Nincompoopery Redefined

Rep. Chris Collins is in major hot water, according to a recently unsealed 10-count, 30-page indictment from the U.S. Attorney for the Southern District of New York. Allegedly, Collins, from an upstate New York district near Buffalo, tipped off his son to inside information before it was publicly disclosed about the failed drug trial of an Australian biotech company’s only drug with any prospects of success.

Ironically, or sadly, or pathetically or outrageously, or all of the aforementioned, Collins was at the time the largest shareholder and a board member of the company, Innate Immunotheraputics Limited. He was also on a subcommittee of the Energy and Commerce Committee that oversees the healthcare and drug industries and had been under investigation for months by the Congressional Ethics Office as a result of serving on the company's board and promoting its prospects. To make matters worse, he allegedly lied to the FBI about the whole thing.

Whew. If all this is true, Collins is about the biggest nincompoop in Washington. (Well, maybe the second biggest.) That’s a photo of Collins at left from his Facebook page, showing him at a recent constituent event holding a plate of fried dough. Fried dough is exactly what he’ll be if the U.S. Attorney has the goods on him. And it sounds like it does.

The indictment says that after Collins’ tip his son, Cameron, sold almost 1.4 million shares of Innate in 54 trades starting the next morning, avoiding some $570,000 of losses he otherwise would have incurred when the stock tanked over 92% the day the failed drug trial was announced. Cameron is also under indictment for passing on the insider info to his fiancé’s father, Stephen Zarsky, his fiancé and other of their relatives and friends, who also sold their stock and avoided close to $200,000 in losses.

All that is documented in the indictment by emails, texts, phone records and stock trading data. That includes the email Collins got from Innate’s CEO saying the drug failed the trial while Collins was on the South Lawn of the White House attending the annual Congressional Picnic. It includes Collins’ email back saying, “Wow. How are these results even possible???” It also includes records of Collins’ frantic seven phone calls to Cameron, in the last of which he finally got through to him. Also the substance of a phone call from Zarsky to one of his tippees, a longstanding friend in which he said Cameron intended to buy a house so he would have an ostensible excuse for the timing of his trades if he were ever asked about them (Cameron is also indicted for lying to the FBI). Ditto a press release Collins had his staff release, stating that Cameron sold his stock only after a halt on its trading had been lifted, and at “substantial financial loss.”

Collins & Son and Zarsky are all named in the indictment that alludes to six other unindicted co-conspirators (Zarsky’s wife, daughter, two brothers and that longstanding friend, and a friend of Cameron and his fiancé). I stress unindicted, because if the U.S. Attorney’s previous modus operandi—and that of any other methodical prosecutor—is any guide, it started at the bottom and got the six minnows to flip by squeezing them into ratting out the bigger fish.

One of my first novels, Bull Street, is about an insider trading ring, and I never would have put a character in it who behaved as idiotically as Collins is alleged to because nobody would believe it.

A few years ago I wrote a blog entitled You Can't Make This Stuff Up on the psychology of insider traders based on my experience on Wall Street. They seem to have no shame or no memory of previous convictions for the crime. The practice will go on forever.

And they’ll keep getting caught. The U.S. Attorney for the Southern district of New York has a winning record in getting convictions for insider trading. They’re the guys who sent Ivan Boesky, Marty Siegel, Dennis Levine and Mike Milken to jail in the 1980s. Preet Bharara, the previous U.S. Attorney for the Southern District of New York, won over 85 insider trading cases in a row at one point. They don’t go to a grand jury unless they’ve got the goods. Collins’ tip to his son occurred over a year ago, the FBI took until April of this year to interview Collins & Son and Zarsky, and the U.S. Attorney until now to indict them. They’re efficient, systematic and relentless. Usually when they surface, where there’s smoke there’s fire.

In the few days since his indictment, Collins has been kicked off the Energy and Commerce Committee and suspended his re-election campaign for his House seat in November. “Meritless,” is what Collins has called the charges. We’ll see. Unless Collins has redefined the word.

He may also have redefined the word “nincompoopery.”

