After losing two of our first three games, our team began to properly click. We reeled off eight wins in a row to make the playoffs, and then dismantled three straight “unbeatable” teams to win the Central Park B Team championship (the A League being comprised of semi-pros—seriously, they were mostly mustachioed mercenaries bused in from Milwaukee, or journeymen minor leaguers). Friendships were accelerated by the joy of winning, and cemented during customary post-game binge drinking at Blondie’s West Side, on 88th and Amsterdam. We’d start at 7 p.m. and practically shut the place down. One of the owners was a friend and granted us most favored nation status with reduced pricing, bottled beers for $4 and shots for $6—and that’s in New York City. Yet somehow we still managed to run up a $1,000 bar tab nearly every time.
When it came to business, it wasn’t until near the end of our championship season that the newcomer Zvi laid his cards on the table. The best salesman is one who is selling you without your realizing it. I didn’t really notice when he was doing it. For a twenty-eight-year-old kid, he was a goddamned natural. Zvi gradually shared that for the past six months he had been working on launching a new proprietary trading firm backed by a very well-known and respected hedge fund manager, Rob Koltun. Rob was the founder of RNK Capital, a sizable hedge fund specializing in carbon and energy credits, a sexy new field. Rob was one of the earliest entrants into the carbon credit business, and the respect he enjoyed was more a result of his being an early mover in the space than for any stellar performance. Rob was looking to start a complementary hedge fund specializing in energy equities, the stocks of energy companies. Apparently, Rob planned to use this equities platform to launch a synergistic prop trading firm that Zvi and his other partner, John Deignan, were going to run. Zvi raved about Deignan, characterizing him as an aggressive trading veteran with connections all over the Street.
“You need to sit down with Rob and Deigs,” Zvi insisted one evening, waving his hand as if to dismiss any other potential opportunity I might be inclined to pursue. “It’s the best possible career move you can make right now.”
I was tempted.
With Schoenfeld a boring grind, if Zvi’s new baby was even one quarter of the things he said it was, I felt prepared to give it a shot. I explained to Zvi I was more interested in working for Rob as an analyst or trader for the hedge fund, rather than the prop trading firm. I had “done prop,” and was eager to try something new, something challenging. Zvi assured me he could get me a meeting with Rob and that I’d be a good fit with the hedge fund.
And so, one hot late afternoon in June, just after the market had closed, Zvi and I walked from his offices in the Radio City Music Hall building on 51st and 6th over to meet Rob at 44th and Lexington, home of the proprietary trading firm they were calling Remsenberg Capital. It had been named after Rob’s beach house in the town of the same name, albeit spelled incorrectly. (It was actually Remsenburg.) The space on 44th Street was huge, and the plan was to move Rob’s hedge fund there as well. But for the time being, Rob was still working out of offices on 54th and Madison in a hedge fund hotel seeded by Sanders Morris Harris and operated by a guy named Mike Rosen.
During our walk over, Zvi explained that Rob was going to move his operations to 44th and Lexington, and that Zvi and his current boss, Gregg Ettin at Carlin Financial, would be joining the floor in the near future. On the elevator ride up, Zvi let me know that Rob was a “casual guy” and might not be what I expected. The stereotype of the hedge fund honcho has become fairly recognizable in NYC over the past decade: Fit (courtesy of a $3,000 a month personal trainer), well-groomed ($150 haircut and manicure every other week), in a hand-tailored suit, hand-crafted brogues, a platinum Swiss timepiece, chic wire-rimmed glasses, and an attitude that said “Not only am I better than you, but consider yourself incredibly fortunate to even be in the same room with me having this conversation.”
We passed through a small reception area with Remsenberg plastered on a frosted pane window, then made our way into a spartan yet sizable trading floor shaped like an “L.” A few traders typing on keyboards glanced up at us for a few seconds before returning to their screens. Somebody came strolling out of one of the executive offices in the back. Based on Zvi’s advance warning, I assumed this was Rob, a short, round figure with graying straight hair that could use a trim and that looked to be allergic both to both comb and brush. He wore tan khakis and a generic lemon yellow polo shirt that was splattered with what appeared to be several ounces worth of a chocolate milkshake. A large pair of unisex eyeglasses usually seen only among the elderly of Palm Springs or Palm Beach was perched on his large, bumpy nose. On his feet, a pair of tattered, filthy Stan Smith tennis shoes with the laces untied. The sneakers looked so old, Stan Smith himself might have worn them. I honestly thought that I was being punked. Was this for real? The guy was a mess, a hybrid of MIT Media Lab and homeless chic. Zvi made the introductions and we shook hands, both of us all smiles, mine slightly bigger than his, despite my best efforts.
“I’ve heard a lot about you,” Rob said, and gave a laugh that was three seconds of an escalating, falsetto whine. He had the most peculiar quirk of awkwardly chuckling in the most bizarre manner after most everything he said. Words can’t really do it justice, but people who didn’t know him, or who met him for the first time, would look at each other with furrowed brows as if to say, “What the fuck is that? Is he not aware that he is doing that?”
