The Tainted Trust

by Stephen Douglass

  New York. Friday, October 16, 1987.

  The following day’s record plunge of 108.35 points in the Dow Jones industrial average on the New York Exchange served as a clear warning to investors. Something was terribly wrong. The stock market dive could have been compared to a loud tremor in advance of a violent financial earthquake.

  Panic swept financial markets on the following Monday. Stock trading activity was frantic and emotional. The swiftness and magnitude of the decline was staggering. Widespread panic selling steadily gained momentum with each passing hour. The activity tested the technical capacity of the New York Exchange. The ticker was more than one hundred points behind actual trading activity for much of the day. Traders were ordered to remain on the floor of the exchange until transactions were completed.

  The capital implosion was far worse than that recorded during the massive stock market crash of 1929 that ushered in the Great Depression. Fortunes were lost in a matter of hours as the New York Stock Exchange suffered a gut-wrenching collapse.

  The sudden financial meltdown resurrected fears that the global economy was about to slide into recession. It more than wiped out the gains made on the New York Exchange, the financial heartbeat of the United States, since April 7, 1986. In percentage terms, it was an incredible disaster, almost double the mark of twelve point nine percent, recorded on October 29, 1929.

  The Dow Jones industrial average, the most widely watched measure of share values on Wall Street, lost over five hundred points, a precipitous drop of over twenty-two percent. It closed at 1,738.41. By the end of the day, more than six hundred and four million shares had changed hands. The previous record daily volume of three hundred and thirty-eight million shares, achieved the previous Friday, was smashed by midday, as investors liquidated their holdings and fled the market.

  The scene at the posh and lavishly decorated offices of Mara, Griesdorf and Visconti was a recreation of an ugly image from October 29, 1929. Wealthy investors clustered around in stunned silence, staring in disbelief at the electronic ticker tape giving the latest bad news from the floor of the New York Exchange, blocks away.

  From the moment the market had started its plunge on Friday, Mara’s staff had been frantically trying to reach Visconti, or someone who knew where he was, without success. Visconti’s partners worried that he was enjoying his holiday, unaware of the unfolding financial nightmare. He alone had the power to deal with and trade the stocks in the fat portfolios he managed. Without Visconti, all of them were naked to the ravages of the market. They desperately needed attention. With each passing hour his portfolios were losing enormous amounts of money.

  Jerry Mara, a tense and excitable individual, took a long and deep drag of his Marlboro while staring at the moving electronic tape with glazed eyes. “Where the hell are you, Louis?” he muttered, deeply worried, not only about the failure of Visconti to liquidate stocks, but also the implications of that failure for the reputation of the partnership.

  The King’s trust, by far the largest and most exposed, was poised to take the largest hit. With divine premeditation, and in flagrant violation of Mike King’s directive, Visconti had maxed the trust’s risk, loading it with numerous highly volatile stocks of small to medium sized companies. Unless he returned to liquidate those investments, the losses and consequent fallout would be horrendous.

  CHAPTER 22

  Black Monday, October 19, 1987. 7:30 P.M.

  Shortly after Visconti’s chartered Lear 55C landed at La Guardia, he deposited Marylin Daring in a taxi, prepaid the driver and sent her home. He climbed into a black airport limousine and told the driver to take him to his Fifth Avenue apartment. Heavy traffic brought the limousine to a complete stop when the driver attempted to cross the East River on the Queensboro Bridge.

  After a painful wait of more than ten minutes, the driver smiled at Visconti and broke a prolonged silence. “Guess the bridges of New York will be gettin’ a pretty good workout tonight, sir.”

  Confused by the statement, Visconti faked a smile. “I’m sorry. I don’t understand.”

  “A whole lotta people will be using the bridges to end it all. That’s for sure.”

  Visconti’s smile evaporated. “Why?” he asked, nerves twanging.

  “You haven’t heard?” the driver asked, wide eyed. “The market. It took a big hit today. Real big.”