You Can’t Make This Stuff Up

Preet Bharara, U.S. Attorney for the Southern District of New York, was on a roll until earlier this month.  He’d successfully prosecuted 85 insider trading cases, including sending Raj Rajaratnam, head of the Galleon Group of hedge funds, to jail for 11 years.  This month, Bharara lost against Rajaratnam’s younger brother, Rengan.  He lost in part because the judge threw out two insider trading counts, and along with them much of the evidence.  Commentators suggest that evidence would've caused jurors to convict Rengan if they had been allowed to hear it.

Still, think about it: 85 to 1.  That’s an amazing batting average.  It’s also startling that Bharara had 85 cases for which he was able to amass enough evidence that he could prosecute them.

I can remember back to a time when, as a young investment banker in the 1980s, I thought I'd seen everything with insider trading cases.  That was during the era when Rudy Giuliani had Bharara’s job as top Wall Street prosecutor.  It was the era when Ivan Boesky paid a $100 million fine and went to jail for trading on inside information.  When Dennis Levine got sent up the river for trading on inside information on his investment banking firm‘s deals, and for cutting his friends in on the action.  When Marty Siegel, who had tipped Boesky on his firm's deals—and took a (big) briefcase containing $700,000 in cash from Boesky for it one night—went to jail and lost everything in fines.  When Mike Milken paid a $600 million fine as part of a plea bargain on securities and tax violations.

In those days I was naïve enough to think that after that era’s firestorm of public outrage, fines and the perp walks that Giuliani invented—dragging traders out of their offices in handcuffs, or from their apartments at 6 a.m. to the sound of press cameras snapping away—that anybody with a brain would know the rewards for stepping over the line weren’t worth the penalties if you got caught.

It didn't take me long to get slapped awake to the fact that it's all part of human nature.  The combination of old-fashioned greed and thinking you're smarter than anybody else is a powerful cocktail that can induce entranced walks to the dark side.  People can’t help themselves.

I was still working on Wall Street when I started writing novels.  I relied on my experiences for most of my material, but I made up a lot of it.  In one of my early novels, Bull Street, I had the Feds use wiretaps to catch insider traders, a technique until then reserved for trying to snare Mafia dons.  Recently, wiretaps were an essential weapon in Bharara 's arsenal in bringing down Rajaratnam and his co-conspirators.  Also in Bull Street, I had the SEC use a sophisticated MarketWatch computer program, run on Cray supercomputers, to analyze an insider trading ring’s stock trades.  That’s the equivalent of a hand-held calculator compared to what the Feds are using today against insider trading activity.

In my current novel, Spin Move, John Rudiger is a fugitive financier living in Antigua, who was tricked out of $30 million by an ex-girlfriend, Katie Dolan.  As he's running out of money and the local officials are insisting on ever more exorbitant bribes to keep his alias intact, does he decide it's time to go straight?  Does he go back to the States and turn himself in, do his time?  Nope.  He's still hot for Katie, so it's natural he'd look for her, but that $30 million is also on his mind.  And when he finds out a conman has swindled her out of it, he uses all his skills to come up with an elaborate scam to get it back.  He can't help it.

In my recent novel, Mickey Outside, Mickey Steinberg is getting out of a cushy white-collar federal prison camp after a slap-on-the-wrist sentence because he turned state's evidence.  His short sentence notwithstanding, he's been stripped of his securities licenses, banned from Wall Street for life, divorced by his wife and he's broke.  Has he learned his lesson?  He hatches a scam with another ex-con to sell a near-perfect forgery of a stolen van Gogh masterpiece in the shadowy underground market for stolen art.  Human nature.

I'm not going to spoil Mickey Outside for you, but there's a point where Mickey has to decide if he stays on the other side of the line or goes straight.  What does he do?

Somebody who's read my earlier Rudiger Stories with my John Rudiger character, called a book to my attention entitled How to Become a Professional Con Artist.  It’s an eye-opener.  I knew that Three Card Monte wasn't invented on the streets of New York in the 1980s, but I had no idea that scams like the Pigeon Drop, Change Raising, the Lotto Scam, the Oak Tree Game, or the Double-Play had been around for centuries.

So I guess I'm never going to run out of material as long as human beings are greedy enough to cheat, and suckers are equally greedy enough to allow themselves to get duped by con artists.  You can’t make this stuff up; you don’t have to.