Dave Abramson won that day’s battle, rattling poor Franz. Even so, Dave ultimately came to regret his relationship with Shkreli. Shortly after the Franz ambush, Abramson was forced to fire Shkreli after some highly questionable trades that cost RBC a huge chunk of change. Yet Shkreli then landed on his feet, becoming a successful biotech hedge fund manager, specializing in short-selling early stage biotech companies. Years later, of course, Shkreli famously raised the price of Daraprim, a life-saving pill, from $13 to $750, creating a tidal wave of outrage at greedy pharma companies during an election year. The powers that be—pharma, insurance companies, politicians—collectively turned their eye on Shkreli and suddenly “found” multiple securities laws violations he had committed. He was arrested and is scheduled for trial in June of 2017. I expect he will serve a dime if convicted.
In the meantime, the verbal arguments between us and RBC on the trader and risk front continued to escalate, culminating with Abramson cutting off and then firing Bryan Roth within a few ticks of a temporary market bottom. Roth was down maybe $50 thousand on the day, $250 thousand total, which is far from a huge amount in this business, and easily erased with one solid trade. But RBC was adamant: Roth had to go. From Zvi’s little cubicle, the entire trading floor could hear Zvi and Ralph, RBC’s risk manager, going at each other over the phone. It quickly devolved into a “Fuck me? Fuck you!” back and forth. That triggered a call from Abramson and his sidekick, Marc Schwarz, asking for a summit at RBC to try to work things out after everyone had cooled down. We scheduled it, but when we got there, Abramson had not cooled down at all. In fact, he was more livid than ever.
He started off the meeting by banging the table. Then he screamed at Zvi.
“You’re trying to fuck me right in the fucking ass, and if you think that’s gonna happen you’re out of your fucking mind!”
This was, of course, a big mistake. It showed he had totally misjudged Zvi the Hulk.
Zvi said: “First of all, you scream and start making threats, I’ll come over this table and slam your head through the fucking wall.”
Silence all around.
“When have I ever disrespected you like that?” Zvi asked.
Abramson did not answer.
I tried to steer the meeting back in a productive direction. I told them that we recognized their concerns—which drew a harsh glare from Zvi—but that we saw things in a different light. At the end of the day, all I could get them to agree on was a six-month extension of the status quo. After that, RBC wanted a new deal. We barely shook hands when we stood up from the table. In the elevator, still livid, Zvi said, “Fuck those guys! We’ll get a new, better deal elsewhere. What a bunch of fucking no-talent bureaucrats. They don’t even understand our business. We’ve got whales that want in. Did I even tell you Slaine is back, and wants to give us $10 mil?”
“Seriously?” I said.
“Yup. And according Craig Drimal, Todd Deutsch wants in too. And don’t forget Raj. And we’ll close a deal with Stevie by then. Stevie knows the game. He makes these punks look like toddlers.”
“Okay then … let’s pursue Stevie, I guess,” I said earnestly.
We did.
Stevie was the only one who really mattered. The legendary Stevie Cohen ran and ruled SAC. One of the ex-SAC traders who worked for us had put us in touch with Stevie’s funds guys—Sohail Khalid and Jason Karp. Jason, a well-known portfolio manager, was head of research for Sigma, Stevie’s more old-school, research-driven fund. The operations side was run by Sohail. They both knew about Incremental and were impressed with our plan.
After a few meetings and some time spent drilling down into hard numbers and strategies, we started drafting documents for a $10 million capital infusion to start, allowing us to nestle under Stevie’s Midas wing.
As Karp told us at one of these early meetings: “Stevie doesn’t get involved in something unless he thinks he can make it a $500 million dollar firm. He definitely sees that potential here with Incremental.”