  “How big?”

  “Over five hundred points.”

  Visconti’s heart pounded wildly. “No!” he groaned.

  “Yah, they’re talkin’ about this thing makin’ twenty-nine look like a small correction… Were you in the market?”

  “You could say that,” Visconti muttered, beads of sweat bathing his forehead. “Take me to the World Trade Center, South Tower, as fast as you can get there?” he ordered, then turned to stare at the water below. Shocked and stunned by the news he had just heard, he trembled involuntarily and pondered the implications.

  Entering his office ninety minutes later, Visconti switched on the lights, then hurried to his computer.

  His worst fears unfolded before his eyes as he scrolled through the day’s closing market data on his monitor. He wondered how the Crown Prince of Wall Street could possibly explain his incompetence. He was fully invested in high risk volatile stocks, totally exposed and completely out of touch when the disaster struck. The only conclusion anyone could reach was that he had been careless, stupid and irresponsible.

  His first priority was to quantify the damage. He began with the King’s trust, by far the most exposed. When the figures appeared on his screen, they exceeded his worst expectations. Even though he knew the computer never lied, he checked and rechecked the data. The computer continued to give him the same horrifying results. While he was recklessly cavorting with a meaningless bimbo in the Bahamas, the King’s trust had sustained a paper loss of almost a half a billion dollars.

  At the close of business on Monday, October 19, 1987, the value of the trust had dropped to three hundred and thirty-two million dollars, very close to its value on July 12, 1980, the day Visconti assumed its management. So, after more than seven years of management of the trust, The Crown Prince of Wall Street had managed zero growth.

  He stood and walked to his window. While he stared blankly at his pale reflection, the horrible reality of the disaster attacked him. The coincidence was outrageous. The first time in years he had chosen a weekend sanctuary from the constancy of stress, the market had simultaneously taken a dive of historic proportions.

  When he shifted his focus to the lights of the city below, his thoughts were of the following day, and what further horrors it would bring. The optimism with which he had viewed the financial world had been abruptly crushed. Suddenly he had been reduced to a mere mortal, vulnerable to loss. The great Louis Visconti had experienced his first failure, his self-esteem mortally wounded.

  Shaken and trembling, he returned to his computer to review the remainder of the funds he managed. Fortunately, none had been so exposed as the King’s trust. As he reached to key in the access code of another portfolio, he glanced at his monitor. One particular item caught his attention. In sharp contrast to all other items in the King’s trust, the October crude oil short position miraculously showed a profit.

  Visconti keyed in the closing commodity prices on the Nymex. The spot price of West Texas Intermediate had dropped to sixteen dollars and fifty-five cents a barrel. Again he was reminded of his conversation with Assif Raza. He rubbed his face and covered his eyes with his hands. “Were you right about that, Assif?” he asked aloud. There had to be a reason for the market to have sustained such a terrible loss. Maybe the economy was heading into a deep recession, or depression. If it was, demand for commodities would slow and demand for crude oil would collapse. The price would go through the floor.

  After a brief and troubled sleep in his Manhattan apartment, Visconti returned to his office at nine-thirty the following morning. The atmosphere resembled a funeral home when he entered a
nd traversed the open office area. No one spoke or smiled. He marched directly to his office while remaining stiff-lipped and scrupulously avoiding eye contact with anyone.

  Jerry Mara knocked softly, then entered. “… Sorry, Louis… You have no idea how hard we tried to reach you. We even…”

  “It’s not your fault, Jerry,” Visconti interrupted. “I’m the idiot who disappeared at the most important time in the history of the market.”

  “Is there anything we can do?”

  “Just give me some time alone. I’m going to need it.”

  “Shout if there’s anything,” Mara said, then left.

  CHAPTER 23

  Now desperate, Visconti telephoned Miles Dennis. “Miles, it’s Louis. I need to see you immediately. It’s extremely important.”

