Like Wilkis, Reich had grown up in an orthodox Jewish home. His father was born in Poland and emigrated to Israel before World War II, moving to the U.S. in 1950. He earned a comfortable living as an optometrist, and the family lived in a middle-class Jewish neighborhood in Mid wood, Brooklyn. Ilan’s mother earned a Ph.D. and taught English at City University. Reich attended a yeshiva where half of each day was spent studying religion. Apart from Judaism, academic performance was the most important of the family’s values.
Reich was socially awkward. He had made few friends at Columbia, spent weekends at home, and studied hard, leaving no time for any extracurricular activities. When a girlfriend broke off with him after his freshman year, he felt suicidal, and began seeing a psychiatrist. He became increasingly estranged from his family, discarding their orthodox Jewish values without any clear sense of what might replace them.
Reich had been new at Wachtell when he first met Levine. He had been working full-time at the firm less than a month when, in October 1979, he was assigned to the friendly acquisition of one cement company by another. It was fairly routine work. Wachtell represented the acquiring company’s investment bankers, Smith Barney. During a break in negotiations, Reich noticed one of the Smith Barney bankers who was working the group of less than a dozen lawyers and bankers, shaking hands, chatting, seeming to know everyone by name. Finally he reached Reich. “Hi, I’m Dennis Levine,” he said.
Several months later, in March 1980, Reich answered his phone and was surprised to hear Levine on the other end. “Hey Ilan, it’s Dennis Levine. Let’s have lunch.” Reich was flattered by the invitation. No one ever asked him to have lunch.
Reich had a great time at the lunch. He loved discussing deals, and Levine seemed to hang on his remarks, complimenting him on his M&A judgment and his acumen. Levine told Reich about his own family background, his wife, his frustrations at Smith Barney. Levine’s confessions resonated with Reich, who had just gotten married himself. He understood Levine’s family milieu, and he often felt frustrated and underappreciated at Wachtell.
Levine told Reich that he had big ambitions: he planned to earn from $10 million to $20 million fast, then set up his own operation, maybe as a corporate raider. Then he, Levine, would have the lawyers and investment bankers like himself and Reich working for him.
“How are you going to make that kind of money?” Reich asked.
Levine leaned forward. “There’s a lot of money to be made in information,” he said. “Look at the arbitrageurs. They’re trading in it. Look at investment bankers. Everyone’s doing it.” He paused. “Wachtell is really a clearinghouse” for some of the most valuable information, he said. “You could make a lot of money with that information if you shared it with me.”
The tone of the conversation had suddenly shifted. Reich looked gravely at Levine. He knew what he wanted, and he knew it was a crime. He protested half-heartedly that he was too junior at the firm to have much access to the intelligence Levine would need. He hoped Levine would just drop the subject; he didn’t want to lose his new friend. But Levine insisted that Reich would be valuable and said that the scheme would be virtually risk-free. “I’ll think about it,” Reich finally conceded.
Levine called Reich often, assuring him that he knew all about Swiss secrecy provisions and the mechanics of trading through foreign nominee accounts. When Reich protested—he knew that even nominee accounts have at least one piece of paper with the name of the real owner on it—Levine volunteered to maintain an account for Reich in Levine’s name. They had lunch again; Levine flattered Reich about his prowess at deals. He underscored his refrain that “Everyone is doing it,” repeating the allegation he had made to Wilkis that Tom Hill was trading on deals leaked by others. “I riffled through his desk,” Levine claimed. “I’ve got copies of Hill’s trading records to prove it.”
Later that same week, Reich heard about the Elf-Kerr-McGee planning. He called Levine. “I’ve got something you’ll be interested in,” he said. Levine cautioned him to say no more on the phone. After learning of the Elf plans for Kerr-McGee from both Wilkis and Reich, Levine thought he had a sure bet, and he invested in Kerr-McGee stock. Ironically, the French government ended up dissuading Elf from pursuing such a large, hostile bid against an American company. Nothing happened. Kerr-McGee’s stock price dropped, and Levine had to sell at a loss. The whole thing made Reich even more anxious; he felt he had to make it up to Levine.
