Octopus

by Guy Lawson

government had issued pounds or euros instead of dollars. The Fed said that the government seal on the box wasn’t from the Fed; it was the State Department’s version of the seal. There was a document inside the box o#ering “Global Immunity” to whoever discovered the box. But the terms of the protection were absurd. “This Global Immunity was issued to cover the "nder of this bond from any criminal o#ense or liabilities, and to be duly covered by complete immunity documents for his/her safety.”

  Then there was the matter of denominations. Nichols had told Sam that the Fed notes inside the box were worth $100 million. But there were twenty-"ve notes in the box.

  Each of the bonds had a stated face value of $100 million. That meant the total value was $2.5 billion. Either Sam had pulled o# one of the greatest trades in recorded human history, with a rate of return of 2,500 percent—or he had been conned.

  FEDERAL PROSECUTORS immediately froze the accounts of Robert Booth Nichols that they could identify. When Nichols learned that the millions he’d deposited with HSBC

  in London had been seized, he called the Serious Fraud O!ce there. The call was taken by Detective Inspector Michael Manley, a savvy veteran. Nichols told Manley that the money he’d received from Sam Israel was the result of a legitimate contract. Nichols was happy to fax a copy of the agreement to London—the fake contract he and Israel had backdated. Nichols said he had been paid to be Israel’s broker for high-yield prime bank bond trades. It was obvious to Detective Inspector Manley that Nichols believed in the existence of the secret shadow market.

  “There was no question that Nichols had been conned as well,” said Manley.

  “Fraudsters often believe in their own fantasy world. Nichols "t the pro"le of many of our victims—and so did Sam Israel. Greed was the motivation. Neither of them was using his own money in the "rst place. All they were thinking about was the huge returns. There was no reason to believe that Nichols was running the prime bank scam.

  From our telephone conversation I could tell he wasn’t a complex man. He was not sophisticated about finances, no matter what he said.”

  Nichols said that he was willing to $y to London to prove to Manley that the shadow market existed.

  “If you come to London I will arrest you,” Manley told Nichols. “I will charge you with fraud and money laundering.”

  The U.S. Attorney’s O!ce in New York sued Nichols for the return of the $10

  million. Half was gone. As the lawsuit progressed, Nichols was summoned to Manhattan to swear a deposition. Nichols had aged badly in the three years since Sam’s arrest. Now that he was in his midsixties, a lifelong chain-smoker and heavy drinker, his poor health was evident to the assembled attorneys. So was the faded Hollywood glamour. In front of a videographer, Nichols recounted his decades working as an asset for the CIA. By the terms of a previous agreement the proceeding was to remain under seal, for reasons that weren’t explained. Nichols’s name wouldn’t be released to the press, nor would any evidence of his long and mysterious association with the intelligence apparatus of the U.S. government. Questions at the deposition would be asked only by federal attorneys, once again with no explanation offered.

  Nichols’s testimony must qualify as some of the strangest evidence ever o#ered in a federal proceeding. Nichols told his life story, from his days at Hollywood Professional School to his nights cruising the "ve-star bars of Honolulu for the CIA. He stated under oath that he’d been an underworld asset for the U.S. government for decades. He gave an example of the kind of work he did: secretly funneling funds to the Pakistani military’s Corps Commanders as a bribe to let the United States stage covert attacks to kill members of Al Qaeda—exactly the kind of mission that would result in the death of Osama bin Laden three years later.

  But when it came to Sam Israel, Nichols’s testimony was transparent perjury. Nichols said it was Sam who’d approached him in London and proposed that they trade high-yield bonds in the shadow market. The story made no sense—but neither did a lot of what Nichols said. Prosecutors knew the sequence of events from Israel and the reams of documents he’d produced; all of the evidence made it clear Nichols had instigated the venture. But Nichols was an accomplished liar. He kept the basic story intact, changing only a few key facts to deflect blame, defying anyone to catch him.

  Nichols also testi"ed that Israel had also brought up the subject of Yamashita’s gold and the Federal Reserve bonds. Sam had recruited Nichols to negotiate the return of the bonds, in return for the money Sam had paid under a valid contract. The CIA asset dared the government to prove otherwise.

