by David Lender
“Your dad would be disappointed if he heard you talking like that.”
“Don’t use my father against me.”
“When did you get to be so edgy? I thought a place like this mellowed somebody out.”
“I’m not edgy. I’m just fine. I just don’t like it when somebody gets in my face.”
“How about you peel yourself off the ceiling and we talk.”
Katie paused. He had a point. She was beginning to wonder herself why she’d gotten so excited. Did she feel guilty about the $30 million? Or was she just stunned by, maybe afraid of, the blast of emotion she’d felt when she’d walked in and seen Rudiger. It made her feel like she’d lost some control.
Katie said, “Okay, let’s talk.”
“Did you think I wouldn’t notice when you sent me a DHL package that was $30 million light?”
“Of course not. But remember what you said to me in New York. If you had it to do all over again, you’d figure out a way to make it work on only $10 million.”
Rudiger laughed. “I should’ve said $40 million.”
“Serves you right.”
“Okay, so kidding aside, can I please have it back?”
Katie felt like her stomach was falling. She didn’t respond.
“Katie?”
Katie still didn’t say anything.
“Katie, what’s wrong? What did you do with it?”
“I invested it.”
“Is that why you were in Geneva?”
“Yeah.”
“Invested it in what?”
“In an LBO fund, yesterday morning.”
Rudiger’s face softened. “That’s okay, just don’t honor the commitment when they try to draw down the funds.”
Oh boy. Katie just looked at him.
“Katie?”
“It’s a little different than that. I funded the whole $30 million up front in exchange for a piece of the sponsor’s action.”
Rudiger shook his head. “Oh, jeez. Who are these guys?”
Katie felt boxed in, then cleared her throat and realized she needed to put the best spin on it she could. She put on her lawyer face, like when she worked for the Manhattan DA’s Office and stepped in front of a jury. She started talking.
Katie slept in the next morning. When she got up she opened the sliding doors and walked out onto the second-floor balcony. She leaned on the railing, felt the breeze, smelled the salt air of the ocean, felt the warmth of the sun on her face. She looked down and immediately saw Daddy, Rudiger and Styles walking along the beach.
She took in a sharp breath, then tears flushed into her eyes. Daddy had never done that before, and it was like planning the D-day invasion to get him to take his daily walk up the road. And they weren’t daily; he skipped them half the time. Obviously Rudiger was a good influence. That made her feel guiltier about last night; she’d been horrible to Rudiger, still couldn’t figure out what made her fly off the handle like that.
Rudiger had the Chuckit! launcher with him and he was throwing the ball, Styles racing ahead to retrieve it and then trotting back. That made her smile.
She glanced down at the table on the deck and saw the Private Placement Memorandum sitting on it. Rudiger must have been reading. She felt a wrench of discomfort, figuring he’d be having another session with her after he finished it. Last night she’d seen his face fall after she’d told him she invested the full $30 million up front. When she gave him her best pitch to describe the Ducasses’ firm, their previous four funds’ results and how Fund V was structured, including the 5% kicker she’d gotten for investing up front, his face was completely expressionless, unreadable. It was like negotiating with the Russians.
She turned around and walked back inside to take a shower. About an hour later she heard Daddy, Rudiger and Styles come back inside the house. She was finishing breakfast in the kitchen and Styles ran up to greet her, ball in his mouth. “Hello, little man.” She put her plate with the rest of her eggs on the floor for him, then walked downstairs. Daddy was in his Barcalounger, the TV off. His eyes were fluttering. She saw Rudiger reading at the table on the deck.
“Hi, sweetie,” Daddy said.
She kissed him on the forehead. “Hi, Daddy. I saw you walking on the beach. You were gone a long time.”
“I guess today we went a couple miles.”
Katie could hardly believe it. “That’s fantastic. Are you feeling stronger?”
Daddy smiled at her. “Not at the moment. I usually nap when we get back. But yes, overall it’s really helping me. Rudiger is a clever guy. He keeps me going farther each day. He’s a good talker, and he knows how to keep my mind off it when he senses I’m getting tuckered out.”
Katie kissed him on the forehead again, started toward the doorway to talk to Rudiger, then thought better of it and stopped. Let him finish. Then I’ll hear it.
Flora arrived around noon and made them all a lunch of local shellfish over a fresh salad. She brought Rudiger his plate out on the deck. By then he appeared to have finished the Private Placement Memorandum and was staring at his iPad. Maybe surfing the web, doing research.
After lunch Katie walked upstairs to unpack, then drove into Sal Rei to pick up a few toiletries. She browsed the open market but didn’t buy anything. She had a cup of tea at an outdoor café, then drove home. When she pulled under the carport and walked inside, Rudiger was sitting at the table on the deck, still staring at his iPad. He must’ve heard her come in but didn’t look up. Katie was beginning to get anxious, waiting, wondering what Rudiger could be doing all this time.
She went upstairs to change into her workout clothes, then got on her off-road bike and went for a ride on the trail in the dunes to the hotels about five miles up the beach. She worked the trails up there for half an hour, pushing herself hard. Then she rode home, sweaty and worn out, putting in a total of about 15 miles. Rudiger was still staring at his iPad on the deck, didn’t look up when she walked inside the house. Daddy was napping in his Barcalounger with the TV on, the volume low. She walked past him and up into the kitchen.
