"All the way to Wi-Fi."
Roger did his best Marv Albert impersonation: clenched his fist and hissed out a quiet, "Yessss."
"Go wild," Justin said. And this time he and his father actually got to leave.
Justin asked his father if they could walk awhile. He said he was glad that Roger had wanted to be alone. He had things he wanted to ask Jonathan, things he wanted to pick his brains about. Jonathan said he was more than happy to stroll. And he told his son to pick away.
"I had a strange reaction to the Ascension people and offices," Justin said as they began to walk in the direction of the center of the charming old whaling village.
"Strange how?" his father asked.
"I'm not naive," Justin went on. "Anything but. You know I don't expect-well, the best, let's say-out of people. But these guys were different."
"Different from whom?"
"Different from you. Different from the kind of moneyed people I know."
"Hedgehoggers? They are different. They live in a different world. At least it's different from the one I live in."
"Talk to me about it."
"Tell me what you want to know."
"Everything," Justin said. "Anything. It's the way I like to work. Learn things, get a feel for the overall picture. Then I'll see if something specific sticks. See what fits into the puzzle… or see what doesn't fit. Sometimes that's just as important." He noticed his father was staring at him. "What?"
"That's the way I work, too. When I'm looking at a company that wants a loan, that's what I do. I learn about their business, I learn about the people running their business, I listen to them talk, watch them when they talk."
"Same thing, really," Justin said. "It's all about getting it right."
Jonathan came back with a "hmmm," and then he picked up the pace of their walk and said, "One of the first hedge fund managers I ever met-maybe ten, twelve years ago-his arrogance was astonishing. I remember him coming to a meeting and basically he was saying that if I didn't get him what he wanted, he'd just buy me. Buy the big business, take the small thing he wanted out of it, then dismantle it, sell off the spare parts. I remember he looked at me and said he didn't care about the way things used to be done, he was the new breed, the new thinker. He said he was a man with no history. I remember he actually said he was like a phoenix, that he'd risen from the ashes as a brand-new person. He told me he was a completely self-made man."
"What did you say?"
"I told him he must also be a very religious man because it was clear that he worshiped his creator."
"I bet he didn't like that."
"He couldn't have cared less. Too self-absorbed, too absorbed with money and greed to care about anything that anyone else said or thought."
"What happened to him?"
"Made half a billion dollars in about two years. Lost a billion the next year. I think he's working for his father now, somewhere in the Midwest." Jonathan Westwood took a deep breath. Justin was startled to hear a faint wheeze. The first indication of frailty he'd ever had from his father. "There are about seven thousand hedge funds in the United States now. Ten years ago, there were maybe three, four hundred. They control a lot of money. A lot of money. Right now, probably over nine hundred billion dollars. And they control it quietly and secretly."
"Ascension manages about two billion bucks."
"Small to mid-range," Jonathan said. "There are a lot of funds in the two- to five-billion-dollar range. That's small in this universe. But you know what you can buy with five billion dollars?" Before Justin could answer, Jonathan said, "Anything you want." Then he said, "The people who run these funds, they personally make sixty, seventy, a hundred million dollars a year."
Justin whistled in amazement. "I knew about it, of course. But somehow I didn't quite realize…"
"Very few people do. You know how it works?"
"I know a little bit, but keep talking."
So Jonathan talked. And Justin listened as they strolled. He listened as Jonathan told him that hedge funds were basically started for rich people who wanted someone else to manage chunks of their money. The funds were open only to wealthy investors, and even now the minimum you could invest to get into a fund he'd heard about was twenty-five thousand dollars, and many wouldn't let you in for less than a million. Because they were basically serving rich people, they didn't have the same government restrictions and oversight that, say, a mutual fund would, when small investors have their money at risk. Hedge funds and hedgehoggers could move into almost any area that attracted them. They could trade equities, currencies, and debt. They could make loans, buy companies, and control companies and run them if they thought they had the know-how.
"And how do these guys, guys like Evan Harmon, make their money?" Justin asked.
"They take a two percent fee off the top from their investors. And twenty percent of the profit. Ascension has two billion dollars to invest? That means they're guaranteed an income of forty million dollars when they wake up on the first of the year. That's if they lose money. If they make a ten percent investment profit on two billion, the fund has a profit of two hundred million. Twenty percent of that brings in forty million more dollars to the firm. That's a nice little eighty-million-dollar income right there. And without crazy overhead. If push came to shove, one person could probably manage a hundred million-dollar funds from his garage as long as he had a computer and a few phone lines."
Jonathan said that the kind of money people made managing hedge funds over the past decade had changed the whole world. Investors lost sight of the products-not to mention the people and the companies-that were being invested in. The only things that began to matter were the profits-and then what mattered even more were all the toys that could be bought with those profits: the Warhols and Picassos, the Gulfstreams and Falcons, the horses and the horse farms, and the tens-of-thousands-square-foot mansions bought on miles of private beaches.
