Born to Steal: When the Mafia Hit Wall Street Page 16

  “Stefanie hated to watch me. I used to say, ‘Come on, babe, sit next to me.’ But she used to hate me when I was down there. I’d turn into somebody else. She couldn’t talk to me when I was gambling. There was no talking to me. I wasn’t laughing. I used to sit there with the chips, flipping them in and out. My dad sat next to me a couple of times. He was shitting in his pants—I’m gambling half his yearly salary in one hand. I remember I gave him a thousand to gamble. He took the money. He goes, ‘I lost it.’ It was so funny.”

  When he couldn’t go down to Atlantic City there would be the football games on Sundays. First $500 a game. Then $1,000. Then $5,000. Louis began betting with several bookies, because he bet more than any single bookie could handle.

  Louis began to see what it meant to be a Whale—a loser. A pampered loser, taken in a limo to a place to lose money. Except that he didn’t care. He was losing fuck-you money. It was making him feel good. Stefanie didn’t like it. Fuck her. She didn’t understand him. It was starting to become an issue—the money. She was benefiting. He was buying her stuff. Why didn’t she appreciate it?

  She was acting as if he were doing something wrong, and that sucked.

  STEFANIE: “It was a fantasy world. At the time it seemed like unreal. Even though it was happening, it was like, ‘My God! How can this be my life? This is what I do?’ Spend my winter going skiing every weekend, or go to Miami. Every year it was something else. It just didn’t feel real.

  “It was exciting, but I was always worried. I don’t know if it’s just my nature. I’d say to him, ‘You can afford this?’ He’d say, ‘Yeah, I can. No problem. No problem.’ He’d be working all these hours. I’d say, ‘What kind of place is this? You don’t get a salary?’ ‘I work on commissions.’ It just didn’t make any sense to me.

  “His response to me questioning him about it was that I was not supportive. That’s all he ever said to me, ‘You don’t believe in me?’ ‘No, it’s not that I don’t believe in you. It’s just that I question it because it doesn’t seem right. It just doesn’t seem like it’s legal. It just doesn’t seem like this is the way it works, that you can get these people to invest this money, they lose all their money and you’re making money. I don’t know.’

  “The stocks were always shit stocks. He got these people to invest in them and all these complaints are coming in. Maybe after the second or third time he switched jobs. I started to feel it wasn’t so kosher, it just didn’t seem to make sense for this to be a legal profession. I said, ‘I can’t imagine this is legal.’ And he used to say, ‘Oh, you don’t know what you’re talking about. You don’t believe in me.’”

  CHAPTER TWENTY-THREE

  Times were so great that it barely made a ripple in Louis’s world when Hanover Sterling, his beloved alma mater, went out of business.

  It happened early in 1995, not long after Louis got back from the Caribbean. First came whispers, picked up by financial columnist Dan Dorfman, that Hanover was under SEC investigation. Then all hell broke loose. The Hanover house stocks collapsed, and so did Hanover. Roy had a box on those stocks, but somebody had busted the box, just smashed it on the floor. It wasn’t supposed to happen. Louis went over to Pine Street to see for himself. Roy, his mentor, was saying goodbye. It was sad. Louis went back to Brod. “I didn’t want to be there because I left him like two years ago so I felt funny. He was standing at the door, while everybody had to leave with their shit, because Nasdaq was coming over. They came over with video cameras,” said Louis.

  From what Louis had heard, Roy was simply overwhelmed by something that wasn’t supposed to be a factor, not even remotely, at Hanover—the market. Yep, the free market in stocks, the Real Wall Street, had profited at Hanover’s expense. Hanover was shorted, and Roy miscalculated—he fought the short-sellers. They profit by selling stocks they don’t own, in the hope of eventually buying back the stocks at a lower price. For chop houses, whose rips depend on keeping prices high, short-selling can be a calamity. It means that somebody is flooding the market with shares, driving down the price. Roy kept on buying, to keep the price from dropping. It didn’t work. “His balls were bigger than his pockets,” said Louis. “The shorts just kept on shorting and shorting and shorting. Roy probably figured he’d keep the price up for a few days and they’d have to cover [buy the shares they had sold short] and fuck them. But those short-sellers ripped [the Hanover stocks] to shreds. They have a lot of money, those guys. A. T Brod shorted the shit out of them too. Everybody started shorting Hanover stocks once they started going down. Roy probably ticked off somebody and they crushed him. I felt bad.”

