'How's Ruff?' I asked.
'He's fine,' Maffie replied. 'He's in Knysna.'
'Say hello from me. I heard that you're back in law again.'
'Yes there's a group of us helping vulnerable women and children. Tourists visit the beautiful parts of the country, but few witness the poverty.'
She went on describing the new South Africa. Many blacks had advanced and had rapidly caught up with the whites. That was good. Unfortunately there was a very wide income differential between the wealthy black elite, the growing black middle class and the poor. The vast majority of blacks still lived in shanty towns, with primitive facilities and inadequate health, water and education. AIDS was a huge burden on the country. Unemployment was high and crime was rife. Abused women and children needed help.
'What about you, Jack? I've heard that you've made a lot of money. Won a hedge fund award. Become a fully-fledged member of the celebrity circus. Pictures in OK! magazine with models.'
'Who told you that?'
'Two people. Bess and I regularly email each other. She was here a few months ago, completing a PHD in sociology. She wrote a thesis on our legal foundation.'
'And the other?'
'Remember Issie McTavish of the Wall Street Journal. He was in Knysna during the Christmas holidays. We bumped into each other.'
'There's nothing accidental about McTavish, Maffie. You should know that!'
'Maybe, maybe not. Anyway, Issie got nothing from me. I told him that Ruff and I were no longer involved in the markets. Our money's invested conservatively. A major proportion finances the foundation. He was more interested in you, Jack.'
'Why me?'
'He told me that he tried to contact you several times, but you were always unavailable. He believes that you have caught the hedge fund manager disease. Too much money, self-indulgence and arrogance.'
'That's not quite true. I've been busy, Maffie. Really! Aquarium went past the billion mark. Leash Grobnick, my boss, pushes us. He gives us strict instructions not to talk to the press.'
'You had better speak to Issie when you get back, Jack. He's busy on an article on unusual trading activity in the oil and gas markets and alleged ramping of energy shares. He attended Africa Oil Week in Cape Town and sources there told him that American and British regulators have been investigating allegations of market manipulation and falsification of results. Some sources allege that with prices swinging up and down in unpredictable markets, your results are too good to be true. According to his information, Aquarium is under the spotlight and could be acting in concert with two or three other hedge funds.'
I was dumbfounded that the US Commodity Futures Trading Commission and the UK Financial Services Authority had suspected our fund and responded to the allegation angrily: 'Aquarium has bought a lot of oil, gas and other commodities, Maffie. We have also invested in energy and mining shares. I'm not denying that, but manipulation? No way!'
'You're aware that this commodity boom is causing untold misery for poverty-stricken people in Africa, India, Pakistan, Bangladesh and some Latin American countries. Prices are so high that they can't afford to buy staples like wheat, maize and rice. It is now extremely costly for them to heat themselves in winter because of soaring energy prices. Doesn't that bother you?'
'Come off it Maffie. If we didn't do it, someone else would. It's a free market. You can't curb that,' I insisted. 'When you were a hedge fund manager, did you feel guilty?'
'That was then and I did feel guilty. That's why I got out and am now doing something useful. Come with me to some of the townships. Malnutrition. No water and electricity. Freezing cold in winter.'
'I donate to charities.'
'Really? You never struck me as being altruistic. Why have you been buying oil and gas, Jack?'
'Similar reasons to coffee, Maffie. Demand is well in excess of supply and prices are going up. Aram has good information.'
'Aram Zabkian? What's he got to do with it?'
'He's my partner, Maffie. We both manage Aquarium.'
She shook her head and laughed: 'Jack, you and Aram never got on. Why on earth are you partners?'
'We get on OK now, Maffie. It's a good arrangement. He's in charge of the portfolio and I spend most of my time marketing the fund.'
'You have nothing to do with the portfolio?'
'I discuss strategy with him and check the charts and prices. He runs the fund day-to-day. He knows what's going on in the market.'
'Have you heard rumours about market manipulation?'
'Sure, Maffie. But wasn't that the same with coffee? The price is rising and we're making money. We'll sell oil at more than $100, gas somewhere between $15 and $20 and the other stuff too. Nothing illegal about that.'
'What's been happening this week, Jack?'
