at $15 mil. If he negotiates, fine. We can settle at ten.”
“Sorry, Zvi,” I replied. “There’s no way I can ask for $15 million with a straight face. No way in hell. Some things don’t need to be negotiated from a bullshit number first. When you do that, you lose credibility, which you can’t get back. I’d rather set a real price.”
“I’m not accepting less than ten,” Zvi said, adamant.
“‘You’re not accepting? You’re not a partner of this firm. Don’t tell me what you’ll accept.”
“Well, my brother won’t accept it. So there’s no difference.”
It was becoming increasingly clear that this was the reality I had bought into. Zvi wasn’t technically a partner. But Nu was his puppet. Nu had probably never disagreed with Zvi a day in his life, even about what to wear to school. If Zvi said oil was at $120 a barrel because the Bush family wanted it there, then that was what Nu thought too.
“You go ask him then,” I responded, doing my best not to lose my temper. “If you’re not willing to accept less than $10 million, then you go ask. I don’t want to create a situation where I ask for ten, he’s willing to do $7.5, and I go to say yes, but then I can’t because I remember—oh wait, Zvi’s got some science-fiction number in his head.”
“I can’t ask because I’m not a partner,” Zvi said with a smile. “I don’t even know how it would work, the mechanics and all that.”
“Think about it,” I said. “Once you sell to one guy, it’s always easier to sell to another using that as a baseline. Say Whitney bought X and we only had seven traders. That will be the floor. It can only go up from there.”
“Fine,” Zvi said dejectedly. By the tone in his voice and the look on his face, you would have thought that I had just forced him into involuntary bankruptcy.
“It doesn’t matter. He’s not going to do anything over $5. We’re not going to have to worry about it.”
“Anything less than $10 and I’m not doing another fucking share through his firm,” Zvi barked. Then he barged out of the room and headed for the elevator. This was a bad omen. Up until this point I had argued with Zvi, sure, but mostly about shit I didn’t care about. We had worked for separate firms. We’d no money, accounts, or interests intertwined. So if he loved something, but I didn’t love it, I just didn’t buy it. There was no interdependency. Now, we were getting joined at the hip. He was a part of key decisions about money. After all, it was his money.
I’d recently found out that he and Nu split everything.
Zvi had said he’d lost lost over $1 million in the AMD mess*. One time I asked him how.
“Oh, it was Nu actually,” Zvi responded. “He and I split everything up and down, always.”
Now that was a fact I would have preferred to learn before having gone into business with Nu. Because it meant that I was really in business with Zvi.
None of that mattered now. The doors were open and there was nothing but promise ahead of us. We had fought, sweated, cried, and bled to get to this point. I didn’t want the assurance of success. I just wanted the opportunity. We had finally arrived at the waterline; it was now sink or swim time. I was ready.
I thought.
* Rake is the scaled commission fee taken by a cardroom operating a poker game. It is generally 2.5 to 10 percent of the pot in each poker hand, up to a predetermined maximum amount.
* At Remsenberg, Zvi was hearing “imminent takeover” of CY and spread the word far and wide so half the firm was long CY. When no deal materialized, the stock dropped precipitously, causing significant losses and nearly putting the firm out of business.
* The Billionaire’s Apprentice, by Anita Raghavan (2013), remains the single best account of the rise and fall of Raj and Galleon, along with that of Rajiv Gupta, who ran McKinsey.
* Zvi, presumably via Drimal or one of his other Galleon contacts, was trumpeting AMD hearing that Raj was “all in” on the name and that he was going to piggyback the play for size.
CHAPTER TEN
MILLION DOLLAR CHECKS
______________
I HAD CAUGHT THE 1:40 A.M. train home—the last one of the night—almost passing out mid-journey, which would have meant a devastating 3:00 a.m. last stop arrival at Stamford or Westport, Connecticut and a $100 taxi ride home. I stumbled out of the train, squinted at my twelve-year-old beige Lexus GS300, and kept walking, marking the first responsible decision of the night.
By the time I got home, I was desperate to water our front yard, even though it was the middle of winter. Oh, the primordial joy of urinating outdoors. Inside, I squinted at the glowing alarm keypad like it was the final question on Who Wants to Be a Millionaire? and disarmed the four-digit code, cooing like a baby when the light went red to green. I trudged upstairs, discarded my clothes, brushed my teeth, and crawled into bed. Lisa protested softly, either in the dream she was having, or at me, then rolled over and went back to sleep. I set the alarm for 5:30 a.m., which meant a solid three hours of shut-eye. I closed my eyes and tried to command my brain to halt the spinning, the music, and the ticker tape cycling through it.
When it came, 5:30 a.m. felt like the end of the world.