  “I would like to see someone else do the things I did for ten million dollars,” Nichols sniffed.

  The federal attorney was $ummoxed, stammering, outwitted. Was it purely coincidence that Israel had asked after Federal Reserve boxes that Nichols just happened to have in his possession as an emissary of the Chinese government? the attorney asked.

  “I don’t really believe in coincidence,” Nichols replied. “But it seems that it was strange—it was very strange to me that he brought up this particular, you know, topic, that I was familiar with.”

  “Why would the Chinese government call Robert Nichols if they wanted to contact the United States government?” U.S. Attorney Alberts asked.

  “I don’t know,” Nichols said. “I don’t know.”

  “Did it seem strange to you at all?”

  “No,” Nichols said. “Not at all. I have dealt with many foreign governments.”

  “What was the value of the contents of the box?”

  “My personal opinion? Going on what it said on the face, one hundred million dollars.”

  “Was it one hundred million per certificate?”

  “I don’t know,” Nichols said. “I wasn’t there to see the box opened. I would have liked to have heard about the chain of custody. I would have liked to have had forensic people there when the box was opened. I would have liked to have had metallurgists and people who deal with the history of this kind of artifacts watching and checking.

  But you just pulled the box out of the safe in London and took it to the Federal Reserve and popped it open and said, ‘Oh, it’s all false.’ It’s like asking the Federal Reserve if it is a legitimate box. If they say yes, the federal government owes a trillion dollars. If they say no, they owe nothing.”

  “Is that because you think the federal government might lie about whether or not there are legitimate financial certificates so it doesn’t have to repay the money?”

  “It’s a possibility,” Nichols replied.

  SO ENDED THE STORY of the Octopus. Or so it seemed. The entire shadow-market episode seemed to have ended in a blind alley. The same was true for the mythi"ed Fed bonds. None of the scores of con"dence men Sam had encountered along the way had made any money, apart from the $10 million Nichols had scammed. No trades had been made. All the sound and fury of the secret bond market had come to naught.

  But then curious things started to happen in London. One day Tim Conlan received a call from Barry McNeil’s former landlord. During the months McNeil had attempted to trade on the shadow market, he’d rented a small $at in a working-class section of East London. The landlord said that McNeil had left without paying his last few months of rent. Departing in haste, he had left behind some of his personal e#ects. Among the items were reams of paper with ODL letterhead that McNeil had apparently purloined.

  There was also a digital printer, enabling him to send letters to prospects on ODL’s stationery without anyone else’s knowledge. But the main reason the landlord had contacted Conlan was the fact that there was a stack of business cards with his name on them. McNeil had been using Conlan’s cards to pass himself o# as an employee of ODL.

  But why?

  Then ODL started to receive unusual faxes. People claiming to be investors with money on deposit with ODL (Bahamas) Inc. were demanding to know what had happened to their funds. Graham Wellesley received half a dozen faxes from high–net worth individuals request
ing information regarding their investment. But there was no ODL (Bahamas) Inc.—at least not a legitimate company. ODL had never incorporated in the Bahamas. The investors said they had dealt with ODL’s introductory broker Barry McNeil.

  “Fictitious ODLs started to pop up all over the world,” Graham Wellesley said.

  “People were claiming to be principals of the company. There were ODL accounts in Swiss banks. Investors sent money to ODLs that I didn’t even know existed. They showed me correspondence on ODL letterhead, signed by a CEO who wasn’t me. There was a very selective clientele for these transactions—wealthy individuals. It was only when McNeil’s investors started to complain that I learned about what had been going on. The whole thing was a scam.”

  When Wellesley traveled to China to meet with a potential client in an industrial city an hour north of Beijing, he was shocked when the wealthy industrialist told him that he’d had prior dealings with ODL. The man presented Wellesley with the ODL business card of Barry McNeil. The South African broker from ODL had told the Chinese investor about the shadow market and the secret Federal Reserve bonds. The Chinese investor

  had deposited $100 million in an account with ODL Securities (Switzerland) Inc. at Credit Suisse in Zurich to trade in the shadow market. It was an account controlled by McNeil. Although he’d been fooled by McNeil, the Chinese man had the sense to travel to Switzerland to personally supervise the transaction. He’d spent a month staying in a five-star hotel in Zurich waiting for the trades to occur.

