Romanov’s close was “soft” in my opinion, more marketing than reality.
The next Steve Rubell
, I thought cynically to myself.
Forbes
once estimated there were 946 billionaires across the world. I bet MRI Capital would accept money from all of them.
The Mad Russian certainly attracted a crowd. Many investors possessed foot-washing faith he would make them wealthier. At times it even seemed Romanov bought into the hype. “Everybody loves the way we make money,” he once bragged to
Business Week.
“No ego problem there,” I muttered under my breath.
For all his coolness, for all his sophistication and acclaim, Romanov made one decision that bordered on bizarre. He lived in Brighton Beach, hardly the choice of a capital-markets rock star. He eschewed the glitter of SoHo and the vogue of the Upper West Side. No Greenwich country estate for him.
Romanov relished the spoils of Wall Street but preferred the murky dialects and exotic cuisine from his old neighborhood. He traded porterhouse steaks for
vatrushki
, a kind of cheese pie. He adored
salo
, pure pork lard sliced and heaped on slabs of grainy bread. What were days without borscht and shooters? He drank Stolichnaya and regarded other vodkas as third-rate swill.
The Mad Russian also favored Brighton Beach for its views. They belonged more to Eastern Europe than American neighborhoods, especially one so near Springsteen’s backyard. Seventy-year-old men, loose white bellies flopping over Speedos, performed leg squats while hoisting medicine balls. Slavic women, glossy red fingernails, gold lamé tops, all heels and attitude, strutted the boardwalks. The look, loosely translated, said,
You can
lick the Lappi cheese off our toes
. Alex loved Little Odessa, relished the sights and smells of a community at peace with its quirks.
Amid the
parikmakherskaya
, barbershops to the rest of America, Romanov gutted and renovated an old building overlooking the ocean. He spared no expense. He occupied all twenty thousand square feet, once apartments, and filled the space with relics from the days when Russia was Christian. He became a new-age czar and refused to join hedgies in their more opulent neighborhoods elsewhere.
The first few Web sites told a familiar story.
Forbes, Fortune
, and
Institutional Investors
extolled Romanov’s market savvy and meteoric rise from humble beginnings. I knew the legend.
Three pages into the Google hits, I learned something new. Romanov had purchased rights to
The Rocky Horror Picture Show
and planned to remake the movie. The article, posted on a celebrity gossip site, reported the Beastie Boys would dominate the cast. One of them would play Frank-N-Furter. Beyoncé was the inside favorite for the role of Janet Weis, though negotiations were still under way with her agent.
“Huh?” I muttered, and confirmed coffee was in my cup. I double-checked to make sure the article referred to the same Romanov.
The venture struck me as brilliant. How could the Mad Russian miss with this cult classic? How could he miss with hip favorites from the now generation? The venture struck me as moronic. No one could improve Tim Curry’s and Susan Sarandon’s work in the original
Rocky Horror Picture Show.
Talk about “style drift.” What did Romanov, the hedge fund manager maniacally obsessed with value, know about Hollywood? Had he told his investors? What made him think he could produce a movie? Away from the chaos and computer screens of Wall Street, finance people could bungle two-car funerals. Something smelled.
For a prolonged moment I stewed about yesterday’s meeting with Romanov. Instead of challenging him, instead of questioning investments like
The Rocky Horror Picture Show,
I had rolled over like a Michelin tire. He had been the one asking all the questions.
Not enough homework
.
I ordered more coffee. Another barrel. The surfing grew tedious, though, from too many unrelated hits. One plastic surgeon in Miami boasted, “I deserve an Oscar for my outies.” Exasperated, I switched to the Kelemen Group spreadsheet.
Forty-five minutes later everything became clear.
CHAPTER THIRTY-SEVEN
I’ll go out on a limb here and make a prediction.
CSI: Excel
will never become a television series. Spreadsheet forensics may arouse the number crunchers of Wall Street. Everywhere else our models trigger brain freezes.
Sure, finance jocks look inside cells. But we examine mathematical formulas, not the dietary content of stomachs. There’s none of the ugh factor found in forensic toxicology. Nothing to stir morbid fascination. Spreadsheets don’t tell whether victims ate chicken burritos for lunch. They just include equations and data, numbers and text. Excel will never disclose whether the pizzas came with anchovies.
Sure, we look for bugs. But not insects. We seek errors in logic: dividing by zero, adding rather than subtracting, and referencing the wrong cells. Sometimes, it takes hours to understand why formulas don’t work.
Forensic entomology, by contrast, rouses the macabre in all of us. I call it “better gore through arthropods.” The link between murder and insects, like using blowfly larvae to establish the time of death, draws television audiences who would find spreadsheets painfully tedious.
Sure, we use trace evidence. Excel includes a function that points at relationships between cells. Multicolored arrows literally highlight the links. The visuals are excellent. Still, we don’t have hair or soil with unusual
characteristics, no elements to touch or smell. Our world is digital. It takes time, patience, or both to sort through all the columns and rows.
Inside Starbucks a bucket of body parts could not have distracted me from Charlie’s spreadsheet. Now that Kurtz had summoned the lawyers, there was no telling how they would handle the forged letter. Their first duty was to protect SKC. They’d throw me under the bus and wave sayo-fucking-nara in less time than a
CSI
commercial break.
Spreadsheets have been my opiate ever since Harvard Business School. Back then I churned out the models, had one for every class, even Organizational Behavior, which covered soft issues like the importance of wearing thin ties in thin-tie cultures. At SKC I dissected analyst models late into the night and crunched numbers with my eyes closed.
At the moment, I drilled into “Investors.” It included five columns: “Name,” “Phone,” “Address,” “Amount Invested,” and “Market Value.” They resembled telephone directories, not the output from complex mathematical calculations.
