Confessions of a Wall Street Insider

by Michael Kimelman

  As the prosecution continued, the gist of the cross became clear. It was a very simple idea, and would be easy for the jury to understand. This guy has been … PAID. You can’t believe anything he’s saying. For $25M, I’d tell you Raj was better looking than George Clooney and hung like John Holmes.

  Once again, it felt like game over.

  The next day’s witness was Geoffrey Canada, founder of the Harlem Boys Club. His was a tremendously inspirational story, and Raj was a critical and consistent backer of Mr. Canada and his vision. At the same time, at this stage of the game, a character witness wasn’t going to cut it. I could almost hear the jury thinking: You’re a billionaire. Giving to community improvement organizations is what rich people are supposed to do. So what?

  The mood in 2011 was so angry and rife with socioeconomic envy, a billionaire wasn’t about to get extra credit for giving a little of his hard-earned (stolen?) millions to charity. And the racial connections between the communities Mr. Canada served and some of the jurors left a bad taste in many people’s mouths. Raj had given his money to this organization years before any investigation—and it was obviously a heartfelt gift of incredible generosity to a worthy cause—but why bring it up now, like this? In the hallways during the bathroom breaks, everyone whispered about “black jurors and little black kids.”

  Soon, the only question remaining was whether Raj was going to take the stand and testify himself. The first three defense witnesses, Schute, Canada, Gregg Jarrell (an expert paid a small fortune to present charts and stats showing Raj could have received his info from publicly available sources), had proven ineffective at best. After Jarrell concluded, it wasn’t clear that Raj had any other witnesses left to call.

  So either the big man himself was going to take the stand, or Akin Gump was going to fold and hope a “king high” hand was good enough to win. When pondering whether or not a defendant should testify, the standard defense playbook instructs the defense to always make it seem as if the defendant will testify. This makes the prosecution lose precious time preparing to cross examine the defendant. It’s time that could be better spent on other witnesses. Raj’s team went with the textbook bluff.

  Each time Judge Holwell asked Raj’s lawyers—usually at the prosecution’s behest—whether their client would testify, Dowd gave the standard response: “We plan on making a game time decision, but believe the defendant will in fact testify.”

  Dowd uttered it in such a deliberate and believable fashion that by the end of the trial, every article predicted Raj would take the stand. The defense bluff may have been standard operating procedure, but it worked. I also felt it was likely Raj would indeed testify—if only because if he chose not to, at this point, to any educated observer, he was clearly finished. Done. Why not play that final card? You never know.

  Unless Raj had a juror in his pocket, this trial was over, and the King of Hedge Fund Kings was going to jail for a very long time. Raj taking the stand was the sole remaining chance for the defense to present a compelling alternative to the prosecution’s narrative and correct the “misleading” portrait of the defendant that had been presented by the government. Raj and his lawyers had to know that.

  Then it came.

  Dowd stood up and mucked the defense’s final hand.

  “The defense rests, your Honor.”

  It prompted surprise murmuring from the gallery, and quiet exhalation from Streeter and Brodsky. Closing statements were to begin the following day.

  “The defense rested!” were my first words to Moe and Sommer as I walked through their conference room door.

  “Doesn’t matter,” Moe quipped. “That one was over before it began.”

  “So how long do they deliberate for? Want to do a pool?”

  “Sure,” said Sommer. “Seventy-two hours.”

  “We’re doing days, forget hours. So you’re at three days?” I said. “Moe?”

  “Two days.”

  “I guess I’m at four,” I decided. “I like three, though. I think that’s the real number.”

  What we left unsaid was the expected verdict.

  “So what are we doing today?” I asked my team.

  “I want to review some of the 302s,” Sommer began.

  I agreed that this was a good idea. I had been looking through the 302s myself.

  302s were written FBI records of statements proffered by cooperators. You’d think, in the twenty-first century, that such things would be kept as digital audio files. According to Sommer, there was a reason the FBI wanted to hang on to the paper transcript format. Namely, because they could selectively omit (unintentionally, of course) any part of a statement given by a cooperator that did not help their cases.