  “What’s the problem?” Dennis asked, sensing the anxiety in Visconti’s voice. “You don’t sound happy.”

  “I’ll tell you when I see you. I’ll be there in fifteen minutes.”

  Visconti emerged from the South Tower elevator, marched directly across the hallway and entered the no frills, bare bones offices of Iacardi & Sons, Commodity Brokers. He crossed the linoleum covered floor of the small and cramped reception area to sit in one of two dark brown wooden chairs, the only furniture available.

  Dennis appeared from the inner office. Tall, thin and sharp featured, his thinning hair was gray, his teeth slightly crooked, but his smile somehow enhanced his appearance. He wore a well tailored gray suit with a dark blue silk tie. “Good to see you again, Louis,” he said, extending his hand.

  “How did you know I was here?” Visconti asked.

  “I saw you on the monitor,” Dennis replied, pointing at the camera mounted on the wall above and to Visconti’s right.

  Visconti turned to glance at the camera, then shook his head and grinned. “If there’s a way to save a buck, you guys are going to think of it. Maybe we should all take a page out of your book.”

  “Strictly contrarian, Louis. When everyone else spends, we cut… What can I do for you?”

  “Can we talk in private?”

  “Sure. Let’s go to my office.” Dennis led Visconti to his tiny glass-enclosed cubicle, then closed the door. He chuckled as he pointed to a metal folding chair on the opposite side of his desk. “Sit on that, Louis. I’m sure you’ll find it uncomfortable.”

  Visconti pulled the metal chair away from the desk and sat erect. He faced Dennis with reddened eyes. “I need your help, Miles. My requirements are simple. I need a miracle.”

  Dennis laughed. “I don’t do miracles, Louis. Maybe you could scale your expectations down a notch.”

  “I need to make a very large amount of money in a very short time.” Visconti’s face flushed red. “I took a hit. A big one.”

  “So did the whole world. How big?”

  Visconti looked at the ceiling. “I’m managing a trust that just went south by a half a billion.”

  “Did you say million, or billion?”

  “With a B.”

  Astounded, Dennis jerked forward. “You’ve got to be kidding!”

  “Unfortunately I’m not.”

  “How the hell did it happen?”

  “I picked last weekend to disappear with a barfly, incommunicado. She’s no mental giant, but she’s got all the right body parts. Honestly, I had no idea what was happening until I got back last night.”

  Dennis shook his head. “Probably the most expensive piece of ass you ever had,” he said with a sympathetic smirk.

  “I just reached the point where the telephone was growing roots in my ear. I couldn’t stand the sight of it any more. If I had any idea how much the trip was going to cost me, I would have stayed in New York and screwed her in a telephone booth.”

  “So how do you propose to make a half a billion in a hurry?” Dennis asked, restraining a chuckle. “Please forgive me if I sound the slightest bit skeptical.”

  “Where do you think the price of crude oil’s going?”

  Dennis rolled his eyes skyward. “Not this again. You can’t expect…”

  Visconti interrupted. “Never mind. Just answer the question.”

  “We’ve got a hung jury on that one. Our research guru thinks it’s going south, but some of us aren’t so sure. It’s an extremely important complex and there are a lot of powerful forces affecting it. If those forces weren’t there, the price of crude would go into free fall.”

  “Enlighten me.”

  “Most of the oil producers in the lower forty-eight can’t survive on ten dollar crude, and the government of this country is well aware of that reality. They know that if the price goes below ten dollars, domestic production gets cut and is replaced with imports. If that happens, our already sick balance of payments gets pneumonia, consumption increases, and eventually we have another energy crisis. Probably worse than the one in seventy-nine.”

  Dennis’s answer was not what Visconti wanted to hear. “Suppose the price did go into free fall. How far would it go?”

  “Eight bucks. Maybe further.”

  The answer was consistent with Raza’s prediction. “What would you say if I told you I wanted to take a very large short position in crude oil?”

  “How large?”

  “Thirty or forty thousand contracts.”