Justin asked what could go wrong with these funds, how they could blow up. When his father wanted to know why he wanted to know, Justin explained that it's the way cops had to think: They have to look for the worst possible scenario. "It's what people do when things go wrong that keeps me busy," he said. "People don't do desperate things-like commit murder-when they're getting what they want."
"It's simple. Hedge funds blow up if they lose money for too long," Jonathan said. "Or even short term-if they lose too much too quickly." What happens, he explained, is what often happens with companies. Success breeds the desire for more success: the urge to get bigger and bring in more and more and more. The hedgehog business has gotten so competitive, too, they start to care about the appearance, and they build up overhead, and suddenly if you have a down period you're in way over your head. You start with a fancy office, a lot of midtown Manhattan space. Your fund's too big to manage by yourself, or even as a two- person team, so you've got to pay analysts and traders and accountants. And buy computers and Bloomberg terminals and research services. "Soon you can't live on the fixed fee; two percent doesn't cover it. And you've bought your Gulfstream and the million-dollar memberships in several different golf clubs and the house in Palm Beach and your wife has her charity balls, and guess what? If you don't make a profit for two or three quarters in a row, people start pulling out their money. Once that happens, you're dead."
"Gotta sell the private jet, huh?"
"Unless the creditors come and take it away."
"Tell me about the people. The hedgehoggers."
"It's impossible to make absolute generalizations, you know that."
"Then just give me your general impressions. I promise I won't go around thinking that all hedge fund guys are evil sons of bitches."
Jonathan shook his head disapprovingly at his son's flippancy. But he said, "It's a different game than the one investment bankers play. It's about the thrill. And it's not even about making a score… it's about making a big score. The biggest score. If you want to play in this game, you
've got to have some balls. And I mean some iron balls. They're not interested in small bets. You put five or ten million dollars into something, what's five or ten million against a billion? It's nothing. It's meaningless. But if you have a billion-dollar fund and you see your opportunity and you put fifty million or a hundred million down, then you've got something. You can shake things up. Have an impact. That's the way they think. They don't believe in protecting themselves. If they think they've got something good, they'll put ten percent of their assets down on it. Sometimes more. You realize what a gamble that is? They think like hot rollers at a craps table. The more you win, the more you bet. You get on a good enough winning streak, you break the bank. But if you crap out too many times, you're out of business. You're also probably a heart attack waiting to happen or you're an alcoholic or you can't sleep for an hour without popping a dozen pills." Jonathan took a deep breath now and, again, Justin heard a wheeze coming from within his father's chest. "Have I told you what you wanted to know?"
"It's a start," Justin said. "You still like meatball heroes?"
"Your mother doesn't approve of meatball heroes."
"Is she meeting us for lunch?"
Jonathan acknowledged his son's logic with a brief nod of his head. "Good hero place, is it?"
"The best," Justin said. And when Jonathan smiled wistfully, his son added, "It's on me."
It was the first time Togo had ever gotten his instructions by phone. The man said there was not time to meet, that things were moving quickly around them and they had to move just as quickly. Even quicker, he said.
Togo asked in Chinese what it was he had to do so quickly.
The man answered in Chinese: "The policeman. The one you've been watching. He's getting too close. He knows too many things now."
"I should wait for Ling," Togo said.
"There is no time to wait for Ling." And when Togo didn't answer, the man said, in English, "You are afraid if you don't have a girl to protect you?"
Togo said nothing. Over the phone, the only sound that could be heard was the heavy breathing of the two men.
The man said, switching back to Cantonese, "We cannot wait. Soon he'll be talking to people. He is already talking to too many people. Do you understand?"
"I understand," Togo told the man.
"Then tell it to me, so I know you hear what I'm saying."
"He will not talk to any more people," Togo said. "That is what you want."
"Yes," the man said. "That is what I want."
"I must say one thing to you," Togo said.
"Go ahead," the man told him.
"Now you listen carefully," Togo said.
"I'm listening."
And then Togo spoke in English. He wanted to make absolutely certain the man on the other end of the phone understood what he was saying.
"I am not afraid," Togo said slowly.
"Is that it?" the man asked.
"Yes," Togo said, still in English. "I am not afraid of anything."
"Good for you," the man said, also in English. And then he hung up.
Justin's cell phone rang as he and his father were approaching Justin's white with blue trim Victorian house. The meatball heroes had been delicious.
"Yup," he said into the cell phone.
"We have some movement on Ellis St. John," Reggie Bokken-heuser said.
"Tell me."
"He used his bank card to get some cash. Five hundred dollars."
"Where?"
"Massachusetts. A town on the Mass-New York border. We've got someone on it already. Fletcher sent someone down from Boston to check it out."
"Has the rental car been spotted?"
"No. But now I'll get APBs out in New England."
"Good," he said. "How go the e-mails?"
"Ellis may be the most boring writer who ever lived. But anything you want to know about who's screwing who at Rockworth, just ask."
"Nothing at all?"