Levine’s other trades in his Pictet account, while relatively modest, had nonetheless shown a remarkable correlation to announcements of merger activity. When Pictet officials reviewed Levine’s trading activity shortly after his Central Park outing with Reich, the pattern was clear: Levine took positions in stocks just before announcements of mergers and takeovers. The bank ordered his trading halted and told Levine to close his account. But the bank did nothing to alert any authorities of its suspicions. And Levine had no trouble shifting his account.
As he had advised Wilkis to do, Levine flew to the Bahamas on Memorial Day 1980. He interviewed a number of Swiss banks, with the exception of Crédit Suisse. For obvious reasons, he didn’t want anyone comparing his and Wilkis’s trading. He finally settled on Bank Leu International—Switzerland’s oldest bank, which had only recently expanded into international operations and was eager to provide its services to wealthy foreigners trading in U.S. securities.
Levine had polished his scheme. He told Bank Leu officials politely but firmly that he would communicate his trading instructions by collect phone call. He would identify himself as “Mr. Diamond,” (Diamond was his mother’s maiden name), and the account should be maintained solely under that code name. He wanted fast, efficient execution of the orders, which should be spread among a variety of brokers. He wanted no communication with the bank except in person or unless he initiated it by collect phone call. They should hold all records and account statements at the bank. Would that be acceptable?
It was acceptable. Levine filled out a routine new account application, listing his real name and address, 225 East 57th Street; his profession, “banker”; awarding his father a power of attorney. He signed it with his real name. A photocopy of his passport photo was stapled to the form so that bank employees could identify him if he wanted to make cash withdrawals. Even by Swiss banking standards, Levine’s emphasis on privacy seemed extreme. One of the Bank Leu officials, Jean-Pierre Fraysse, wrote a memo to the file after opening the account, noting that “Mr. Diamond” seemed “obsessed by security” and that trading in his account would bear close watching. Several days later, $128,900 was wired into his new account at Bank Leu in two separate transfers. Just over half came from Levine’s defunct Pictet account, suggesting modest gains on his earlier efforts at insider trading. The other $60,000 came from Levine’s father, Philip, who had taken the money from under his bed and given it to his son as a “loan.”
Levine’s first big score came a few months later. Reich, eager to rehabilitate himself with Levine, came through with a surefire deal in September. A Wachtell client, Jefferson National Life Insurance, was going to be acquired in a friendly transaction by a larger insurance company. Levine was impressed; he took almost everything he had in the Bank Leu account and bought 8,000 shares of Jefferson National stock on September 24. As Reich had anticipated, the merger was announced two days later. Jefferson’s stock price climbed. Levine sold immediately, making a fast profit of over $150,000.
None of this interfered with Levine’s trading on his own deals at Smith Barney. He badgered Hill to assign him to more M&A transactions, and finally Hill put him on a tender offer by Tyler Corporation, a longstanding Smith Barney client, for Reliance Universal Inc. Levine, in defiance of all the Smith Barney trading restrictions, brazenly bought 5,000 shares of Reliance on April 7, 1981, less than a week before the deal was announced. He earned over $45,000 on that trade.
Reich rapidly became Levine’s most valuable source. He kept up a reliable flow of information,
always calling to invite Levine for lunch. Sometimes they’d meet at restaurants, other times they’d just grab slices of pizza and talk as they walked along busy midtown sidewalks. Levine loved the arrangement: when he traded in non-Smith Barney deals, he didn’t feel constrained to take small positions. His profits swelled. Most of the tips he also passed on to Wilkis.
Reich was still ambivalent. When Levine invited him to a dinner party at his apartment where others from the “game” would be present, Reich was furious. He said that he didn’t want to know the identities of other collaborators, and didn’t want them to know him either. He worried that Levine was getting careless. By this time, he’d concluded from their many conversations about takeovers that his partner wasn’t all that bright.
Levine sensed his reluctance. He tried to draw Reich further into the scheme. He encouraged him to set up his own trading account and urged him to withdraw some of his accumulated profits. Levine told Wilkis at one point that he was tempted to take a wad of hundred-dollar bills and throw them at Reich during one of their lunches. Levine wanted Reich to taste real money to motivate and excite him.