'I have no idea. When I go on holiday, I cut myself off from the market. Aram's in charge. Aram's done well.'
'Oil and gas prices fell sharply yesterday and some more this morning. Oil's around $70 and gas $11. That's a long way from $100 and $15, Jack. I'm glad to say that grain prices are also falling. It will be a relief for poor people and the aid charities that buy them food.'
I was startled. It was evident that something was wrong. I felt my pockets for my mobile. It wasn't there.
'You said that you don't follow the markets anymore, so how do you know what's happening?' I asked.
'McTavish called me. Your office told him that you were in Cape Town. He asked me whether I had seen you. All I want from you, Jack, is the truth. Are you involved in market manipulation and any other wrongdoing?'
I gulped. So that's why Maffie was so cool to me. She hated dishonesty and corruption and suspected me.
'I swear Maffie. I have not manipulated any market,' I responded.
'What about Aram?'
'I can't be sure, but from what he told me, his trades have been above board.'
Maffie disclosed what McTavish had learnt from his sources. The Russian mafia had ramped oil and gas prices and Aquarium and other hedge funds were also involved. The Russians had pushed prices higher to boost shares of their oil and gas exploration companies on Russian and London stock exchanges. I was worried because McTavish's information rang true. Shares of newly listed energy and other resource shares had soared on AIM, London's junior exchange. Large and small investors had piled in. The Russian directors had made fortunes. Indeed, virtually all resource shares listed on exchanges in London, New York, Toronto, Sydney, Johannesburg and elsewhere had surged. They had leapt on the back of the commodities boom.
'It has been a carefully controlled operation,' continued Maffie. 'The market has been conned into thinking that there is a shortage of oil and gas, when in fact, there's a massive glut. There are extensive commercial inventories in tankers on the sea and in harbours, in depots and elsewhere. This is over and above huge Government strategic stockpiles.'
I remained sceptical: 'I think McTavish has got it badly wrong. All the brokers I know are writing bullish reports. They say that China and India are big buyers and energy is scarce. There is a war in Iraq and the Middle East is unstable.'
'Issie knows about that view. He says that brokers and analysts are sanguine. There are now huge holdings on the books of hedge funds such as yours and also pension funds. This is another energy stockpile overhanging the market. The same applies to several other commodities.'
'I'm not quite sure how the Russians are involved in pushing up oil and gas prices,' I ventured nervously.
Maffie sipped her sparkling water. 'A group of Moscow controlled hedge funds have been big buyers through a Swiss bank. Rising prices attracted other hedge funds and speculators. So they also bought.'
'Just like us,' I said, getting agitated.
'According to Issie's sources, the huge speculative commodity inventories will have to be sold one day and since there is a glut elsewhere, buyers will withdraw. When that happens, prices will crash,' warned Maffie.
'Why does McTavish believe th
at I could be involved?' I asked beginning to feel distinctly queasy.
'A Wall Street Journal reporter saw you with Russian hedge fund managers at a charity event. You were sitting with them.'
'I only spoke to them for a moment,' I snapped. 'Aram introduced me to them. I do not do business with those hedge funds, I swear I don't.'
I was not just angry about the accusations. I was very worried. Aram insisted on building up our positions and Aram knew the Russians.
'Maffie, please don't go, my mobile is in my room,' I said nervously. 'I swear I'm not involved in any irregularity. I just agreed with Aram that oil and gas were good buys and believed that other commodities would follow.'
I rushed into the hotel foyer to get the key. The receptionist handed me five messages. I opened them. They were all from Amanda. She wanted me to phone her urgently. I ran up three flights of stairs to my room, opened the door and rushed to the toilet. I parted with my breakfast and lunch within seconds. The mobile was in my suitcase. It had been a bad idea to cut myself off. I connected the mobile to the charger and switched it on. There were six messages from Amanda. I phoned back and left a voicemail. I took some deep breaths, composed myself and walked slowly down the stairs to Maffie.
'Are you OK, Jack? You look terrible. Don't worry, I believe you. You wouldn't lie to me, would you?'
'No Maffie, I swear it.'
My mobile rang. Amanda was on the phone.