  Wellesley told the man that he had been extremely lucky. The shadow market was a con, Wellesley said. McNeil was a fraud. McNeil had succeeded in stealing money from many of his investors. Putting together the amounts from investors in ODL (Bahamas), Wellesley said that McNeil had taken upwards of $10 million—and perhaps much more.

  “Most of the victims of the scam couldn’t go to the police because they’d invested money from their Swiss bank accounts,” Wellesley said. “It was money that had never been declared for income tax. The money was secret. If they went to the police, the "rst question would be about the origin of the money they’d lost. It was like robbing a drug dealer. Barry had committed the perfect fraud—and he’d gotten away with it.”

  THE SAGA OF BAYOU was over—even if Barry McNeil would never be prosecuted. The same was true for Bob Nichols and the legions of con men Sam had encountered.

  On January 30, 2008, Dan Marino was sentenced by Judge Colleen McMahon. April 14 was Sam’s turn. Both received twenty years. The sentences were among the most severe ever imposed on white-collar criminals. An FBI agent in the courtroom with Israel leaned over and whispered in Sam’s ear that he had two words for him: Costa Rica. It was a joke, but the implication was clear: Sam should run in the face of such an unjust sentence.

  One small measure of mercy was meted out to Israel. Normally a federal convict who pled guilty was taken into custody at the time of his sentencing. Israel’s lawyers asked that he be allowed to remain out of prison for a few weeks to ensure that the protocol for continuing his various medications was in order. The judge agreed to permit Sam to turn himself in on the day his sentence began.

  “Here’s the deal,” Judge McMahon said to Sam, staring at him sternly from the bench.

  “The only reason I am allowing you to do this is to make sure that the correct medications follow you wherever you go. You will turn up at two in the afternoon on the appointed day.”

  CHAPTER NINETEEN

  The Afterlife

  On Monday, June 9, 2008, a disgraced Wall Street hedge fund trader named Samuel Israel III decided to end it all. Given the desperation of his circumstances, the only way out seemed to be suicide—or at least the appearance of it. Sam knew that if he turned himself in and went to prison, he was e!ectively ending any chance he had of ever being free again—which was itself a form of suicide. Years of heavy substance abuse, a dozen back operations, and open-heart surgery had left his body in ruins. Broke and broken, Sam reasoned that if he was gone at least his children could collect on his multi-million-dollar life insurance policy. Ending it all would allow him to retain a measure of dignity and autonomy. It would be a final act of atonement—and defiance.

  On the day Israel was supposed to turn himself in, he drove his GMC Envoy toward Bear Mountain Bridge in upstate New York. It was a scorching hot day, with temperatures nearing 100 degrees. As he rounded the curve, the half-mile-long suspension bridge came into view. He tried to calm his racing thoughts as he parked the vehicle in the middle of the bridge, next to a cone placed there by a worker doing maintenance. Sam stepped over the railing onto the ledge and steeled himself. He stared down at the drop. One hundred and "fty-six feet. High enough to reach terminal velocity. The bridge seemed to sway in the haze. He told himself he wasn’t afraid. He’d soon be forgotten, he "gured. Another Wall Street scammer who got what he deserved.

  Body rain. He took a deep breath and leapt …

  And landed. Two feet below the ledge, Sam lit on a platform that a construction crew had been using to repair the bridge. Or so he claimed. He waited a few seconds, his chest pounding. He peered back over the railing, looking for the Mexican kid from a local bar whom he’d paid a hundred bucks to pick him up, no questions asked. As the kid squealed to a halt, Sam jumped over the railing and dove into the backseat. They sped east, toward the Taconic Parkway.

  The sirens started to wail on the bridge almost immediately. Crouched in the backseat, Sam was terri"ed. The Freelander camper he’d bought was parked in a rest area, near an exit ramp. When the kid dropped him o!, Sam waited until he left before he made his way to the camper. He wanted to be sure the kid didn’t see the vehicle in case the police questioned him. From here Sam was going to stay local for a few weeks until things calmed down—until he was declared dead, or they "gured out that he’d faked his suicide and gone on the lam and the immediate frenzy of a manhunt died down. This was to be his last performance. His disappearing act. His final con.