We were golden, right? Well, as it turned out, not exactly. It was hard to get things signed and sealed. With the RBC clock ticking, the discussions with Stevie’s boys dragged on for months. We were scheduled to meet twice with Stevie—or “The Big Guy,” as they referred to him—but it always fell through. One time was on a Sunday, we were actually already on our way out to Stevie’s house in hedge fund guru heaven—Greenwich, Connecticut—but Stevie had to reschedule. We hadn’t even been told that he was stuck in Europe because the day before Karp (allegedly) had blown Stevie up for about half a billion on the Volkswagen squeeze.*
The second time was at the Palace—the upscale Palace Hotel on Madison Avenue, not the greasy spoon Palace Diner, as Nu initially thought (providing some much needed, and unintended, comic relief). That second cancellation was due to some family emergency. Even so, Sohail and Karp showed up. They spent their time making the novel case that Stevie deserved 50 percent of Incremental, and not the 10–25 percent we had previously discussed.
“You guys have built something impressive, in the worst market any of us have ever seen,” Karp said to butter us up. “Now imagine if you also had the ability to say you were backed by the Big Guy, and that his capital and resources were lined up behind you …”
The thought alone was making me salivate. I could see Zvi start clenching and unclenching his fists under the table while he rocked back and forth in his chair. But 50 percent was certainly new, and a big jump from the 10 or 25 percent we had been looking at.
Privately, I would’ve given 80 percent to Stevie if he had wanted it, and if it had been my call alone. Let him bring in his people to run it as well and make me a consultant. I was getting sick of this nonsense. I was tired of trying to manage Zvi, while simultaneously trying to raise money and navigate the most treacherous markets in a generation. I’d walk away tomorrow for a decent check and go do charity work somewhere warm. That was the truth. We weren’t curing cancer or changing the world, and I knew it. We were in it for one thing.
The problem was that Incremental had become Zvi’s baby now. I had sworn I wouldn’t let that happen, and then found myself powerless to do anything but watch as it did. Zvi did not just want to make money. It was about more than that for him. Some part of him needed to avenge/revenge himself on every risk manager who ever reined him in, every trader who had ever scoffed at his calls, and even the great Raj, who had fired him for losing more money in a shorter period of time than most people had thought humanly possible. This was Zvi in charge. When Rick Schottenfeld told him he would be the next Stevie, Zvi intended to prove him right—to show Raj and everyone else out there who ever doubted him that they had been wrong. That meant keeping control. That meant keeping his name on the door.
“Jason, I hear you,” Zvi said. “We definitely want you and Stevie involved—and as our partners—but if you think you guys can just come in and minimize what we’ve built here and grab a majority of the firm for next to nothing, you’re not on the same plane of existence we are. People have refused him before. First New York told Stevie ‘No thanks,’ and we’ll do the same. You know how hard it is to build something. You’ve been at it for years and do you have anything remotely like FNY or Incremental to show for it? If it was easy, you guys would have already done it. Especially with the name and resources behind you.”
Taken aback by Zvi’s words, Karp said: “We’ve taken a different approach and you know that. We have different projects. We have staked dozens of—”
Zvi just cut him off.
“Whatever the case, 50 percent is more than we’re going to consider. Why don’t you guys talk it over and let’s get together again next week when you’re ready to do this for real.”
Zvi stood up, apparently prepared to leave a $17 Grey Goose on the rocks half-finished to punctuate his point.
Zvi had made a possibly powerful, possibly ridiculous statement by comparing us to First New York, a firm likely netting $100 million a year.
I wanted to check
him, but I adhered to the cardinal “Sonny Corleone” rule of business: Don’t air your internal disagreements in front of others. I couldn’t think of anything to say, or any way to redirect this exchange that wouldn’t come off that way. But if this was a Mafia movie, then it was only Stevie who carried the aura of the Godfather. (Incidentally, Karp had nearly given Zvi an on-the-spot orgasm early on, when he’d told him straight-out: “You know, you kind of remind me of the Big Guy.”)
Whenever I asked Zvi why we shouldn’t take the deal, he would stress that we did all the work. I would counter by arguing that the pie would be so much bigger with Stevie on board that it wouldn’t matter. We could give away half but get a $500 million dollar firm, or stick to our guns and own all of a $50 million dollar firm. “Just do the damn math, Zvi!” I’d shout at that point. Yet Zvi remained unflinching. It was the principle of the thing. Zvi also liked to say: “I can get Raj to give us $10 million at the drop of a hat, and he’ll want no more than a 20 percent stake … so fuck Stevie.”