'Jack, we need you back urgently. Aram's mother is ill. He had to go to Estonia today.'
'How's Aquarium doing?'
'Bad news Jack. Banque Discretione has withdrawn all its money. Aram had to cut positions and other investments to repay them. The market got wind of our sales, so oil and gas prices are falling. Our shares followed suit and unfortunately Aram couldn't get buyers for our bonds. He tried to borrow more from the banks, but they refused. I don't want to sound alarmist Jack, but it's a sort of meltdown.'
'What caused prices to tumble?'
'The CFTC announced that they had opened an investigation into the cause of unusual price movements in the energy market,' she said, her voice becoming shrill on the phone.
'The FSA called to speak to our compliance officer. Since Max is no longer with us, I told them that Leash was responsible and that he's in Florida.'
I was beginning to panic. The US Commodity Futures Trading Commission and the UK Financial Services Authority!
McTavish was right. The regulators were concerned that something was going wrong. I tried to be calm.
'Don't worry Amanda, I'll get on the next plane and will think of a strategy. How much did Discretione withdraw?'
'$400 million in total. The fund's investor capital is down to $600 million.'
Maffie looked at me quizzically. 'Aram's gone to Estonia. Bit of a coincidence isn't it?'
'Maffie, you said that those Russians are operating through a Swiss bank. Did McTavish give you the name?'
'Let me think . . . Banque Dis . . . Banque Des or something . . . Sorry, I can't remember.'
'Banque Discretione?'
'Yes, that's right. A small private bank. He told me that a Russian bank owns it.'
That queasy feeling came back again, but this time I felt really sick. I kissed Maffie on her cheek quickly and sent my regards to Ruff. Then I rushed back to my room and the toilet and vomited until I had severe stomach cramps, a sore throat and the taste of bile in my mouth. Afterwards, I brushed my teeth, stripped, switched on the shower and sat on the floor of the cubicle. As the water poured over me, all sorts of things passed through my head, some bad, some worse than bad.
I had to get on a flight that night. Later that afternoon I was at the airport waiting in the standby queue. The airline had overbooked first and business class tickets, but I managed to get in economy class. I squeezed into a seat between two large people. The three of us didn't sleep much on the long trip. I remembered how Sandy had taught me to meditate and I closed my eyes and tried to empty my mind and think of nothing. 'Om Shanti, Om Shanti, peace, peace,' I whispered. As much as I tried, I couldn't slip into meditation. Throughout that long horrible journey I had to continually squeeze my way past my unfortunate fellow passengers to get to the toilet.
21 - FALLING APART
The plane landed in London early Friday morning. As soon as I was through Customs, I ran out of the airport, jumped in a taxi and tried to reach Aram on his mobile. No answer. I went straight to the office, tired, dirty and unshaven. It was early and those who were there, stared at me. After a shower and shave in the office cloakroom, I felt better, but still had to put on a creased shirt.
Sitting at my desk I gulped down a cup of coffee, glanced at my terminal and saw that energy and share prices were sliding. Charts showed that the fish were falling back into lower levels of the proverbial Aquarium tank. This was a bad sign. I opened my post and found nothing important. Lots of envelopes were on Aram's desk. I tore them open. They were mostly brokers' notes, with purchases and sales of futures and options. I didn't have Aram's password, so I couldn't access his computer. His desk was locked. Jenny, Leash's latest secretary, didn't have the key. Leash was in Palm Beach, Florida on vacation. It was too early to call him. Around 9am, Amanda walked in. She looked stressed.
'Hi Jack, sorry to cut short your holiday.'
'It's OK, Amanda. Did Aram give you the key of his desk? His password?'
'No. He didn't come in yesterday. I still can't reach him.'
'What about his wife?'
'His family is skiing in Switzerland.'
'How's Aram's mother?'
'Don't know. I'm still waiting for his call.'
We struggled to open Aram's drawer, but failed. Tried again to access his computer, but without his password, couldn't see his emails and dealing records. A locksmith arrived and opened the desk. Piles and piles of unopened envelopes were inside the drawers. We took them out, but there were so many, that we decided to sort out the mess in the meeting room. We called the office's IT consultant to come and access Aram's computer data. He also failed. We were relaxed about Aram's secrecy when the fund was doing well. Now we cursed him.