  Sure, the shorts had swarmed over Hanover like vultures on carrion. But the only reason they were able to do that was because Hanover was selling house stocks—chop stocks. Stocks that Hanover controlled, that were really not worth very much, but had been driven upward by all the ways Louis was using at Brod—ways that he had learned at Hanover. You can’t have a rip unless the stock is worth very little to begin with, and then is sold for a hell of a lot more than it is worth.

  The shorts cut the prices and destroyed the rips—and that sank Hanover, and even brought down the firm that had cleared trades for Hanover. Adler Coleman was the name, and like Brod it was owned by respectable people and was a member of the New York Stock Exchange.

  In late February, Hanover was shut by the NASD because its capital had been depleted by Roy’s face-off with the shorts, and Adler Coleman filed for bankruptcy. As the shorts came in for the kill, the press finally began to show a little interest in Hanover, mainly because of Adler Coleman’s failure. And also because of other things. Oddities. Dorfman complained to Business Week that he had received death threats, as did a New York Post reporter who interviewed some Hanover people at a local bar. But generally, the press portrayed Hanover as a victim of the shorts. Lowell Schatzer was quoted as saying the firm was a victim of a “bear raid.”

  Not a word appeared in the press at the time—except for those death threats—even hinting that Hanover was anything but a legit firm that had been torpedoed by the shorts. That story went swiftly into the press clips and databases and became the commonly accepted explanation for the biggest chop house collapse of the era. One reason was that the bankruptcy court trustee for Adler Coleman, Edwin Mishkin, publicly blamed the shorts. In a statement to the press in March 1995, Mishkin said, “Based upon his preliminary investigation to date, [Mishkin] believes that questionable short-selling in these securities [the Hanover chop stocks] led to the demise of Hanover Sterling.”

  The “Hanover victim” canard became an instant part of the folklore of Wall Street, a major chunk of the little that appeared in the press about chop houses in 1995. The press swallowed that bullshit so readily that Louis wasn’t surprised when nobody noticed that he put A. T Brod out of business.

  It happened just a month after Hanover collapsed. For the first time since he came to Wall Street two and a half years before, Louis was experiencing something vaguely resembling failure. It was not a pleasant sensation.

  He experienced that feeling for the first time in his life in the office of Jay Taneja. Louis was owed “commission” money—that is, money from the rips. Jay wasn’t paying. He had reasons. Good reasons. He explained them. Louis wasn’t listening. He sat there quietly while Jay Taneja was talking. He sat and heard the words and looked at him, and what he was thinking would have made Jay Taneja turn pale. He was thinking, I will put you out of business. Louis sat there and thought and decided, that very moment in Jay Taneja’s office, to put down A. T. Brod, to flush it down the toilet as if it were a hamster that had started to smell. He had built A. T. Brod and now he could take it down. He took it down.

  It was March of 1995. Spring. Fuck spring. Nothing was going right. Louis was owed money. Period. He didn’t want to hear excuses. Jay Taneja was giving him excuses.

  It was a market thing, pretty much the same thing that had happened to Hanover—only this time there was nothing in the pa
pers. Kemper Securities was holding on to Brod’s money, including their commissions, including Taneja’s own money. Louis didn’t know, and if he knew, he wouldn’t have cared. He wanted his money.

  “We were supposed to get paid a lot of money for the gross that we did the month before. We were supposed to be paid three hundred grand. Jay Taneja calls us into the office. He says, ‘I can’t pay you the money unless you clean the inventory.’ There was too much stock in inventory. People were selling stock outside the firm, and he kept buying it. It was actually shorts, though we didn’t know that. They were selling stock.