  “I don’t see how Shankar and Tudor don’t come off as completely insane, in these,” Sommer said. “So where should we start?”

  “I’ve been compiling sort of a ‘greatest hits’ sheet on the 302s,” I said. “Why don’t we start with Shankar, since he’s about half the case with Hilton?”

  Hilton was one of the trades I was charged with having made improperly.

  “Shankar it is,” Sommer said. “What are your thoughts so far?”

  “Well, as you know, before we were arrested, Shankar was the only part of the case that I knew about,” I told him. “Like, I didn’t know at the time I traded it, but eventually I found out that the Hilton call originated with Shankar. On the afternoon of July second, Zvi called me when I was trading at Quad and told me he was ‘hearing that Hilton might be in play.’ That was what he said and how he said it. Nothing illegal. No inside info. I bought a small position and sold most of it the next day, when it was up pre-market. Not long after, the Jeffries analyst came out with a note saying Hilton was in late stage talks with private equity. I added to my position and the stock started ramping from there. That evening, Blackstone announced it was buying Hilton for $47 in cash. The stock had been trading in the $34–$37 range beforehand.”

  Sommer said, “Okay, I’m with you so far. How much stock did you own?”

  “About 15,000 shares.”

  “So you made around $150K?”

  “A little more. I traded it that day too, and made some more money.”

  “Go on.”

  “So it seemed like a good call, but not too suspicious. The Jeffries note was right on, and the trading action before the note seemed to indicate there was some speculation. There were multiple instant messages coming out of Schottenfeld and other firms that the Hotel Group was under accumulation and the rumor was that a top-tier analyst was going to upgrade the group. At the time, I didn’t give the call a second thought. Zvi didn’t know where Gautham got the call from, or if he did, he wasn’t telling, and based on the Jeffries note, clearly there were some leaks and management was talking to someone. A second-tier bank like Jeffries doesn’t publish a note like that unless the news is outrageous. So it didn’t bother me until Raj got arrested and the criminal complaint specifically mentioned Hilton. That made me think maybe Shankar got Hilton from Raj or maybe they both got it from the same person. It turned out to be a little more complicated.”

  Moe stepped in.

  “Deep Shah, who worked at Moody’s, gave it to Roomy Khan. Roomy passed it on to Raj directly, but she also passed it on to Tom Hardin, who worked at the Lanexa Fund, a hedge fund affiliated with Tiger Management. Then Hardin to Shankar to Zvi, and from Zvi to Mike and about fifteen other people.”

  “That’s correct,” I said. “Tiger and SAC are the two big dogs in the equity hedge fund game. They’re responsible for seeding and spinning off more managers than nearly every other fund combined. As to Gautham, I only met him twice—actually three times; once was when he interviewed for a job at Incremental. He seemed odd—annoying and egotistical, and a bit shady. After Raj’s arrest, Zvi ‘confessed’ to me that he thought Shankar was the rat mentioned in the Raj complaint. Zvi also believed Shankar had worn a wire. I asked Zvi if he had anything to be concerned about and he basi
cally said no. However, he did reveal that he paid Shankar cash on multiple occasions. Zvi paid Shankar cash for his calls as a ‘thank you,’ he said, and also because Shankar kept asking to borrow money. Zvi said Shankar needed cash to pay his dying grandfather’s medical bills in India, and because he was having trouble paying his mortgage. Zvi made it sound like he paid him not because it was a part of a tit-for-tat arrangement, but because he wanted to help a guy out when he was struggling.”

  “Shankar talks in the 302s about Zvi Goffer paying him $10,000,” Sommer said.

  “Well that’s the thing,” I told him. “I was kind of willing to give Zvi the benefit of the doubt with the cash payments … that is, until one day when I asked him how much he had given Shankar. Zvi told me that, all in, it came to over $100,000.”

  “Holy shit,” Sommer exclaimed.

  “That was literally my response.”

  Moe said: “Just the sheer amount, $100,000, makes it all feel … less clean.”