Flora was there. “Oh, Ms. Katie, I finish. Laundry is all done, beds made. Mr. Dolan say he want steak, so I put three out. Mr. Rudiger know how to cook them good on the grill. Salad is made and in the fridge, organic Swiss chard wash and prep for cooking.”
“Thanks, Flora. See you tomorrow.”
After Flora left, Rudiger walked in, looking relaxed.
Katie tensed.
He smiled and said, “Hi.”
“Hi,” Katie said.
“Your dad just woke up. Flora told me she left some steaks out. I turned the grill on, so we can eat dinner in a half an hour or so. That okay?” He was acting like nothing happened.
“Sure. Let me know when you’re about ten minutes away and I’ll cook the Swiss chard. I’ll set the table out on the deck.”
Rudiger said, “You want me to fix you a drink? Your dad and I are having one.”
“Sure. I’ll be right out. I just need a quick shower.”
“Dark rum and soda with lime, right?”
Katie nodded, wondering what he was thinking.
Rudiger watched Katie during dinner. What she’d said last night was partly true: he really had only known her for about ten days. But being with her felt like it did when you reconnected with a lifelong friend; even after years, you picked right up where you left off. Same Katie: same attitude, same lively eyes, same tight little body. After they cleared dinner Rudiger told Frank, “I’m gonna hang out here with Katie a little while. I’ll join you shortly.” Frank went inside and sat down in front of the TV.
Rudiger said to Katie, “How about I make us both another drink and we talk?”
Katie looked guarded but nodded. Rudiger went inside and came back with their drinks. He sat down next to her and looked out at the ocean
.
Okay, it’s time.
“Something’s fishy,” Rudiger said.
Katie just looked at him.
Rudiger said, “Five funds in ten years, each one bigger than the last, it’s just not how these LBO guys operate.”
Katie sighed, now looking impatient.
It started to piss him off. Where’s she get off acting like that?
Rudiger went on. “And these rates of return, IRRs of 32%, 37%, 41% and 29% net to investors in each of their four funds.” He looked Katie in the eye. “You know the old saying: ‘If it seems too good to be true, it’s too good to be true.’ ”
“Rudiger, but you’ve been on the lam now for over ten years. I hate to say it, but you’re out of touch.”
“I stay pretty current. I can’t call all my old contacts on the Street anymore, but I read the New York Times and the Wall Street Journal pretty much every day, and my bankers in the Cayman Islands are plugged in. I stay current on the phone with them, and periodically Pierre, my lead banker, flies to Antigua and we talk over dinner. I’m down there to review my investments at least once a quarter, too. And besides, I did some research over the last 24 hours.”
“So all day today when you were staring at your iPad you weren’t just sulking?”
Now he felt a burst of anger. “Don’t be a smart ass. Yeah, I was surfing the web. Banque d’affaires Ducasse has a really slick website that talks about five generations of discreet advisory services akin to the Rothschild family, Lazard Frères, blah, blah, blah. But nothing much about them shows up anywhere else, except that Philippe Ducasse’s great-grandfather was in the commodities trading business back in the late 1800s and somewhere along the line either he or Philippe’s grandfather created a piddling private advisory business.”
“So they are an old-line Swiss financial advisory family.”
“If you can call it that. Nothing shows up of any major note to even put them on the same page, let alone five pages behind the Rothschilds or guys like André Meyer, who made Lazard into a powerhouse. But an interesting nugget showed up about André Ducasse, Philippe’s father. About 40 years ago he was involved in a scandal in New York City, where he opened a branch of the family business. Seems he was advising wives of some of his father’s wealthy clients in the States on some of their personal investments. Wives of clients he seems to have been very close to, if you get my drift. Some of the money from the investments André was advising them on started disappearing. The U.S. Attorney’s Office began getting complaints from the husbands that maybe André wasn’t just dipping the wick in their investment accounts. When the Feds started asking questions, André fled back to Switzerland, and the Feds could never convince the Swiss to give him up for prosecution in the U.S.”
Katie said, “Maybe they never had anything on him other than some jealous husbands.”
“The Swiss are an insular bunch who protect their own.”
“Where are you going with this?”
Rudiger just stared at her, his jaw set, until she finally averted her eyes, then said, “I’m saying maybe your new pal Philippe Ducasse is a chip off the old block. Only he’s doing his father one better. Having outside bankers, your Mr. Bemelman at ASB being one, profile wealthy women who don’t know squat about finance, then sending them to Ducasse to invest in his new LBO funds. Handpicked investors who are too dumb—”
Rudiger saw Katie wince as he said it, didn’t care, kept going.
“—to know any better or might even be too embarrassed to tell their husbands about it if they lost the money.”
Katie made eye contact again. “But Ducasse thinks I’m divorced.”
“Even better. Target divorcées and widows. Nobody to sic the authorities on him like an avenging angel.”
Katie had her arms folded across her chest, her lips taut. “I think you’re just making a stink because you’re pissed off about the $30 million.”
