Bloodmoney

33

Thomas Perkins referred to the fraud investigation as “the witch hunt.” From the first morning when the Metropolitan Police arrived in Mayfair Place with warrants and summonses, the campaign was conducted as much by insinuation and whisper as by hard evidence that could be put before the prosecutors and magistrates. Across Mayfair, people seemed to know that Perkins’s firm was in trouble before they had any inkling why. A small crowd formed in Stratton Street behind the yellow tape in the first minutes after the fraud squad ascended the elevators. Where had they come from? How did they know?

When Perkins’s employees asked him what was wrong that first day, he answered that he didn’t understand what had triggered the raid. But that was not entirely honest. He had a good idea where this tangle began, but he could not speak about it to anyone who didn’t already know.

The police set up a desk that morning in the entrance lobby of the building on Mayfair Place, before you even got to the elevator. On the top floor, where Alphabet Capital had its offices, the investigators took over a suite to coordinate their work. There were representatives from the Serious Fraud Office, the Financial Services Authority and, for good measure, a Foreign Office representative who was, in fact, an officer from MI6. The police cordon had the useful effect of providing security, though Alphabet’s staff did not understand just how providential that was.

Perkins had been frantic the first day. He tried to contact the man he knew as Anthony Cronin. He called the cell phone number that Cronin had given him, and then another number to be used in emergencies only. On the cellular number, he received a message saying that the account was no longer in service. The emergency number rang and rang, but nobody ever answered. Perkins also sent emails to the account that Cronin had used, but they bounced back with an error message saying that it was a nonexistent address.

Sophie Marx’s call from Islamabad, a few hours after the police had raided the office, had only confused Perkins. He called her back twice the next day, but each time it rolled over to voicemail, and he didn’t leave a message. He didn’t want to make a nuisance of himself, so he waited through the first twenty-four hours trying to make sense of what was happening.

On the second day of the securities dragnet, Perkins decided to contact Felix Stern, the representative at Federation des Banques Suisses who handled his private, numbered accounts. These accounts had been created more than a year ago as “special-purpose vehicles” at the insistence of Mr. Cronin. They received a portion of the funds generated by Alphabet Capital from trades based on “the system,” as Cronin liked to call it, of intelligence tips that generated arbitrage opportunities. Under the agreed formula, 20 percent of the firm’s monthly capital gains would be skimmed into the Swiss special-purpose vehicle accounts, where they would be divvied up between Perkins and Cronin’s team.

Felix Stern had handled all the details. The profits had been split into two accounts: The first was controlled by Perkins and was his money, to do with as he liked. The second was to be used by Cronin and his operatives, such as Howard Egan. The split was 25 percent to Perkins’s account and 75 percent for Cronin and his network. That was an unequal division, but the flow of money was so substantial that until very recently Perkins had been entirely happy with the arrangement. His share of the proceeds was now approaching two billion dollars. Rather than manage it actively, the way he did with Alphabet’s proprietary accounts, he simply let it sit in fixed-income securities, accumulating interest. Even at the low prevailing rate of about 3 percent, the fund was spinning off nearly sixty million dollars of additional cash a year.

Perkins had made a practice over the past year of checking with Stern once a week. The FBS officer held the documentation for the account himself, in his drawer, as it were. Perkins had always assumed the banker was Cronin’s man, under some mysterious arrangement he did not need to know, and Stern had kept track of the sums well enough.

So Perkins, not sure now where else to turn, tried to contact this same Stern, the financial manager he had shared with the now-vanished Anthony Cronin. Rather than using one of his own phones, he borrowed a cell phone from his housekeeper at the townhouse on Ennismore Gardens. He dialed Stern’s number at the FBS office on Quai Gustave Ador in Geneva.

A secretary answered. She said that Mr. Stern was unavailable, but that his accounts were being handled by a colleague, Mr. Traub, and Perkins asked to be connected.

“This is Herr Traub,” said a very proper German-Swiss voice. Perkins identified himself and said he wanted to inquire about the status of his accounts with FBS. He read off the number of the principal account he had created, with Cronin’s help, and gave other identifying details.

“Is this Mr. Thomas Perkins?” asked the banker, wanting to make sure that he had it right.

“Yes, I just told you that, for Christ’s sake. Come on, Traub. I want to know the status of my account.”

“I must advise you that I am recording this call, Mr. Perkins.”

“I know, for ‘quality assurance purposes.’ Fine, very Swiss. Thank you.”

“Your account has been frozen by order of the Swiss Financial Market Supervisory Authority. I am sorry. The order was executed this morning. I am happy to tell you about the account, but you cannot touch the money, I am afraid.”

Perkins felt a chill. He put down the handset for a moment, then put it back to his ear.

“Why has my account been frozen? And how does anyone even know about it in the first place? This is a numbered private account. What the hell is going on?”

“That I cannot say, Mr. Perkins. You must ask the Swiss police or the FMSA. Maybe they can tell you, maybe not.”

“Where’s Mr. Stern? I want to talk with him. Felix Stern. He handles my account. Where is he?”