Looking back, there were several occasions when Raj indeed seemed to be just around the corner with $10 million in hand. Sometimes. I was even in the room for a few of these encouraging Raj/Zvi phone conversations about how close Raj was to investing.
But here’s where I have to remind you that I was a dealing with an insane man and didn’t yet know it.
Things I was about to learn later convinced me that, on all of those occasions, there was nobody on the other end of the phone.
Our talks were still getting bogged down, on all fronts, so we had to keep shopping furiously. This was made painfully clear one day in March of 2009 with RBC’s ninety-day termination notice came in the mail, with an official certified stamp on the envelope that might as well have read, “FUCK YOU!” across the front. Once you have a firm deadline for something like that, things take on a terrifying clarity. We had a mere ninety days to replace $150 million in buying power. That meant three months to raise at least $10 million, if not $20, and find a platform that could house us.
We were immensely fortunate that Dave Plotkin had come over as a trader. Dave had left Schottenfeld when his six-year-old son Max was diagnosed with leukemia. He devoted almost all his time to coordinating health care, doctors, and treatment. Later, he launched the Max Cure Foundation with his father Richard. As a parent, I couldn’t fathom the suffering he was going through, and yet the guy was still engaged, and still good for Incremental’s morale. Dave genuinely loved our firm. He even invested $250K for a small stake. More remarkably, given the sword of Damocles hanging over us all, he wanted to arrange meetings with Todd Deutsch and his friend Adam Gittlin, two folks with a wealth of experience and Marianas Trench-deep pockets. Plotkin felt that both men would be eager to invest in Incremental.
With the days ticking down, one slow trading afternoon Plotkin and I stepped off the desk to eat lunch in the conference room and talk shop. After walking me through some personal trivia on Gittlin (“His wife is a producer for Good Morning America, and he’s a published author …”) and Deutsch (“He’s memorized over 1500 stock symbols and charts, and is supposed to have a memory like an elephant …”), Plotkin asked me what else we had planned on the capital raise front. I mentioned that David Slaine was back in again, thinking he’d be impressed.
“Whaddya mean ‘again’?” Plotkin asked.
His face looked like he had just received an “I think I’m late” text.
I told him about how Slaine had nearly become an anchor investor and trader at Incremental in early 2008. He’d been hesitant because we were still in the concept phase at that point, but now we’d proven our trading chops. Slaine was finally ready to write a check for $10 million and wanted in as a partner.
“Listen, man,” Plotkin said, in a tone of absolute sobriety (putting down his Italian sub to impress upon me that this was super important). “I gotta tell you something. You don’t want anything to do with Slaine. That is one bad guy.”
“Really?” I said in genuine surprise.
Everything I’d heard about Slaine centered on his wonderful trading feel, his nine-figure bank account, and his massive share volume (which is important when you’re upcharging traders’ commissions and negotiating with clearing firms for a good rate).
“I can speak from personal experience,” Plotkin said. “One of the worst human beings I’ve ever met.”
“One of the worst?” I said doubtfully. “Rank him against Ronnie Weiss.”
I was urging a comparison of Slaine to Schottenfeld’s universally hated risk manager, a man I knew Plotkin despised. While Dave had been working at Schottenfeld, Ron never asked how his son Max was doing, knowing the poor kid was battling for his life. But if Dave went three cents over his buying limit or daily loss limits, Ron was there to hawk him. Weiss seemed heartless, totally devoid of any sympathy whatsoever.
Plotkin’s answer was telling: “Ron Weiss is just a bad guy. A jerk. But Slaine is one of the worst. Ron is triple A, but this guy is Hall of Fame first ballot. Remember, I was David Slaine’s assistant-cum-partner at Chelsea.”
“You were Slaine’s partner? He was at Chelsea?” I asked, wondering how I wasn’t aware of either of those facts. “Chelsea was a bad shop from what I heard, right? There were a lot of rumors flying around about that place. Like, I heard the owner flipped on Frank Quattrone to keep himself out of prison.”
Plotkin raised his eyebrows and nodded slowly.