I cloaked my surprise by forcing myself to say, “Likewise, nearly all of it good.”
He walked me around the trading floor and then we spoke about my background and trading style. I explained my voodoo and my approach to trading, and asked him about his plans.
“We’re going to build the best damn prop shop we can, from the ground up, and I want to fill the seats with guys exactly like you,” Rob said matter-of-factly.
“You had me at hello, Rob.” I smiled, shaking his hand again when I realized I had the job.
Naturally, there were details to work out, but it was happening. Even though Rob was a little odd, I was impressed by what I had heard and seen. Also important to me was that the location was a mere block from Grand Central and the Metro-North commuter train I hopped to and from Larchmont every day. You couldn’t find a more convenient location. That was it. I gave notice at Schoenfeld and less than two weeks later, I was at Remsenberg programming my screens and software.
But all did not go as forecasted.
After a few months, I noticed that two out of the three people Zvi had told me were going to come onboard never really arrived. Most bizarrely of all, that included Zvi himself. I tried to convince myself that this was irrelevant; I liked the location, the setup, and was learning and developing a good trading rapport with Deignan, or JD as we called him. It would still be a good place to work. Only in my few idle moments did I wonder whether Zvi’s plans had been altered by changing circumstances, if they had been bullshitting me the whole time for some reason, or what?
One day, my curiosity got the better of me, and I called Zvi to ask when he was planning on moving over.
“My boss still needs to work out a few details with regard to our current space,” was all he would say.
When I broached the question again, months later, the answer was more definitive.
“It doesn’t look like it’s going to happen. There are some issues surrounding whether I can still be a partner at Remsenberg. Conflicts. I’m probably going to end up selling my shares back to Rob, and giving some to Joe Mancuso as well. I’ll still be able to have a say in the management and the firm through Joe, but it’s best for everyone if I’m not on paper.”
At the time, it made sense to me.
Zvi’s boss was Greg Ettin, a well-established execution broker at Carlin Financial, handling order flow for mutual funds. That this created conflicts was obvious. Even the big Wall Street firms pretended to separate execution business for clients, or brokerage from the banks’ own proprietary in-house trading. W
hat was less obvious to me was that Rob and his financial partner Ian Behar had already settled with Zvi weeks ago, giving him back his startup capital in exchange for his shares. That had nothing to do with conflicts, but solely with Zvi’s non-performance. After I was firmly in the door, Rob and Ian would comfortably badmouth Zvi behind his back.
Apparently, other than me, Zvi had only able to bring in a handful of pikers who didn’t move the needle at all, although he had promised Rob twenty good traders by mid-year, and fifty able bodies in the six months after that. And so they quietly came to an agreement: Zvi would get his startup capital back, and then he would quietly go away. It might have been the last quiet thing Zvi did in his life.
I should have been so lucky.
At the same time, I don’t think Rob ever planned to sit at 44th Street and run his fund from there. Weeks passed, and I hadn’t seen Rob in a while, so after the market closed one day in late September, I walked up the ten blocks to 54th Street to see him. The second I entered that office, I realized there was zero chance Rob would ever leave. Decorated luxuriously, with enormous glass windows providing a view of majestic Madison Avenue, it looked like an Aston Martin DB8 compared to the Honda Civic we were driving. Other than keeping trader morale up, a marquee location and expensive furnishings were meaningless on the prop side. However, hedge funds are primarily asset gatherers at heart, and to gather assets you have to impress clients. These clients tend to be extremely wealthy people who won’t invest capital in a business that looks “poor” or somehow shoddy. Nothing says you’re doing something right like Carrara marble floors and original artworks by the likes of Julian Schnabel.
Prop, on the other hand, typically has partner capital or one or two investors and a younger trader base that’s less influenced by appearances. Take the notable trading firm First New York. They were based in offices on 47th and 3rd Ave. that had stained carpets from ten years ago, paint peeling off the walls, and cheap chipped wooden Staples desks cobbled together with duct tape where people sat and traded hundreds of millions of dollars. It had all the markings of a telemarketing center in Bangalore, but for the fact that many of the traders were routinely taking home seven-figure paychecks.
That was our world. That was just how it went.
Anyhow, I eventually saw Zvi again.
At a Remsenberg poker tournament in early June of 2006, I found myself seated at table next to Zvi. We passed the time trading stories from our Datek days and polishing off a twelve-pack of beer between us. We both advanced to the next table through a combination of luck and conservative play. In poker, as in trading, you can win sometimes (or at least be ahead) simply by doing nothing. And that’s what we did for the first hour, a whole lot of nothing. We talked trading styles and stocks. I told him about a few things I was trading and then keyed him into a company that I had put a lot of work into, Imergent, IIG. It was a god-awful piece of a garbage company, but its price reflected that, with a healthy discount. The company sold “do it yourself websites” for several thousand dollars, a business that had a shelf life of a few years at most. That technology was getting cheaper all the time, and major players were moving into the space. Its stock had been cruising along at $30 until Stock Lemon, a website run by a notorious cabal of short sellers, got their hooks into it. Stock Lemon and its insiders (i.e. those lucky enough to get the heads-up that a nasty editorial piece was imminent) had thoroughly crushed the stock and slandered management. A bear raid nonpareil that quickly followed left the company in convulsions, bleeding like a deer that had just been run over by a twelve-wheel rig. The tactical execution was a thing of beauty to watch, except I found myself long and wrong as I tried to catch a bottom. It was an absolute feeding frenzy for shorts and they shredded the stock from $30 to a single-digit midget in a matter of weeks.