Amanda and I silently opened all the envelopes. Inside were brokers' notes and statements going back two months. Aram, who hadn't taken a holiday for more than a year, had accounts with three brokers, two in London and one in New York. We carefully sorted out the brokers' notes and statements into three piles. Once we had done so, we tried to make sense of them. The brokers' notes, showing Aram's futures and options transactions, were incomprehensible. There were so many buy and sell orders, that only he would know what was going on. We called him again. No answer. Jenny managed to find Annushka, Aram's wife. She was at their chalet in Gstaad, Switzerland. Annushka had also tried to speak to Aram at his mother's house in Estonia. The phone lines were down and his mobile wasn't working.
The statements of brokers Jamieson & Co and Blaby & Co, showed that Aquarium had made a profit until the end of December. But we couldn't understand what had happened at the New York office of Gallopy & Co. Aquarium had two accounts at Gallopy. The "Aquarium Account" showed that at the end of December the fund had made a profit of $55.1 million on its transactions. But "Aquarium Volatility Account" had a loss of $241.2 million. Amanda and I checked again and again, but the statements clearly showed that the net loss at Gallopy & Co was $186.1 million. Since there was a combined profit of $18.1 million at the two other brokers, Aquarium's total net losses appeared to be $168 million.
Amanda was puzzled: 'I thought that Aquarium was in profit at the end of December. Our investors believe that they are doing well. What's going on?'
We both sprinted out of the meeting room to our desks and brought back our own files of Aquarium's monthly statements. We compared the separate statements that Aram had given us. They were identical. They showed that at the December 31 year end, Aquarium had made a profit of $73.2 million. Aram had conveniently added the $55.1 million of the profitable Aquarium accoun
t at Gallopy and the $18.1 million profits at the other two brokers. We had no record of Gallopy's "Aquarium Volatility Account". Until now, we had no idea that this account existed, let alone the massive loss of $241.2 million.
We sat there silently for a few seconds before Amanda spoke: 'There must be a mistake. There has to be a mistake!'
'I'll call Gallopy and Bank Kaboom, our Cayman Islands administrator,' I said grimly. 'Maybe they've got some answers.'
'Surely you knew what was happening, Jack? You're the co-manager! I'm just a saleswoman. What the hell do I know?' shouted Amanda.
'Take it easy Amanda. Aram's in charge of trading. We just discuss strategy,' I said trying to calm her.
'Some strategy! You don't know what the f*** he's been doing!'
'You've missed another F word, Amanda.'
'What?'
'Fraud!'
Amanda freaked. She jumped up, clutched her hair, opened her mouth to scream and then put her hand over it. She lowered her hand. It was shaking. I was worried that she was beginning to lose it. It was a mistake to mention the possibility of a scam.
'What should we do? What can we do? Where's Leash when we need him?' she shrieked. 'Since Max has left, he's been in charge of compliance. If he didn't have the time, why didn't he hire someone? Why didn't he know what was going on?'
I put my hand on her shoulder, but she tensed up and shrank away. It was as if I had some horrible contagious disease.
'Don't worry, Amanda. No problem,' I lied. 'I'm sure there's a mistake. I know Aram. He's straight.'
Unfortunately I knew Amanda was right. I didn't know what had happened, but who would believe me? In the eyes of the world I was the co-manager, the co-trader and cosignatory of the fund. Investors, who had received positive, profitable statements during the past year, would be furious if their profits turned out to be losses. And that was when the market was booming! With prices falling, what losses now?
I had to sort this out quickly. I phoned the London head office of Gallopy and told them that I had to speak to the London managing director. We needed Aquarium's New York records urgently. As far back as possible. Jenny contacted Jamieson and Blaby for brokers' notes and statements going back twelve months. Gallopy's manager phoned back and said that I could see him in the afternoon. Amanda phoned Annushka for permission to enter their house in Eton Square and open Aram's business post. Jenny was to get hold of Leash and tell him to fly to London.
Trader Jack -The Story of Jack Miner (The Story of Jack Miner Series) Page 30