Basic stuff.
Charlie had hidden additional columns as I suspected. Excel’s unhide command displayed two. One showed the date of each investor’s initial contribution. The other showed redemption dates, if applicable.
Too simple.
Contributions were fine. Funds generally accepted money on the last day of each month, easy enough to plug into a column. The redemptions bothered me. It took forever to get money back. To start the process most funds of funds required notice ninety days prior to quarter end. In practice, notice periods often stretched out five or six months. Instructions on January 15, for example, did not meet the ninety-day requirement for March 31 redemptions. Instead, they triggered a series of payments based on June 30.
Hotel California
.
Acting on a “June 30” notice, a fund of funds would alert its hedge funds. The hedgies then calculated their redemption values as well as their fees. They remitted net proceeds back to the fund of funds, which in turn calculated its fees. Toward the end of July, the fund of funds would remit 90 percent
of the balance due. Industry standard. The investor, who first gave notice on January 15, still did not have all his money.
“You can check out . . . But you can never leave.”
The fund of funds would release the 10 percent holdback when audited results were complete—April of the following year. This way the fund could adjust its fee calculations in case the hedgies made changes. Fourteen months had elapsed since the investor first gave notice on January 15 of the previous year.
Redemptions were a process, not a onetime event. Charlie could have entered the initial notice, return of the 90 percent, or the final payment. Clearly, he had not entered quarter ends. March 31, June 30, September 30, and December 31 were nowhere to be seen. The simplicity of the column bothered me. The model did not reflect reality.
I love this shit.
Betty Masters invested $250,000 in February of last year. Her dollar amount appeared in cell C24, and the confirmation made me feel good. It reminded me, however, that I had made little progress since last Saturday. I clicked the cursor onto the $250,000 and discovered the most curious thing. The cell contained a formula, not raw data.
Why did Charlie calculate a number he knew?
I clicked the software tool to trace precedents. This function used arrows to point out other cells that played a role in the equation. To my surprise, one blue arrow pointed to Betty’s cell. It started on a cell showing an initial investment of $1.25 million. I did not recognize the name of the investor.
A second blue arrow pointed from Betty’s investment to a cell showing $1.5 million. The money belonged to Susan Thorpe, a woman from Charlie’s posse, a woman I knew reasonably well. Her $1.5 million was in the redemption column.
Betty had funded on February 28. So had the other investor. February 28 made sense. Funds often used windows to regulate cash flows, accepting new money only on the last days of calendar months or quarters. This mechanism allowed them to calculate redemptions and retain cash, even if the actual payments occurred months later.
The liquidity was valuable. Forced sales could distress prices. Or they could produce ill-timed exits. No fund wanted to sell Yahoo! a few days before Microsoft offered a 62 percent premium to buy the company.
Susan Thorpe had redeemed her money on March 5. I wondered if the incoming cash from Betty and the other investor had funded Susan’s redemption. Everybody won, Susan, Betty, the other guy, and Charlie. There was no need for the Kelemen Group to liquidate underlying investments. Everybody was happy.
Everybody except me. I was agitated. Charlie had calculated Betty’s investment. It made no sense to use a calculation. Charlie knew she had $250,000. He saw her brokerage statements. She confided in him. They talked about Fred. Charlie studied the boy’s needs and signed on as a surrogate guardian. He probably consulted Betty about her taxes. They were too close for Betty’s investment to become a calculation. Charlie knew. He just knew.
Susan Thorpe.
A member of the posse, she doubled as a “trace precedent” on Charlie’s spreadsheet. What was her link to Betty and the other investor? Susan had redeemed her investment, and I wondered why. Performance had been excellent. She made $500,000 with the Kelemen Group, a 50 percent return.
Nice.
For a long while I pondered the equation. Betty’s $250,000. Susan’s $1.5 million. The other guy’s $1.25 million. Starbucks’s tables had already turned over twice. A trendy New York couple with a stroller eyed my table covetously. I gestured for them to come over. The baby burped.
In that instant a terrible feeling gurgled through my own stomach. I hoped it was coffee. But I recognized the sick thud of comprehension. I cleared the table, packed up my laptop, and headed outside to call Susan Thorpe. It was clear Charlie had been raising capital—Betty’s money—to make payments. There was no other explanation for the calculation. That’s not what troubled me.
The numbers were too neat. Nobody earned an even $500,000 from hedge funds. There were always a few shekels in one direction or another, like $497,631.04 or $523,781.93. There was only one explanation.
Charlie cooked the books.
CHAPTER THIRTY-EIGHT
Susan Thorpe was a sixty-seven-year-old widow. She lost her husband, the chief executive of a pet superstore chain, ten years earlier after he drank too much at a grand opening in Australia. As Duncan Thorpe barfed into the bathroom bowl of his hotel, a deadly venomous Sydney funnel-web (
Atrax robustus
) waged war on his throat. He passed out, as much from the tequila shots as from the spider’s toxicity. A maid found his body the following day.
The years had been kind to Susan. She looked marvelous at sixty-seven. Her shock of gray hair reminded me of a flannel suit, one soft from time and warm no matter how inclement the conditions. Her greenish eyes sparkled. Her skin showed not a day over fifty-five. Except for the hair, Susan stopped aging when
Atrax robustus
sank its lethal fangs into Duncan’s throat.
It surprised me she had not remarried. Though Susan still turned heads, she avoided older widowers at Charlie’s soirees. Their yachting stories, distilled through martinis and repetition, bored her no end. She parried all advances and found security in the cache of surrounding women. Duncan was her only love.
Enveloped by Manhattan’s street noise, I spoke loudly into my cell phone.
From years of smiling and dialing, I understood the importance of warming up an audience before broaching controversial topics. “Grove O’Rourke here.”