Why do I do this to myself? What’s the point?
For the hundredth time that year, I swore to myself I would cut back. I was still drunk. Pain coursed through my body like a hot shot of liquid agony. The true hangover was just beginning. Dehydration, pounding head. I looked around briefly for the cat that must have crawled onto my face while I slept and crapped in my mouth, only to remember that we didn’t have a fucking cat. Automaton time. Become a robot. That’ll work.
Water, Advil, toothbrush, hot shower, heavy clothes, car keys.
Where the hell are my keys? A wave of panic rushed over me.
We had an important investor meeting at 7:15. That meant a 6:14 train to make sure I ha
d time to grab coffee and navigate the swelling, heaving sea of humanity that was Grand Central Station and midtown Manhattan. It was almost 6:00. I was cutting it way too close if I wanted to grab Starbucks before the train. I’ll just use the valet key. Where the hell’s my car?! My car’s been stolen! And then I remembered that I had sensibly left it at the train station. But it was 6:01 now and a mile to the station, which meant running. Over-the-shoulder duffel bag, wearing a suit and dress shoes, still drunk and burping up whatever garbage I’d eaten the night before to try to line my stomach. (I’d eaten several things. Breaded chicken strips with a spicy garlic mayo sauce. Calamari rings. Nachos covered in processed cheese, with jalapenos and bits of black olives.) Another burp.
Kill me now, please.
The train was just pulling up as I sprinted across Chatsworth Avenue and bounded down the steps toward the station. The conductor, in a rare act of sympathy (after all, one of the job perks must be the angry faces of entitled suburbanites as he shuts the door in their faces and pulls away), waited for an elderly gentleman with a cane. I used him as a human shield and slipped on right behind him. The thirty-minute ride without coffee or water was pure torture, but we pulled into Grand Central at 6:50, giving me a few minutes to grab a large Starbucks, a bottle of water, and a Turbo-chefed fake egg sandwich. I asked the barista to drop some ice into the coffee and consumed all three on the walk up to Michael Wilen’s offices on 49th Street. 7:03. Zvi was waiting outside the building for me, sucking back a coffee and looking quite pained himself.
“What are you wearing?” I asked.
Zvi was in dark brown dress slacks, a collared white shirt, and a light brown houndstooth sweater. I’d never seen him wear a sweater before, and it looked ridiculous.
“Why are you late?” he returned with a grin.
Then Zvi asked me to push him in front of an approaching M60 line bus to end the pain. I commiserated. The six Advil and Venti redeye had done little to dent the thudding in my brain.
“So listen,” Zvi said. “Nu’s wife works for this guy. He likes her. So let me do the talking.”
“Gladly,” I groaned, dipping into the retail storefront for a couple of iced coffees for our foreheads.
Inside the law firm of Wilens & Co., Michael Wilens intercepted us at reception before the attractive secretary could seat us in the waiting area. Pushing forty, short and well-groomed, with an engaging smile, he vigorously shook our hands while asking the receptionist which conference rooms were available. A sudden morning influx of meetings had removed all the vacancies, so he apologized profusely as he led us to a very small but empty associate’s office and positioned himself behind the desk, with the two of us in sleek Herman Miller Aeron chairs on the other side. Zvi and Wilens exchanged small talk about Nu’s wife Jill and the state of the wildly fluctuating markets for a few minutes. Then Wilens went into his highlight reel of what the firm did.
Basically, they had secured the rights to every conceivable 1-800-LEGAL suffix: 1-800-IMMIGRATION, 1-800-DIVORCE and 1-800-BANKRUPTCY. The numbers were so popular and the leads they turned over so voluminous that Wilens’ father had quickly—and correctly—figured out their firm wasn’t suited to handle the onslaught of business they created. Rather than turning customers away, they’d reinvented themselves as a kind of third party marketing outfit that referred business to other law firms that could handle the customers, in exchange for generous referral/participation fees, of course.
This was an absolute monster moneymaker. Zvi was doing his best to appear interested, but the delay was killing him. Zvi’s eyes were bloodshot, and his manic energy was manifested in leg tapping and scratching that houndstooth abomination on his chest. It might have been my imagination, but I thought could still smell the pheromone mix of perfume, tobacco, and alcohol that was the calling card of most city bars on his hair and clothes. The first time Wilens paused in the telling of the the Wilens & Co. autobiographical audio book, Zvi pounced—even though Wilens was still essentially mid-chapter.
“That’s pretty incredible. This is really some business you guys have managed to build. Based on what you’ve told me and what Jill has told us, it seems clear that you’re interested in exploring investments that aren’t directly tied into your business or legal operations, in order to diversify your investment stream.”
“Exactly,” Wilens said enthusiastically.
