Death Benefit

15.

STATISTICAL SOLUTIONS LLC CHELSEA, NEW YORK CITY MARCH 3, 2011, 9:17 A.M.

As was his habit, Edmund made sure he and Russell were fashionably late for their meeting at Statistical Solutions headquarters. They were greeted coolly by Henry Green and hustled directly into the same conference room as the previous day. The mood was somber, if not funereal. The room was occupied by a half-dozen people, including the slacker Tom dressed in a plaid shirt, wrinkled, low-riding Bermuda shorts, and flip-flops. Isabel was not to be seen. Two of the other people in the room-a young man and a woman-were dressed in a similar casual vein as Tom; two additional men who were a couple of years older wore dress shirts without jackets, pleated pants, and striped ties. Their haircuts were neat, conservative. The final man was dressed in a full dark suit and had an ostrich briefcase at his side.

Henry Green spoke first. In front of him were several copies of what looked like a bound report.

“Thank you, gentlemen, for coming in today. As I mentioned yesterday, Statistical Solutions LLC has decided to exercise its option to terminate its consultancy agreement with LifeDeals, Incorporated, as of close of business today, March third, 2011. In doing so, we are acting without prejudice, and we adhere to the articles of our initial agreement-”

“Yes, yes, blah, blah, blah,” Edmund said, interrupting Henry rudely. “We get it, Henry, you’re reading us the legal fine print so we think twice about suing you for incompetence. ‘If our information is useless, don’t blame us.’ Now, let’s play a game. Hands up, who in this room’s a lawyer? You?” Edmund asked, pointing quickly at Tom. Tom stared back at Edmund and didn’t flinch. “Don’t think so,” Edmund commented with a snicker. “How about you two?” Edmund gestured toward the two men dressed in shirts and ties. “Wrong again. Looks to me like a couple of accountants.”

“Mr. Mathews, I am trying to do this as painlessly and professionally as I can. Yes, I have asked our legal representation to join us, as you have so astutely observed-”

“He’s calling me Mr. Mathews now,” Edmund said, swinging around to address Russell. “He’s definitely been talking to his lawyers.”

“Okay, Edmund, that’s enough,” Russell mumbled. He was tired of making excuses for Edmund when he blew up in public like this. It was like traveling around town with a rebellious and obnoxious teenager.

In fact, Russell and Edmund had discussed whether they should bring their own lawyer to the meeting. Russell contended that if each side lawyered up, it was more than likely that the meeting would be aborted before it began. One lawyer would speak, the other would object, and LifeDeals and Statistical Solutions would be advised to leave the matter to their legal representation. What Russell had not anticipated was that Edmund saw red the moment he spotted Statistical Solutions’ legal counsel, who stood out from the others like a sore thumb. On edge from everything that was going on, Edmund took the man’s presence as a personal affront.

“If I may make a suggestion,” Russell said. “We came here this morning for the report that you promised. Let’s deal with the legal issues of our relationship after the fact.”

“Okay, Russell, thank you,” Henry said, glancing at Edmund, who appeared reasonably composed. Well, you won’t look so composed in five minutes, Henry thought. “We’ll proceed with our presentation. There’s a copy of our termination letter in the packets we’ll give you at the end of the meeting, as well as a completely nonprejudicial note from our legal department reiterating the reasonable scope of our services, which is what I was trying to do a few minutes ago. But I appreciate you’re eager to hear the results. I want to assure you that we had our best people working on this. Isabel Lee, whom you met and who is unable to join us today, put in a solid shift on this. So did Tom Graham, who graduated two years ago from MIT. . . .”

Edmund rolled his fists one over the other, like an umpire indicating for play to proceed. He wanted the facts, not the support behind the facts, and the longer it took getting the information implied that it wasn’t going to be to their liking.

“. . . and Paul, who had more than five years’ experience at the Department of Defense.” Edmund drummed his fingers on the desk.

“Okay. The work we did last night-all night, in fact-was to estimate how a shift to the right of the bell curves we previously created on the timing of the redemption of the life insurance policies LifeDeals holds would affect cash flow. We’ll have the formal report in a day or two but we can give you a preliminary one today. I have to say, we were surprised.”

Henry paused and took a sip from a glass of water.

“We were surprised how quickly even the slightest shift of the bell curves would affect the company’s financial situation. It would create a period of time in which the payment of premiums would need to be continued to maintain policy values with limited income. This effect is predicted because of the steepness of the bell curves’ slopes. As we know, once the policies start to be cashed out by LifeDeals, income can be expected to rise very rapidly, which is why we had strongly recommended that you maximize your purchase of life settlement policies in relation to capitalization. Everyone clear on this?”

Russell nodded vigorously. There was nothing new here.