“What you heard was right,” he said. “Chelsea was a mess. But Slaine is even worse. I had a deal with him to be his trader, and anything I made him I’d get to keep 25 percent. At the end of the year, he was up almost $3 million off my ideas and trades. Instead of giving me the $750,000, he gave me $50,000. He told me he had a ‘tougher year than expected’ and if I didn’t like it I could walk. I was struggling to put a roof over my family’s head, and this guy was not only one of my closest friends but somebody already worth $50 million plus! That’s the type of guy Dave Slaine is.”
To give you a sense of how correct Plotkin was, it’s worth taking a moment to review precisely what Slaine was up to at that time … namely dialing for scalps. Slaine had secretly agreed to cooperate with the FBI to ensnare his friends and colleagues. With a wire attached to his rumored-to-be-“enhanced” body, Slaine recorded dozens of conversations with his supposed best buddy, Craig Drimal (known as “Ruby”), to keep his sorry ass out of prison. He also wore a wire or taped calls with dozens of others, including me. The FBI had knocked on the door of his West 57th Street home in 2007, telling him he could either snitch or stand trial for numerous charges of rulebreaking and financial impropriety. Saving his ass would prove a pretty easy endeavor, for one simple and sad reason—namely, Drimal trusted Slaine, trusted him like a brother. Too bad that brother took his cue from Cain. Drimal was well situated inside Galleon and had a solid working relationship there with Raj. Slaine also knew Raj personally, having briefly worked for him at Galleon after leaving Morgan Stanley’s OTC trading desk under a cloud of suspicion for market manipulation in the late ’90s. It was while he was at Morgan Stanley that Slaine met Drimal, then a bouncer at the Vertical Club in Manhattan. The two quickly formed a friendship based on a shared passion for weight-lifting and their mutual ability to bench-press 400 pounds. Shortly after arriving at Galleon, it was Slaine who persuaded Galleon’s top brass to give a job to Drimal. So it was no wonder poor Drimal would remain grateful and trusting of his old pal.
In the end, this shows just how oblivious we were at that time. The government was already rounding traders up. People were already wearing wires. It was all starting.
And I was so out of the loop I was talking about having informant #1 invest.
* We had piled into a “long CCU” risk arb trade on Zvi’s advice, only to see the stock collapse from $33 to $27 when there was talk of the banks refusing to fund CCU’s acquisition.
* Karp had recommended shorting Volkswagen, and when it was announced that Porsche might ta
ke a stake in the automaker, the shorts got decimated and the squeeze drove the stock into the stratosphere. That was effectively the end of Karp’s career at SAC. He took a job at Colson Capital in Dallas shortly thereafter.
CHAPTER FOURTEEN
MERCS AND THE GALLEON DUO
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IN ADDITION TO BRINGING IN SOMEONE who was secretly recording conversations with everyone he touched, we were also talking to MERC, a group of commodity traders from Long Island that had done well and which was now looking to expand into equities. My good friend, Pete Bogart introduced the two groups to each other. At the time, Pete, a former lawyer himself who had triumphantly billed the least amount of hours in Skadden history over a four-year period, was trading for a hedge fund in the upscale Westchester County suburb of Rye—a fund which was, like most funds in those days, acting out a Lily Tomlin spinoff entitled The Incredible Shrinking Asset Base. Pete’s friend Nick Aaron was working there and he thought Incremental and MERC would make a perfect fit. They sounded interested and had already pledged $10 million, but were nervous about Equities Demi-God Stevie Cohen taking a stake too.
Now that Plotkin knew that Slaine wanted back in, Plotkin suggested we talk to Todd Deutsch and his good friend, Adam Gittlin. We met with Deutsch at Opia, a bar/restaurant partially owned by Raj. The downstairs was closed for construction and loud as hell, with a crew of undocumenteds hammering away in the dining room, so they escorted us upstairs to a private room and had a bartender take our order. Being a partner with Raj had its benefits, both in finance and in the broader culinary world. With their mutual love of basketball (stoked by Zvi’s fictional embellishments), Todd and Zvi hit it off like long lost cousins. After twenty-five minutes of small talk and five minutes of strategy, Todd proclaimed he was in … he just needed to figure out the mechanics for making the investment. Todd suggested we reconvene at Incremental’s office that Friday, early, and get down to business. I could barely contain myself.
Confessions of a Wall Street Insider Page 20