Reich continued to resist, but Levine was also becoming less dependent on his Wachtell source. During the summer of 1981, he made more progress in assembling a ring of collaborators. Ira Sokolow, the promising young investment banker who had worked with Levine the previous summer at Smith Barney, had graduated from Harvard and had gone to work at Lehman Brothers Kuhn Loeb. The firm had an active M&A practice. Levine invited him to lunch.
The script was the same as with Reich and Wilkis. Levine emphasized that “everybody” was trading on inside information and that his scheme was foolproof. He offered Sokolow an arrangement similar to his deal with Reich. Levine would handle the trading; Sokolow would get a cut of the profits. Sokolow, bored with the tedium of his early investment banking assignments at Lehman, proved to be the easiest convert. He still looked up to Levine from his days as a summer intern. He readily signed on and began providing information.
At one of their lunches, Sokolow reported to Levine that he had a close friend, a lawyer, working at Goldman, Sachs in the firm’s mortgage department that he’d like to bring into the game. Levine was thrilled at the prospect of a mole in Goldman; he promised Sokolow a cut of the trading profits for his friend, too, but cautioned him not to reveal the friend’s identity, even to him. Sokolow’s source’s code name would be “Goldie.” He would prove an even more fruitful source, cheerfully rifling through Goldman partners’ “in” boxes for clues to pending merger deals. Levine taunted Wilkis, pointing out how much more effective the other members of the ring were proving to be. “Lehman,” Levine gleefully reported to Wilkis, “is an animal! He’s devoted. He’s committed.” He added caustically, “Unlike you.”
Later that year, 1981, Levine got the career break he’d been hoping for.
Eric Gleacher, head of M&A at Lehman Brothers, glanced down at the résumé of the investment banker he was scheduled to interview, halfway pleased to see it wasn’t the usual Ivy League hot shot. Gleacher is an intense, hard-driving banker. He’d attended Western Illinois University in the small town of Macomb.
When Levine arrived, dressed in his best dark pin-striped suit (as coached by Wilkis), he went straight to the point. “I want a better firm than Smith Barney,” he said. “Smith Barney is second-tier; Lehman Brothers is the big leagues. I’ve always wanted M&A but I couldn’t get a job.” Gleacher glanced again at the résumé, noting the almost stereotypically Jewish urban background. “I only went to Citibank to get a credential: I really wanted Wall Street,” Levine pressed.
Gleacher was impressed by Levine’s candor. Lehman Brothers had a history of hiring people who didn’t fit conventional molds; the firm was proud of its willingness to take risks. Gleacher had hired Steven Rattner, for example, a reporter from The New York Times with no investment banking experience whatsoever, and in Gleacher’s view, he had turned into a star. Lehman had taken a chance on Gleacher himself, hiring him right out of business school.
Lehman was anxious to expand its overworked M&A department. Levine at least had some experience and had been recommended by Sokolow. They’d bring him in at the bottom at a low salary—less than $50,000 a year—and take a look. If he was great, he’d be rewarded at bonus time. If not, he could at least process deals. Gleacher saw no downside. After Levine had been interviewed by several other people in the department, Gleacher made him an offer with the title of full vice president, the rank he’d been denied at Smith Barney. Levine accepted eagerly.
He couldn’t wait to tell Wilkis about his new job. He wasn’t worried that Sokolow was already at the firm; they’d still need Sokolow’s access to deals Levine wasn’t involved in. And he relished the prospect that he’d “throw it up in Hill’s face,” as he told Wilkis. When the encounter finally happened, Levine was subdued, having decided that he shouldn’t burn bridges to anyone in the relatively small world of M&A. He came into Hill’s office, sat down, and simply said he was leaving for a job at Lehman Brothers. Hill was neither surprised nor concerned. After their frank discussion at Levine’s previous bonus review, he hadn’t really expected Levine to stay. He didn’t make Levine a counteroffer, and wished him well.