“Okay, good. Next we looked at the life-span statistics of individuals lucky enough under current procurement and distribution protocols to get a new organ, be it a lung, a heart, a liver, a kidney, or a pancreas, depending on which degenerative disease is involved. We found that getting an organ alters these people’s life expectancies to a marked degree. Understand that we already factored in standard organ replacement rates in the preliminary data that we all approved, and it was at that time a small variable. But the new circumstances, the potential new circumstances, I should say, caused us to drill down into those statistics further and find different research that previously wasn’t relevant.”

Henry paused again to take a drink. Edmund was fit to burst.

“There are newer statistics which show how well new organs work for patients over a long period. The older figures implied that organ recipients still had the propensity, whatever it was, to affect the new organ and often adversely. But to a greater extent than we initially would have expected, new organs, or at least a large percentage of them, do very well over many years provided it’s a good match. Of course newer antirejection drugs have helped as well. In many or most cases, ten to fifteen years of life expectancy can be added to patients’ lives. In lay terms, it appears that you can put a new radiator in a beat-up car engine, and it doesn’t matter so much how you drive. The radiator’s going to hold up.

“We applied these newly developed statistics to the bell curves of LifeDeals’ policyholders and there’s no way around it-the implications are pretty catastrophic for cash flow if a percentage of policyholders get new organs. The higher the percentage, of course, the more catastrophic the effect.”

“What percentage?” Edmund barked.

“Well, the problem seems to be that the cash flow issue starts almost immediately with just a small shift to the right. Just a few percentage points.”

“What do you mean by ‘a few’? Five? Ten?”

“Er, five’s not good, ten would be, as I said, catastrophic.”

“So we’d need five to ten percent of diabetics to get a new pancreas,” said Edmund. “What are the chances of that happening?”

There was silence.

“These are not rich people. They won’t be able to afford it. It’s fucking pie in the sky.”

“Not necessarily,” Tom Graham said, speaking up for the first time, his voice surprisingly deep. “What you said about people not being able to afford it. Look at the statistics. There might well be thirty-five million people with diabetes in this country. It costs something like a hundred and fifty billion dollars a year to treat them. You think insurance companies won’t want to jump on this opportunity? How about state programs that have to carry the cost of these people for decades? Not to mention Medicare, Medicaid. Even far-right politicians are going to find a way around their qualms about stem cells because who won’t want to help get twenty, thirty million Americans healthy? It’s a magic bullet. If it works, it cures people. And once the organ is accepted, it costs nothing. Pancreas doesn’t work? We’ll grow you a new one and you’re welcome. People have been searching for decades for a way to reduce healthcare costs. Regenerative medicine is going to be the answer.”

This was worse than Edmund had dared think. He was a salesman; he knew that even if not every diabetic got a new pancreas, the idea of buying diabetics’ life insurance policies in a climate in which people could receive a new organ was suddenly looking very outdated, like investing in steam engines after the Model T Ford was produced.

“This is all laid out in the final report?” Russell asked.

“It will be,” Henry said. “It’s summarized in the report we’ll be giving you today.”

“Of course, this is all confidential.”

“Of course.”

“But it’s all dependent upon the date induced stem cell organs will be available,” Edmund said. “It’s not happening next week. At least I assume it isn’t. What is it-two years? Five years? Have you looked into that?”

“Perhaps Ginny here might speak a few words in that regard,” Henry said. Sitting next to Tom Graham, a tall woman with long black hair nodded to Henry. She shared Tom’s fashion sense and was wearing a T-shirt with a bright image of a robot on the front.

“I read the journals I could find online and tried to figure out some kind of timeline, but the articles in this arena aren’t very speculative. It’s a new technology so there are no statistics to predict such a big leap in something like regenerative medicine,” Ginny said.

Ginny proceeded to talk about the rapid developments already accomplished for stem cell maturation into specific cell lines by researchers around the world. “The next step would be to turn these cells into organs or organ-like apparatuses by a process called organogenesis. This work is going on in Russia, in China, in Germany, but it’s having the most success at Columbia University with Doctors Rothman and Yamamoto. Rumor has it that these two researchers have already formed whole organs, which have been transplanted back into the mice that donated the cells from which the organs were formed. Supposedly in the next month or so there’s going to be an article in Nature about it with all the supporting data. Apparently they have had such success that they’ve already requested clearance from the FDA to do it on a human. They’re waiting for FDA clearance for the next step,” said Ginny.

“And when might that happen?” asked Edmund.

“I did talk to one scientist friend last night,” Ginny said. “He told me no one knows, but the best guess is in the next couple of months.”

“As far as the business angle on this, the numbers strongly suggest that partial remedy would be provided in circumstances like this if the party holding the policies were to raise capital immediately as a hedge against this newly raised eventuality.” Henry was taking over in the hope of wrapping up the meeting. Edmund’s fuse was getting shorter by the minute, he could tell. Henry was now practically reading verbatim from a script.