“I am sorry, but Felix Stern is no longer with the firm. I believe he has left the country. I have been instructed to handle all his business.”

“Left the country? What about the other Alphabet Capital account that Mr. Stern was handling? It was much larger than mine. It was opened last year by an American named Anthony Cronin. I was a cosignatory. What about that account? Is that frozen, too?”

“I am very sorry, Mr. Perkins, but I cannot help you there, either. Any other accounts handled by Mr. Stern must have been closed or liquidated. I do not have any record of them. Let me look here on the computer to make sure…No, I am sorry, there is no record of any other account. Just yours.”

“You mean the other money is gone?”

“Excuse me, please. I am not following you.”

“Holy shit,” said Perkins. “It’s all gone.”

“Could you repeat, sir? I did not understand.”

Perkins ended the call. He was frightened, and he did not know where to turn or what to do.

Perkins remained in his office overlooking Mayfair, as representatives of the various investigative agencies came to him with their requests for documents. Keeping him company was his lawyer from Washington, Vincent Tarullo, plus a British solicitor named Jacob Gormley, who knew UK securities law. After the first two days of the inquiry, they discovered that there was very little they could do to prevent the pillaging of their files. The authorities had warrants and orders for every piece of information they sought, and they seemed to know what they were looking for.

A pressing problem for Perkins was dealing with his lenders and investors. By now everyone in Mayfair knew that Alphabet Capital was in trouble. Within minutes after the first police raid and sequestration of records, Perkins’s own traders had been on the phone to their friends at other hedge funds and investment banks, asking if they knew what was going on. The rumors had spread in a viral chain. By the end of the first day, Alphabet Capital’s swap arrangements at other firms had been suspended, and the next morning its credit lines were frozen by the firm’s major lenders.

The credit squeeze wouldn’t have been a problem by itself. Perkins’s firm was well capitalized, thanks to its extraordinary profitability. But as word of its trouble spread, investors in the fund got nervous. There were calls all that second day from investors requesting redemptions, which was a polite term for pulling out their money. Alphabet Capital had a standard forty-five-day notification requirement, and many of its investors had signed one-year lockup agreements, which prevented them from withdrawing their money without severe penalties.

But the lockups and other precautions proved to be of little use. Late on the second day of the witch hunt, the Serious Fraud Office made a formal public announcement that it was conducting a criminal investigation of Alphabet Capital’s trading activities. Lawyers for several of Perkins’s largest investors were on the phone within minutes, saying that the lockup and notification agreements were nullified in the event of fraud. They wanted their money out.

Perkins instructed his managers to honor any valid redemption requests, and the firm massively sold off assets that second day, both fixed-income and equities. But it’s in the nature of things in the financial world that bad news breeds more of the same, and the firm’s distressed selling compounded its losses severely. By the third day, it had gone from the jewel of Mayfair to a firm that was perceived to be in a death spiral. No other major firm was prepared to act as a counter-party without a hefty risk premium, which accelerated the downward momentum.

Sophie Marx called Perkins back the second evening of his troubles. She was in Brussels then, with problems of her own, but she didn’t mention them.

“Talk to me, Tom,” she said. “What’s going on?”

“I’m fucked. I didn’t get out soon enough. Your friends have left me high and dry. They have pulled the plug on everything and disappeared. I am holding the bag. The British have their financial goons all over me. They’ve camped out here. It is a complete wipeout. Investors are running for the exit. So is anybody on my trading floor who can get another job. I don’t know if I can make it another month.”

There was a deadness in his voice that frightened her. In every other encounter with Perkins, he had been a resilient and buoyant personality. He had seemed to lead a charmed life. Now his voice carried the sound of exhaustion and despair.

“Hang on, Tom. These people aren’t my friends. I’ve quit. I’m trying to undo their screwups. I can help you. You just have to give me some time.”

“It’s too late. They’ve taken me down, Sophie. They have all the cards. I’m ruined.”

His words carried iron weights that were pulling him to the bottom. He was drowning.

“Stop it!” she said. “Stop feeling sorry for yourself. These people are professional manipulators, but they make mistakes. Trust me. Don’t give up.”

“I don’t ever want to hear those words again, ‘trust me.’ You fucked me, Sophie, you and your friends. You have destroyed my life. Now go away and let me pick up the pieces.”

“Listen to me. Get a grip. You’re worrying about the wrong thing. People from Pakistan have been inside Alphabet Capital. They know all your secret money flows. That’s why people have been getting killed. You have to be careful. There are more important things to worry about than getting busted.”

Perkins gave a long exhale, a sound of ruin and defeat.

“You have not been listening to me, my dear. The people inside Alphabet Capital who have been stealing its secrets are your people. They have looted me and left me for dead. I don’t want to hear any more of your crusader stuff. It’s all over. I’m finished. If someone shoots me or sets off a bomb at Alphabet Capital, they will be doing me a favor, frankly. So leave me alone, all of you.”

Perkins ended the call.

Sophie’s eyes filled with tears. What he had said was true; she had been part of a ruinous, deadly process. She cared what happened to Perkins, and she wished she could give him some of her strength.