  “I’d say you’re out of your mind.”

  “Why?”

  “The powerful forces, Louis. They’re keeping upward pressure on prices.”

  Visconti was blinded by pride and his insatiable need to make more money than anyone else on the planet. “So maybe I’m crazy, or maybe I’m sitting on the opportunity of a lifetime.”

  “And maybe you’re about to blow your financial brains out.”

  “I’ve already done that,” Visconti admitted. “I don’t have much to lose.”

  “Okay, if you really want to let it all hang out on a roll of the dice, I can’t stop you. Give me twenty-four hours to talk to some people and check this thing out. Will you do that?”

  Visconti struggled with his impulses. “Not one second longer,” he warned. “There’s no way I’m going to call my client and try to explain to him how I lost a half a billion of his money this weekend. If I do, my ass is fired and I lose the largest portfolio the company’s ever had.”

  Dennis called Visconti at noon the following day. “Your timing’s bad, Louis,” he said. “I strongly advise you not to take a short position in crude at this time, not even with pocket change.”

  “Why?”

  “A number of extremely well informed people in this country and in Europe think the price is going to strengthen before it weakens.”

  “Where’s it going?”

  “Twenty bucks. Then it’s probably going to drop like a stone. I’ll give you a list of reasons if you want them.”

  “I want them.”

  “Saudi Arabia’s the biggie. They’re still prepared to act as the swing producer. As long as they are, the price won’t drop. They’ll continue to cut production to keep supply and demand in balance. We think there are limits to their patience, however.”

  “What limits?”

  “Money. Believe it or not, the Saudis are running out of it. They’ve cut their production so far, their cash flows aren’t even enough to cover their purchases of war planes. Our advisors think it’s only a matter of time before they capitulate. When they do, it might be time for you to jump in. I’ll call you when I think the time is right.”

  “I’ll have your ass if we miss the boat on this,” Visconti warned. Privately, however, he respected Dennis’s opinion. Dennis was renowned for having made millions for too many clients.

  “Trust me, Louis. If there’s a boat, you won’t miss it.”

  Visconti hung up, now more desperate than ever.

  CHAPTER 24

  New York. Thursday, December 24, 1987.

  The final days of 1987 were nightmarish for Visconti. Shortly following the last day of December, the annual report for the King’s tru
st was due, and would have to be mailed to Mike King. In it, Visconti would be compelled to reveal that by virtually any standard, he had failed miserably. For weeks he had struggled with the possibility of including a covering letter with the report. It would be carefully crafted to cushion the blow, but in the end it was brutally obvious that words were totally inadequate. A letter, irrespective of how well written, could not possibly obscure the enormity of the disaster.

  When King cast his eyes on the report, he would be furious. In addition to showing no increase in the trust’s value after seven years of Visconti’s management, the report would reveal Visconti’s failure to do the minimum he had promised: to preserve the purchasing power of the trust’s original capital.

  Clearly, Visconti had run out of options. To salvage the respect he had once enjoyed, there was only one solution. King would have to read a fraudulent report. Instead of sending a document containing the potential to ruin him, Visconti elected to falsify it, merely by adding an extra line indicating a cash reserve of two hundred and fifty million in the trust. In addition to satisfying King, the fictitious amount would buy the time Visconti needed to recover the money lost in the stock market. No one would ever have to know. He was always the last to see the report before it left the office, and the Kings would be the only humans reading it.

  Fully aware of the risk he was taking, Visconti took it willingly. Even though the action was patently fraudulent and flagrantly illegal, it was by far his best option.

  Mike received the contrived report in early January. He studied it carefully, as he did all of Visconti’s quarterly reports. “I’m surprised it’s done so well,” he said, then handed it to Karen. “I expected the October crash would have hit it harder. I guess Visconti was smart enough to have a lot of cash at the time it hit.”

  Karen briefly scanned the report, then frowned. “Where are we going with this? What are we doing with this money?”