“We already ran revenue models for you based on the idea of securitizing tranches of life insurance policies, and while it’s difficult to build into the models the prospect of degraded assets, in the final report there will be a recommendation that the securitization proceed immediately and that a significant portion of the funds obtained be set aside to satisfy premiums on those policies that will have to be carried longer than expected. As far as additional life settlements, it would make sense to buy only those life settlements involving individuals with clearly terminal illnesses like metastatic cancer . . . ALS . . . things like that.”

The list was a lot longer but Henry’s distaste had finally got the better of him.

Edmund thought that all this meeting had done was to confirm what Gloria Croft had told them less than twenty-four hours earlier. It figured: Gloria was one of the best analysts he ever had. And she knew about this before he did. Edmund was confounded by the fact that his great moneymaking scheme could be jeopardized by two geeks he’d never heard of.

“Let me ask you a question,” he growled at Ginny. “You find this research and you find a scientist to call in the evening who says the FDA is going to green-light this project that could revolutionize medicine or whatever. So why am I not reading about this in The New York Times?”

“Because researchers and their universities have become much more sophisticated about patent issues. There used to be a rush to print because they yearned for the notoriety, but they’re much smarter now. There are fortunes to be made in biotech, and this area of organogenesis might be the biggest yet. It will probably overshadow every other technological milestone in the history of medicine. Believe me, when the Rothman work hits Nature, it’s going to be all over The New York Times, The Wall Street Journal, and every other media outlet.”

Edmund and Russell rode the elevator in silence. It was the same car that Edmund had assaulted the day before. He’d taken a prescription painkiller from his cache, so he was feeling only a dull throb in his left hand. He looked closely and thought he could make out a slight indentation in the metal elevator door. The trouble was he felt like doing it again.

Only when they reached the street, away from any prying ears, did they speak.

“What do you think?” Russell said.

“I think we paid those idiots too much money. And we will sue them.”

They met their car in front of the building and got in. Edmund thought for a moment. His mind was racing.

“Okay, here’s what we’re gonna do. Today. No more diabetics, obviously. Tell the sales force, even if they’re hooked on the line, even if they’re in the boat and you have the billy club in your hand, put ’em back in the water. Any contracts in the works-cancel. Checks being cut-cancel.

“Have someone go back and look at contracts of people who have diabetes and something else. We like the something else now. Get the lawyer to draft a letter in his best incomprehensible legalese to say we’re no longer interested in diabetes and send it to these people. Scrub those people out of the stats. They never had diabetes. And we need new policies. Target smokers. I know they’re the worst because none of them thinks they’re going to get sick and when they do, they die too fast. Find out if we can target smokers or ex-smokers with policies who’ve missed a couple payments. They’re all lying anyway. And offer them twenty-five percent-”

“But the model-” said Russell.

“Fuck the model!” roared Edmund. “Don’t you understand? As of today, there is no model. We don’t have a business if this shit goes down, never mind a model. Jesus. These are Band-Aids I’m talking about and we’ve got a head wound.”

“Potentially,” Russell said.

“Right, yes, there’s a chance this research may not get anywhere. But still, we’re up to our necks in this either way. Gloria Croft is already shorting us, and she won’t be shy talking about it. We have to do something. It’s not like we can sell our stock and walk away.”

“Perhaps we should go and see Jerry Trotter,” Russell said, after an awkward pause.

“Yeah, I was thinking the same thing,” said Edmund.

Dr. Jerred L. Trotter, an old friend of both Russell and Edmund, ran a very successful hedge fund. Trotter was a man who enjoyed outthinking people, which meant he wasn’t above a certain amount of sharp practice if he was confident he could get away with it. There were so many areas where the regulatory authorities were lax, or there just weren’t any regulations. It was by using Trotter’s good offices, and through a number of disguises of Trotter’s creation, that Edmund had purchased credit default swaps on his own company while continuing to sell subprime bonds to his corporate clients. It was just the kind of caper that Trotter relished. Especially when his cut was so generous.

Edmund had sounded Trotter out very early in the planning stage of LifeDeals. He sent Russell over on what looked like a fact-finding mission. Did Jerry think a model like this might work? Did Jerry think these were good assets to spin off bonds from? Did Jerry think enough investors would want to buy such a product? Russell never mentioned that they were seeking investors.

Three days later, Jerry had called, practically biting Edmund’s arm off over the phone. He’d run the numbers, and he wanted in. Edmund, after pretending to think about it, pretended to reluctantly allow Jerry to invest $25 million of his own money and more of his fund’s. Trotter would definitely want to hear about these new market conditions. He wouldn’t be pleased, to put it mildly, but he was always a man of action and he’d think of something.

The driver had been awaiting instructions as the two men sat in the back of the car. Now Edmund gave the driver an address, and they set off.