Now it was on life support at $4 and some change, yet absolutely nothing had changed in terms of its core business. Sure, there were a few lawsuits from the attorneys general of two states, charging that IIG had misled customers and demanding that they refund money. Still, even if it did refund the money of every person owed in those two states, the company still had enough free cash flow in the other forty-eight that the stock deserved to be trading around $15. My friend’s fund was a major shareholder and had done significant work on the company. The fund spoke to management, who assured them their capital was more than adequate, their business opportunities still prolific, and their regulatory issues mostly behind them. Companies will often lie to your face about these things, which is why stocks like IIG need to be purchased at a discount. At the current discount, the worst-case scenario was all but fully priced in … and one piece of good news would likely send shorts scrambling.
I broke it all down for Zvi and laid out the exhausting due diligence I had performed on the company. The clincher was the Amex had just started trading options with a $5 strike price. Sentiment was so bad, that you could buy $5 calls out to November for a mere .50. If the stock goes to zero, you know your damage or exposure is capped at fifty cents. If they release decent earnings and force the shorts to cover, there could be a stampede to $10 in a hurry. Clearly the market makers at Amex misunderstood the backstory and the amount of volatility in the stock. I had started buying shares at $8 and had been adding at intervals on the way down, convinced the worst was behind the company. Limited downside, significant upside, short squeeze potential—Zvi loved it and thanked me profusely, telling me he was going to put it on tomorrow and then do some research on the company. Not wanting to take without some give, he took a pen from his pocket and wrote the ticker symbol JAMS on the cocktail napkin next to me.
“Just be there,” he said with a measured glance to his left, then his right. “I’ll talk to you more about it when we’re alone.”
From the look on his face I knew he was serious. That’s why you play poker, to network and talk to people in the business. I had been to countless dinners, happy hours, industry conferences, and events. A lot of them were miserable affairs, but one good idea can make it all worth it. You never know who you’re going to meet or what you might learn.
“You long a nice amount?” I asked.
Zvi smiled.
“Nice doesn’t even begin to describe it, buddy,” he said, nodding his head and pretending to push his entire stack of chips forward, mouthing the words “All in.”
I had just spent the better part of fifteen minutes giving him a comprehensive bottoms-up analysis of a company based on sweeping diligence, yet with a mere four letters on a napkin Zvi had me salivating. I was ready to take off my IIG position and plow the proceeds into JAMS—something I had never even heard of. Ah, the power of hidden allure. A dollar and a dream, indeed.
Later that week at Remsenberg, I approached Zvi’s brother Nu and asked him if we could talk privately. We went to the soda machine in the kitchen alcove. I told him what his brother had said during the poker game. I asked Nu how much he thought I should buy, or was that a question for his brother? His immediate response was “Ask Zvi,” but then he also volunteered that he was long 200,000 shares for now.
“200K?” I said. “Wow. Okay.”
I was genuinely surprised, and worried that my inflection had exposed me as a piker. Sure, it was only a $1.50 stock, but 200,000 shares was still a nice chunk and significantly bigger than any other position he had. I figured I’d buy 150,000. I didn’t know the whole story and Zvi hadn’t given me any other details.
Anyhow, for the next month, the stock yo-yoed between $1.40 and $1.60. Even after several conversations with Zvi, I still wasn’t sure what the play was or where it was coming from, other than the fact that there were “friends of friends” involved. A broker from Saratoga Capital was apparently instrumental somehow, and even Rony Seikaly, the former center for the Miami Heat and Syracuse Orangemen, had made a cameo appearance in Zvi’s tale. He was a known companion (known by whom? I wanted to ask) of several apparently connected guys (connected to what, Zvi?) and was coming in, po
ssibly as a capital (or drinking) partner to one of the principals affiliated with an investment group that was circling. This was like the financial version of the game Clue, except instead of Colonel Mustard in the living room with a candlestick, I already had a feeling that the only one about to get murdered was me. It wasn’t a pure flyer though. I could verify that JAMS owned a portfolio of extended-stay apartments and cheap hotels. The rampaging value of American real estate made the ground the hotels were built on worth more than the company as an operating business. Kmart and numerous other companies were looking to monetize the fair market value of their real estate assets by selling or spinning them off. The fundamentals of the company supported a higher stock price, and this was 2005; every expert and his mother knew real estate would continue to double every four years into perpetuity.
Confessions of a Wall Street Insider Page 10