“Of course I’m pissed off about the $30 million. But it’s not just that. It’s that this whole deal stinks. This will be their fifth fund in ten years. Nobody invests money that fast and gets those kinds of returns. Funds like this usually have a window of seven or eight years for them to invest the money, with the option to take a few more years to liquidate any remaining investments before the fund is dissolved. Lots of times they’re fully invested after a few years, but it still takes longer than it has for these guys to have deals pay out.”
Rudiger could see Katie shifting in her seat, looking uncomfortable with where he was going. Good.
Rudiger said, “And after reading their Private Placement Memorandum, a couple of other things jumped out at me.”
Katie looked away again.
“Having the ability to automatically have distributions from an earlier fund invested into a subsequent fund is something I haven’t heard of before—”
“Like I said, you’re out of touch.”
“—but the thing that really gets me, and I checked with Pierre in the Caymans about it, is this notion that if you commit to a certain amount of money and fund it up front you get a cut of the sponsor’s return. Ducasse gets you to stretch to fund $30 million instead of just committing to the $15 or $20 million you intended, and they give you five percentage points of their 20% carried interest.” He leaned forward for emphasis. “Nobody does that. Nobody.”
“So what are you saying?”
“That this whole thing smacks of a new variant on a Ponzi scheme. New investors putting money in that pays out the old investors, so the old investors think they’re doing great, but the sponsors are skimming money off and living the good life.”
“I know what a Ponzi scheme is, Rudiger. I’ve prosecuted a few, remember?” she said, her lips curled with anger.
He leaned in, his face close to hers. “Yeah, but this is a new wrinkle. In this case, for example, investors in Funds II and III are paying out Fund I, and III and IV are paying out Fund II, etcetera.”
“But Ducasse told me a lot of the investors from the early funds have continued to commit money to the later funds.”
Rudiger laughed. “Even worse. Those investors are putting their new money in to pay themselves out on their old money, thinking they’re getting a great rate of return on the earlier fund. It’s like biting yourself in the ass and not even knowing it.”
Katie’s eyes were wide now.
Rudiger said, “It all goes back to what I said about these rates of return. If it seems too good to be true, it’s too good to be true.”
Katie licked her lips, then took a sip of her drink, her hand shaking as she did so. “So should I ask for my money back?”
Rudiger laughed again. “You mean my money.” He paused, then said, “You don’t get it, do you? If these guys are doing what I think they’re doing, there’s no way they’re gonna give the money back.”
Katie winced again. “So now what? Should we blow the whistle on them, have them investigated?”
Rudiger shook his head. “In the first place we’re dealing with the Swiss. I already told you, they protect each other. In the second place, we have nothing but suspicions and my speculation to go on. You’d need to send in a forensic accountant to figure out what’s really happening, and good luck getting the Swiss authorities to do that. And even if we could convince them to do it, it would take a year to unravel everything. After that if there was any money left it would take even longer to get anything back. And then what? Five or ten cents on the dollar on the $30 million?” Rudiger shook his head again. He looked Katie in the eye. “You got conned.”
Katie’s face had lost its color, her eyes looking panicked. “What can we do?” she said, almost inaudibly.
“I was hoping you’d have some brilliant idea, because I can’t think of anything.”
Katie stared back into his eyes. She didn’t respond.
“I think I’ll go
in and watch TV with your dad now.” Rudiger picked up his drink and stood up. He took a step toward the house and stopped. “Actually there’s one thing you can do, something that was on my mind when I decided to come here in the first place.”
She turned and met his gaze.
“You can apologize.”
Katie’s lips parted as if she was going to say something, then she turned her head and looked out at the sea.
Just like I thought.
Rudiger walked away.
Katie felt like she couldn’t breathe, and then when she did she started hyperventilating as the tears came. She closed her eyes and shook with sobs. She didn’t know how long she sat there crying, but it was long enough for her to be totally drained of energy. And pride.
She let out a long sigh, wiped her face with her hands and stood up. She wanted to go inside and talk to Rudiger, but she was afraid it would upset Daddy to see her like this. Instead she walked around to the front of the house, climbed the steps and entered through the main door on the second floor. She showered, changed into pajamas and then stepped outside her door to see if Rudiger had come up to his room yet. His door was still open and she heard him and Daddy laughing at the TV downstairs. She pulled her door shut and waited to hear Rudiger come upstairs. She fell asleep listening for him.
The next morning she awakened early. She checked Rudiger’s room. The door was open and he’d already left. Downstairs she found Daddy sleeping in his chair again. She turned off the TV and looked outside to see Rudiger sitting at the table on the deck, a cup of tea in front of him, his gaze focused on his iPad.
She walked out on the deck and stood next to him, butterflies in her stomach.
“Good morning,” she said. “Have you had breakfast yet?”
Rudiger looked up and smiled. “No. You?”
Katie shook her head. “Would you like some?”
“Three eggs over easy would be great.”
“Do you mind if I join you?”
“Of course not.” He smiled again. “It’s your house, remember?”
Katie brought their plates of eggs out on the deck ten minutes later. She sat down next to him and said, “You must know I’m sorry, don’t you?”