A few weeks earlier, on October 30, Levine had flown to the Bahamas, charging his airfare to his Smith Barney expense account. He’d opened another account at Bank Leu even more secretive than his first, using a Panamanian corporation he’d created with nominee directors. Nothing about “Diamond Holdings” suggested that Levine was the beneficial owner. He had transferred the growing funds from his individual account to the new corporate entity’s. He had also taken the opportunity to withdraw $30,000 in $100 bills, which he had stuffed into a plastic shopping bag for transport back to the U.S. He carried it around with him, spending the cash on restaurants, clothes, taxis, gifts. The cash seemed to give him confidence. It was, he told Wilkis, his “walking-around money.”
Gleacher liked to haze his new recruit. Soon after Levine arrived at Lehman, Gleacher called him into his office and announced that a Lehman client was about to make one of the largest tender offers in history. Levine had never heard of the target. Gleacher wanted Levine to find an example of a similar tender offer. Levine was at a loss. He rushed around the office, frantically looking for help. Suddenly Gleacher, known as “the colonel” for his stern military bearing, appeared at his office door, looking at his watch. “You’ve got 30 minutes, Dennis,” he called out. “It is absolutely critical that you produce this.”
A half hour later, Levine—flushed, sweating, looking stricken—told Gleacher he hadn’t been able to find any precedent. He hadn’t even been able to identify the target company or its lines of business. As he spoke, a small crowd of Lehman investment bankers quietly gathered outside Gleacher’s office. “Jesus, Levine!” Gleacher shouted. “Can’t you do anything?”
With this, the onlooking bankers burst into laughter, none louder than Peter Solomon, the Lehman partner whose office was next to Levine’s. Gleacher had made up the whole thing.
Levine laughed along with the others, and complained only to Wilkis. In only a matter of months, he became the buffoon of Lehman’s M&A department. Gleacher concluded that Levine was all but worthless in any conventional investment banking sense. His analytical skills were weak; he couldn’t pull the structure of complex deals together. He wasn’t even particularly well organized. His defects were even more glaring at Lehman than they had been at Smith Barney. And the deals were bigger and more frequent.
Young investment bankers at Lehman depended on more senior people to assign them work. Levine was popular in the office. His affable demeanor, his often vulgar jokes, his eagerness to be liked, were, for many, a refreshing change from the arrogant, sophisticated demeanor of so many of his counterparts. Some of the other bankers referred to him as “bubeleh,” a Yiddish term meaning something like “sweetie-pie” in English. He was constantly running to get partners coffee or
sodas. But popularity wasn’t getting him assignments.
Then, just four months after Levine’s arrival at Lehman, a memo was circulated: Lehman was bringing in the head of M&A from another firm as a partner. The new partner was Tom Hill. When Levine saw the memo, he grabbed a notebook from a desk and threw it as hard as he could against a wall. He was still furious that night when he spoke to Wilkis. He vowed that he was going to “destroy” Hill.
Hill was no more impressed with Levine than he had ever been. He never enlisted him in any of his deals, but relied on Sokolow, whom he cautioned about his friendship with Levine. Sokolow warned Levine to “watch out” for Hill.
Then Reich came to Levine’s rescue. In early August 1982 he called Levine with a lunch invitation, indicating he had information. Wachtell, he explained to Levine when they met, was representing a private investor group, Dyson-Kissner-Moran Corporation, which was putting together a bid for Seattle-based Criton Corporation.
Levine raced back to the office and went straight to Gleacher, looking as if he were about to burst. There was heavy activity in Criton stock, he told Gleacher, saying his “reading of the tape” suggested a tender offer was imminent. Gleacher was skeptical. No one else at Lehman had heard any rumors. There was modestly higher volume in the stock, but hardly anything major. “We’ve got to pitch the defense,” Levine insisted. “There’s going to be a bid.” Gleacher shrugged and told him to go ahead and make contact with Criton.
Much to Gleacher’s surprise, Levine came back triumphant. Criton was sending its general counsel to New York to interview investment bankers for a possible defense. Levine had gotten an appointment for Lehman.
Den of Thieves Page 9