  THE PLAN HAD BEEN hatched in haste. After he’d been sentenced, Sam had asked John Ellis to appeal to his cousin President Bush for some kind of reduction in his punishment. Sam considered twenty years outrageously harsh: He’d lost money, he hadn’t stolen it, nor had he killed anyone—at least that the law knew about.

  “I wanted John to deliver a letter to the president asking for a reduction in my sentence,” Sam said. “But Ellis said it wasn’t going to happen. Once I realized that there was no way I was going to get clemency—that was when I panicked.”

  Sam’s plan had been thrown together in a matter of weeks. He had no particular destination in mind. The Grateful Dead’s song “Goin’ Down the Road Feelin’ Bad”

  played on the stereo. Sam indeed felt terrible. He dreaded not seeing his children and Debra Ryan. Sam had contemplated the best place to be a fugitive—perhaps a distant country with poor relations with the United States, like Zimbabwe or Venezuela. Then one night he’d had an inspiration. Sam was watching a movie called RV. The Robin Williams comedy was about an overworked and overstressed man who’d convinced his dysfunctional family to rent a mobile home and drive from California to the Rocky Mountains.

  “I started to laugh,” Sam recalled. “Then I suddenly got the idea to head out on the road to see the United States in a recreational vehicle. Just like in the movie. I’d be free.”

  To fund the journey, Sam started to trade under an Ameritrade account he created using an alias. He started with a small stake but quickly hit a winning streak buying and selling Goldman Sachs, IBM, Wal-Mart, Research in Motion. For years Sam had been tormented as a trader. He hadn’t even looked at the market in months. But in his hour of need it seemed that he couldn’t lose. “I had started to doubt if I still had the ability to trade,” Sam said. “I’d had this horrible loss period. I’d lost my fund, my reputation, everything. I wasn’t a rock star anymore. But then I was back trading and it felt great to be doing it again—and to be making money. I was really on a roll. In and o
ut, in and out. Like old times. I followed my trading program and I didn’t try to second-guess it, or get ahead of myself.”

  Sam bought the luxury twenty-six foot Freelander and installed a Tempur-Pedic mattress. Upgrading the sound system cost $4,000. Flat-screen televisions and upscale kitchenware and designer linens made the camper homey. Sam bought two cell phones, two digital voice recorders, a GPS, and an iPod he loaded with the Allman Brothers.

  The book Getting Out: Your Guide to Leaving America provided detailed planning information for living as an expat, including tips on the best beaches in Central America. In one packet, Sam kept 175 fast-acting morphine tablets, along with a stack of fentanyl patches. Sam thought of this collection as his “suicide pack,” ready for use if he got cornered by the law.

  Israel was con"dent that Nichols had trained him well for life on the lam. To create a new identity, Sam searched online for a deceased person who had been born at roughly the same time. He wanted a bland-sounding name. He decided on a white male named David Klapp who had died in Waterloo, Iowa, in 2001. Nichols had taught Sam how to obtain Klapp’s Social Security number. Sam then bought a lamination kit and proceeded to make up a handful of identi"cation cards for Klapp. Sam started with a Social Security card and a birth certi"cate. He then created an ID for Klapp as an ordained minister, in case he needed to don the disguise of a clergyman (Nichols had recommended it as a way to hide in plain sight). Sam had stayed up late into the night forging an array of cards—Special Forces, karate black belt, scuba diver license.

  Sam had stu!ed thousands of dollars into plastic shopping bags and hid the money under the driver’s seat of the Freelander. His idea was to stay on the eastern seaboard of the United States for a time. After a month or so he’d head north into Canada. Israel would then drive across the continent staying in campgrounds, where identity checks were more lax than in hotels or motels. As time passed and the pursuit cooled, David Klapp would reenter the United States and make for Costa Rica to settle down in a hacienda on a quiet beach. After a year or two, he’d return to the States and build a new, quiet life.