"I wouldn't say that. I'm pulling anything that seems remotely relevant. A lot of it has to do with specific trades, so I'm not a hundred percent sure what I'm looking at. I'm flagging anything that has to do with any of the companies on our lists. Oh… and Jay… just for the hell of it, I e-mailed you the article in the paper, the one about the truck that turned over. With the platinum."
"A particular reason?"
"No. It's like one of your hunches. It just interests me. Something pops up in one mystery, the same thing pops up in another, I think it's better to assume it's not a coincidence. How's your pal Roger doing?"
"He needed a few hours. I'm just about to find out."
"Well, you let me know how that goes, okay?"
"I'll call you later," he said.
"Later," she told him.
Roger Mallone looked as if he hadn't moved since Justin and Jonathan had left two and a half hours ago. He was sitting on the living room couch, papers spread all around him-on the coffee table, on the couch, on the floor. When they walked in the door, he looked as engrossed as if he were reading the most exciting thriller ever written.
"We brought you a sandwich," Justin said.
Roger looked up, a look of confusion on his face, almost as if he didn't understand Justin's words. Then he said, "Oh-oh, thanks. I'm not hungry."
Justin waved his hand at the stacks of papers. "Is it that good?"
"It's fascinating," Roger said.
"Let me just make some coffee," Justin said, "then you can lay it all on me."
He went into the kitchen, turned one of his electric stovetop burners on high, boiled water, and made eight cups of strong coffee, filling his plunger-style coffeemaker to the brim. Roger was not normally the most stimulating teacher, so Justin figured he'd need the jolt. When it was ready, he poured the coffee into the thermos he kept by the stove. He yelled in to ask if anyone else wanted some and got two no's. Happy to have it all to himself, he poured a mugful and took it back into the living room.
"Ready," he said.
"Okay," Roger said, and Justin could hear him trying to rein in his excitement. "I can't say for absolute certain without a lot more studying and possibly even further access to their records, but there's something very, very strange going on."
"Is there a simple version?"
"I've tried to organize this as simply as possible," Roger said, "but if it was simple, they wouldn't be able to pull this off."
"What is it they're pulling off?" Jonathan asked.
Roger spoke to Justin now. "The way a hedge fund works is exactly the way the name implies. It's one large fund and if you put your money in, you're investing in that fund as a whole entity. The fund is split up so it can invest in as many different stocks and companies and commodities as it wants to. But it's one fund. That's key."
"Okay," Justin said. "I grasp the meaning of the word 'fund.' You going to define 'hedge,' too?"
"I am, as a matter of fact. I know you've got a business background, but I do remember that that part of your brain is a little, shall we say, rusty?"
"Sure," Justin agreed. "Let's say that."
"So 'hedge' is also exactly what it means when attached to a fund. It means that at any time you can hedge your bet. You think a stock is going to tank, you can short it." Roger beamed. He loved talking about his business and nothing puffed him up quite so much as explaining to other people how that business worked. Justin decided this had to be one of the greatest days of Roger Mallone's life. He got to snoop through another company's records and he got to explain it all to Justin. "When you short something you're betting that the price is going to go down. Let's say you want to short a thousand shares of Company X, which is selling for ten dollars a share. You think it's going to be selling for half price before too long. So you make a contract that lets you buy it at a later date when it drops to five and sell it back to someone for the ten-dollar price. The beauty of it-and the danger-is that you don't put up any money. Your broker borrows a thousand shares from someone else's portfolio. That per
son usually doesn't even know they're being borrowed. The broker just transfers those shares into your portfolio and then automatically sells them back to someone else at ten-and you've made your profit."
"And if it goes up instead of down…"
"Same thing, only in reverse. You short at five and it goes up to twenty. You gotta buy all thousand shares at twenty-you've lost your bet. I know people who've lost tens and tens of millions of dollars sinking money into stocks they know will come down. Only they don't."
"How does this apply to Ascension?"
"Well, if I'm reading this right, and I'm pretty sure I am, they're violating all the tenets of hedge fund management."
Now Jonathan leaned forward. "How so?" he asked.
"Again, I can't say this with one hundred percent certainty because I don't have access to all their accounting records, but it looks as if they're making separate trades for certain companies that are outside the main fund."
"Trading shares to and from the main fund?" Jonathan asked.
"Exactly."
"That illegal?" Justin asked.
Roger shrugged. "It's difficult to say what's legal or not when it comes to hedge funds. It's not honest. But it's for the SEC to decide if it's legal."
"It's not something that would make Ascension investors happy, however," Jonathan said. "It means they can pick and choose who makes money from their fund."
"And here's where it gets trickier," Roger said, tapping one stack of papers. "It looks as if they made some of the trades themselves-just transferring funds back and forth between different investors, in and out from one fund to another. And it looks as if some of the trades were made using an outside broker."
"Rockworth and Williams," Justin said.
Roger nodded. "That's right."
"Is there more?" Justin asked.
"There's a lot more. One is that what they're shorting isn't consistent at all with a lot of the other trades they're making."
"What are they shorting?"
"Platinum," Roger said.
"Are you sure?!"
"You want to see my MBA?"
"No, of course not, sorry. It's just… go on."
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