  “He ran out of his own trading money, so he decided to use the money that was in the commission account, to cover the buys. He should have come to us and said, ‘Listen, guys, I got stock hitting the desk. I need to either go down [in price] or give me some buys. ’Cause I can’t afford it no more. I’m running out of money.’ Instead he took it upon himself to use our commission money.” Now all the stock was in inventory and he wanted it cleaned out. “So when he told me and Benny that, I was thinking like, ‘What, are you kidding? You can’t pay me now, and you want me to clean up your inventory to get paid?’”

  Louis did what he had to do. No problem, he told Jay Taneja. Louis went back to his office and closed the door. He then wrote up buy orders for his customers—phony orders he knew they would quickly cancel: “wooden tickets.”

  “We handed them in to trading and the inventory was cleaned out,” said Louis. “The next day we got paid a hundred and twenty grand from the commissions we were owed. The day after that the trades were canceled. He was fucked. The next day the firm went out of business. Fuck him. It served him right. I didn’t give a fuck. I had plenty of places to go. We had plenty of money. We could be out of work for six months and it wouldn’t matter.

  “It was chaotic. It was ridiculous what was going on. People were freaking the fuck out. One of Marco’s cold-callers had one of Jay’s guys by the throat. Because they wouldn’t pay. That’s the worst thing you can do to a broker. A guy works all month to get paid. He scams, robs, steals. You got to pay. What’s the sense of robbing and stealing and defrauding people if you’re not going to be paid for it?”

  It was all over. Brod was history. Louis was at the office when it happened, and he reacted by piling his things on his chair. It had wheels, which was good.

  “Benny said, ‘That’s it?’

  “I said, ‘What are we going to do, stay here, wait until the rent runs out? I’m going home. I’m taking a break. Who cares?’

  “He says, ‘You don’t care, Louie?’

  “I said, ‘I don’t care, Ben. I just don’t fucking care.’ I didn’t give a fuck about the firm. I just cared that I lost money. But I just shrugged it off and said, ‘Ehh, what are you going to do? Came easy, goes easy.’

  “I wheeled my big leather chair, with my two client books, my Play Station, I wheeled it out on the street. I walked along West Street up toward the World Trade Center. I waited for the cars to go, crossed the street, took it into my building, went upstairs, and put it in my spare bedroom. And that was it. I started calling clients from home. I said, ‘Yeah, I’m leaving the firm. It went out of business. The bums. I’ll send you out a transfer form.’”

  In the end, it was the regulators who, technically, put Brod out of its misery. All those wooden tickets had kept share prices rising for a day or so, but then they collapsed when the trades were canceled. The firm’s capital had now fallen below NYSE and SEC levels. The NYSE performed the coup de grce on March 28, when it stopped the firm from trading.

  For the second time in little more than a month, a brokerage firm had gone out of business because its stocks suddenly weren’t worth anything. What did it mean? The significance simply didn’t reach too far into the psyches of either the press or the regulators.

  The wire services ran brief items that were mainly picked up in Ohio and especially in Cleveland, where Jay Taneja was portrayed as a local businessman who had tried hard and run into a string of bad luck. “Though its 85-year-old chairman and founder Albert T Brod begged for its life, the A. T Brod & Co. stock brokerage was put to death last week,” Crain’s Cleveland Business reported on April 3. “According to Mr. Taneja, A. T Brod was killed by short-sellers, its own poor management and a ‘ruthless’ executive at Kemper Securities Group in Chicago,” said Crain’s. The story went on to say that Jay had met with Kemper on March 29, a day after the NYSE pulled the plug. Kemper had called the meeting, the newspaper said, because Brod owed it nearly $7 million for stock bought by Kemper on Brod’s behalf. That was all the stock Louis and Benny were supposed to have unloaded, in return for their commissions.

  JAY TANEJA: “I took a big loss. Four, five million dollars. I was not from the Wall Street. I did not know. I got into it by mistake. People took a lot of advantage. It was a nightmare for me. I did not know anybody. If you ask me, was I running the business, I say no. I didn’t have any knowledge. I went through a complete New York Stock Exchange inquiry, and they did not find a single thing on me. Why? Because they called me, ‘You are so dumb. Everybody thought you would have made a lot of money.’ And I lost a lot of money because I did not know the business. *

  “I did not [hold back commission money]. I got money released from Kemper by putting my money, personal money, as a collateral, to get that money released. All that money was released. They were claiming more money on the wooden tickets. . . . The problem was money was not owed to them. But I got money released.