  “Again, that was my reaction,” I said. “And when I kind of freaked out a little, Zvi started downplaying the significance. Shankar was talking about having to permanently move back to India, he said. Zvi just wanted him to be financially secure.”

  “So he’s backpedaling a little,” Sommer said. “It’s like he’s just trying to keep you from panicking.”

  “Yes and no. On the tapes, you hear Shankar—this is before he starts cooperating—you hear him telling Zvi he needs money for his mortgage and for his sick relative. So that part’s true. But I don’t think he’s asking for $100,000. Maybe that’s the cumulative total Zvi gave him over the course of a year. $10K here, $20K there. Who knows?”

  “The best part about Shankar’s 302 is when he says he feels totally guilty about the $10K payoff so instead of keeping the money, he gave it away to an Eastern European homeless woman in Grand Central,” said Sommer.

  “That’s basically the craziest thing I’ve ever heard,” Moe said, livid as hell. “It’s clearly bullshit. He just doesn’t want to have to give it back, or he knows something is up and is trying to make himself more ‘likable’ for the FBI and the judge who will ultimately sentence him.”

  “A jury will laugh him out of the room,” I added. “It totally destroys his credibility when he says he felt so guilty about the cash. And then his next move is to go out and extort Dave Plate for another $5K!”

  “Plate also said he didn’t think Shankar was paying anyone off,” Moe noted. “He thought Shankar was just keeping the money.”

  “I am confident Shankar got a lot more than $10K from Zvi, and that he kept most of it,” I said. “I think there’s got to be a way we can nail him on that.”

  Sommer said: “Unless you testify, or Zvi testifies, I’m not sure we can.”

  “Anyway, it’s interesting that I wasn’t worried about 3Com or any of the R&G stocks at this point. I thought the case was pretty much Hilton. I knew Zvi had some issues though, Shankar or not. His time at Galleon overlaps with the time the government cares about in Raj’s criminal complaint.”

  “Anything else for Shankar we should note?” Sommer asked.

  “You mean besides the fact that during his allocution, he pled guilty to insider trading in Avaya? A stock that even the R&G guys had never heard of. It was just another Zvi vapor tip, but Shankar pled guilty to it. Also, in his allocution, he claimed that he now understands that 3Com was insider info, but didn’t at the time. He has to know it was insider info in order to be guilty.”

  “That’s good; we can hit him hard on that during cross,” Sommer said with a smile. “Let’s step back now and review. The highlights for Shankar are as follows:

  1. He pled ‘guilty’ to a stock trade no one alleges there was inside info on, which shows the FBI and USAO were completely fooled by circumstantial evidence, the same circumstantial evidence they’re trying to convict you on. This is important. It shows they did not even understand what was happening.

  2. He testified Hilton ‘could be in play’ when he pled guilty. That’s a rumor, as opposed to real inside info.

  3. He lies about the size of the cash payments he got from Zvi and then compounds that lie by claiming he gave the money to an Eastern European woman in Grand Central.”

  “Maybe we should hire OJ to find her?” I chimed in. “Because she’s so definitely real.”

  “Or, we could do a five-person lineup and see if he can pick her out?” Moe added.

  “And four,” Sommer continued, not missing a beat. “On the tapes, there is a tip Shankar gives to Zvi which Zvi doesn’t relay to you. There’s also a series of phone calls where Zvi clearly excludes you from the insider info he has and tells Raj and Drimal.”

  “This is all solid stuff,” Moe noted.

  “Now, ahem, Michael,” Sommer said as if broaching a delicate topic. But what on earth, I wondered, could be more delicate than these facts which would decide my fate?

  “There’s one more thing I wanted to bring up,” Sommer said, doing his best Columbo. “I don’t think we’ve had this discussion before, but we are not going to get any surprises at trial about your background, are we? What I’m asking is, have you ever been in trouble with the law before or is this your first time?”

  Technically this wasn’t my first experience with the FBI. Technically.