“Traditionally, real estate would offer someone in your position an excellent way to diversify,” Zvi said.
“Okay.”
“There’s only one problem with that approach right now,” Zvi went on, changing his tone. “Real estate is finished. If you haven’t bought it already, you can’t buy it now. And if you have it and haven’t sold it already, you’re probably stuck with it. We’ve spent the last few months looking for office space and what we’re seeing is the start of a serious downtrend that will last for years.”
“I agree. Businesses are laying off people and breaking leases. Rents are collapsing.”
“Precisely,” Zvi said with a solemn nod. “So what we can offer is a business that is totally uncorrelated with the real estate collapse, and which can be a perfect complement to the more economically sensitive investments you already have.”
“Your business itself is in a rather nice anti-recessionary space,” I chimed in. “Divorce, bankruptcy. I imagine those are both perfectly countercyclical offsets to your other corporate work, which is more dependent on the economy.”
“Yes, precisely,” Wilens responded, enthusiastically pointing at me to say I’d got it right.
“I know you already know what a hedge fund is and have contacts in that industry,” Zvi added.
“Have you heard the name Rich Grodin?” Wilens asked with a twinkle.
We both nodded. It hurt to nod.
“He’s a good friend of mine. I know a lot of those ex-SAC guys and we’ve put some money to work in various funds. But I’m looking for something a little more substantive—something where I can have some input on the business and that’s a little more early-stage. That’s why I was excited to hear about you guys from Jill.”
“Let me tell you a little bit more about us, and then we can talk about some of the ways we might be able to do something together,” Zvi said.
He reeled off a ten-minute pitch covering who we were, where we came from, why we were much more conservative than a typical hedge fund, and how we’d make money no matter what way the market moved. He talked about how we were the casino—the house—and how we’d take a piece of every trader’s transaction, but with enough upside on profits that the returns could be significantly higher than at most hedge funds. Around halfway through Zvi’s pitch, which I also knew by heart, I picked up on a deep basso sound that, at first, I thought was Zvi’s stomach rumbling. Yet soon it became clear that it was Dr. Dre’s “The Next Episode” from 2001. Where it was coming from, I couldn’t precisely tell. I tried to tune back in for the conclusion of Zvi’s pitch.
“… a ground floor opportunity to help finance the growth. We’re going to pick up guys like Grodin, plus a bunch of guys that used to work for SAC and Galleon, where I’m close to the King himself. Those are the ponds we’re fishing in now. Top drawer all the way.”
When Zvi finished, Wilens pulled out a checkbook from his jacket pocket. It caught both of us totally unprepared. A lawyer wasn’t the ideal partner, but money was money. The only problem was, as our initial disagreement over what percentage to give Whitney for his $100,000 investment had shown, we really didn’t have a set solution for how to value the firm or what we were willing to give up.
“Count me in,” Wilens said, not missing a beat. “Here’s a check for … a million dollars.” He signed his name with a flourish, ripping the check from the checkbook and placing it on the edge of the desk in front of us.
My adrenaline started pumping as I realized this wasn’t going to be an introductory “We’ll get back to you” meeting, but that real decisions had to be made,
here and now, hungover. The Dr. Dre tune had ended and led to “Warning Shot” by the Notorious B.I.G. I laughed inwardly for a quick second, thinking what an odd coincidence it was that both those songs were on my iPod, until I suddenly realized that it actually was my iPod playing in my jacket, hung up on the chair behind me. I decided that it would be worse to acknowledge it and turn it off rather than let it play on and pretend it didn’t exist. Wilens might not have even heard the music, and even if he did, he might have assumed that it was coming from an adjacent office.
Wilens slid the check toward us, so we could count all the zeroes on it and confirm that it was signed.
“What … uh, what are you looking for?” Zvi stammered, and looked to me for help. I offered a single insipid nod. Punting it back to Wilens wasn’t the worst option here. Although, as the son of the founder of a law firm worth nine figures, he had surely learned a thing or two and wasn’t about to start negotiating against himself.
“You tell me. What does something like that, on the spot, get me?”
Zvi looked my way for me to take the lead, so I took it: “Well, we just did a minority investment with Whitney Quillen. Do you know the name?”
“Sounds familiar,” Wilens lied.
“He’s the founder of Quillen Capital,” I continued. “His brother, Parker Quillen, is a very well-known hedge fund manager. A few months back he gave us $100,000 for 1 percent of the company. We’ve landed several good traders since then and might have found a great deal on space, so arguably the firm’s position has only improved. But because because you may be able to introduce us to other investors or traders from your contact list, I’m comfortable making a deal for the same valuation. So your one million gets you 10 percent of the firm.”
Confessions of a Wall Street Insider Page 14