  “I started a book myself. Wall Street Mafia. I wrote three chapters, and I withdraw myself. Because it was so scary.”

  Louis kept his word when he said he was going to take it easy. Brod had been a grind. The constant stress was no good. It was great money, but it was beginning to seem that the more money he made, the more it meant trouble. He and Benny relaxed for a month or so, and started to give some thought to their next move. In the Wall Street of mid-1995 there were plenty of opportunities for two ambitious young brokers who had a proven track record of success.

  The brokers were everything. The firms were nothing. That was the lesson of A. T Brod. But Louis also saw that, powerful as brokers were, they could still be fucked. When Jay Taneja said he wasn’t going to pay them their commissions, there wasn’t anything Louis and Benny could do to get the money. It was a problem. It added to the stress of the situation.

  Overall, the good of the system outweighed the bad—the stress, and the occasional snippets of crummy press. Stories about hard-driving stockbrokers were beginning to creep into the papers. But the thousands of tattooed, shaved-headed, Armani-clad, unregistered kids rarely got any kind of attention from anybody. That’s how well the system was working, with all its flaws. The regulators were still wonderful in 1995. They could cause problems but they didn’t, because they didn’t get it.

  By the mid 1990s the NASD was under competent leadership, run by an ambitious former brokerage exec and government official named Frank Zarb. Another veteran Wall Street guy was in charge at the SEC—Arthur Levitt, a publicity-conscious former chairman of the American Stock Exchange. These were good, solid guys. Not that it meant anything. When it came to the chop houses, nothing much had changed since the days when Massood Gilani was being told to mind his own business.

  At Brod, the NASD would do periodic examinations. The accountants would come by in their polyester suits and go through trade tickets and try to see if there were any red flags—while they were right in the bullring and the red flag was being waved in their faces, and they didn’t see it because they weren’t looking for it. It didn’t matter if they cared about their jobs, as Gilani did when he blew the whistle on Hanover, or if they didn’t give a shit. They didn’t understand how the firms worked, or how the brokers made money. They were looking for regular commissions, not rips concealed as trading profits, so they never found them. It was as if they were doctors looking in the throat to find out if some guy had hemorrhoids.

  It was a
splendid ignorance, and it was not confined to the regulators. Sometimes the managements of large, well-established brokerages had no idea what was going on under their noses. They were not ashamed of it. On the contrary, ignorance was sometimes embraced—so long as it did not cross over into the legally troublesome area of “failure to supervise.”

  Louis read the Wall Street Journal every day now, at least the front page. He read about how a guy named Joseph Jett was able to convince a whole bunch of people at Kidder Peabody that he was the greatest bond trader in the history of mankind. He used complex strategies. They were so complex that nobody understood them. Eventually the SEC charged that Jett had been playing games with the accounting system and using his employers’ ignorance against them. Jett denied the charges. No, he said, his bosses weren’t ignorant. They knew what he was doing. Yes, Kidder Peabody said, its management was ignorant. But not criminally or civilly-liable ignorant. Only Jett was truly guilty, they said.

  Were the Kidder people criminals or just stupid? It was a question being seriously debated at the time. It was a close question.

  Louis had no opinion on that issue. He thought most people were stupid. He also thought Wall Street was crooked. In fact, he held that opinion so firmly that he decided the time had come. He was going to get himself a license and become a genuine, bona fide stockbroker.

  CHAPTER TWENTY-FOUR

  Louis decided to become Louis—officially. He had been Benny long enough. With a brokerage license, he would be able to call people on the phone and say that he was Louis Pasciuto.

  It had to happen eventually—even if Benny wasn’t pretty damn sick and tired of Louis using his name. Getting a license was okay with Louis. After all, here he was—twenty-one years old, a veteran of three major chop houses. He had run crews of cold-callers at two of the firms and was raking in over $100,000 a month. He had clients in show business and the world of sports. He had personally driven one of his three employers out of business. He had done all of this without being a licensed broker.