  There had been a little incident in which my father-in-law had called the FBI after I’d failed to come home one night, felled by an all-night drinking contest against Jason Giambi. I awoke the next day around noon on Yankee reliever Tanyon Sturtze’s couch. (What do you want me to say? I was a Wall Street guy who sometimes did Wall Street guy things. Hanging out with MLB players was sometimes part of it.) I’d awoken to a series of worried messages from my wife, my father-in-law, and the FBI, but it had eventually amounted to nothing. I had apologized profusely to each, and promised to do a better job of letting my family know where and when I was about to black out in the future.

  “Nothing more than a speeding ticket twenty-five years ago,” I responded, deciding to leave that tale untold.

  “Good,” Sommer replied. “Our position is going to be that you’re a family man who is active in the community and in philanthropy. We’re going to say that you’re a guy who has never had even a hint of trouble with the law before. I want to make sure that story is intact.”

  “It’s the truth, it’s not a ‘story,’” I said defensively.

  “There is no ‘truth,’ only what we can prove to a jury,” Sommer responded with a hint of disgust at my naivete. “Now, let’s get back to work. Where were we?”

  * Raghavan, The Billionaire’s Apprentice, page 317.

  * While we were on pre-trial, Joseph Contorinis, a former Jeffries money manager, was convicted of insider trading that prosecutors say netted $7 million in profit. He was tipped off by UBS AG investment banker Nicos Stephanou about upcoming acquisitions and mergers. There were no tapes and only testimony by Steohanou (that was inconsistent). Contorinis also testified in his defense and was slapped with a perjury charge by Judge Sullivan for doing so. Contorinis was sentenced to six years in prison

  * On November 17, 2010, Ahmed Ghailani was acquitted of all but one of the charges against him. He “was found guilty conspiring to destroy property and buildings of the United States.” (from an FBI press release) http://www.internationalcrimesdatabase.org/Case/954/Ghailani/.

  * This week it was legendary defense lawyer Gerald Shargel. Zvi told me how Shargel had brought him into his lush, paneled office and clicked a hidden button under the desk that brought down a soundproof reflective black glass cover over the windows to prevent the feds, and other intrusive parties, from eavesdropping or reading lips—apparently a common practice against Shargel’s clients. Zvi claimed Shargel offered him a $500K “all-in” deal to represent him in this case. Shargel’s fees normally run minimum seven figures for a trial. Furthermore, another defendant had already met with Shargel and debriefed him, so it’s likely that he was conflicted out. But
I would only learn those facts later. For now, as always, they weren’t about to get in the way of a good story from Zvi.

  CHAPTER SEVENTEEN

  PISSING OUT OF THE TENT

  ______________

  AFTER YET ANOTHER GRUELING PRE-TRIAL SESSION, I made my way east on 53rd Street, crossing a handful of avenues along my well-worn path to Sutton Place. I paused to look north, toward the corner of Park Avenue and 55th Street—the offices of Incremental—which now seemed like an ancient dream from another life. To the south was 270 Park, the building I’d worked in for Chemical Bank right after college, now a Bear Stearns mausoleum. Morbid bookends of my adult existence. I’m not sure I would recognize either today.

  The more we delved into the information about my case at these pre-trial sessions, the sillier and sillier it seemed that my life could be destroyed over it. The fact that it was so silly, and yet so serious, made me feel angry. The anger was a pilot light, a steady blue flame that was always on and could never be entirely shut off. It produced fury directed toward the federal government at one end, and toward Zvi Goffer at the other. Yet there was also, underneath it all, frustration with myself. I had not been smart enough to dodge the bullet. I had taken the risk of riding passenger with a drunk sociopath.

  And perhaps I was still doing it. I was still in that car.

  There was no reason on earth why I should have ventured to Sutton Place that night—or any other. Zvi’s opinions were objectively worthless, and had been for some time. My lone remaining hope of convincing him to plead out had all but evaporated. If I’m being honest, the offer of free drinks among the similarly situated was a siren song I couldn’t resist. Amid the fear and stress was a yearning for empathy and belonging. I justified these visits to the bar by focusing on our tribal identities: we were federal defendants traversing the same dangerous paths. It made sense for us to stick together and learn from one another.

  In truth, I had a problem.