“Bro,” he said. “E-mail is forever.” He explained that he had recently gone down to Washington to give testimony. He sat there across from the authorities struggling to give straight answers... that is, until they pulled out paper copies of his e-mails he thought had long been deleted. “It’s much harder to lie when they know the truth,” he said. The people I know working in finance today assume somebody is always watching. His firm was at the center of an investigation on charges related to giving kickbacks in the allocation of initial public offerings (IPOs). At the time, it was common for IPOs to skyrocket on the first day of trading. It was cash cow for big banks. And since Wall Street was a backscratching industry – I help you, you help me – and there didn’t seem to be anything wrong with a little quid pro quo. It’s how business was done during the Internet boom. There didn’t seem to be anything wrong with it – unless you admitted to it in print. In my friend’s case, the feds had proof that side deals were made – a very large allocation – in return for a promise of the client to buy more shares in the immediate aftermarket. The reason was to boost the share price, which would create the impression that the stock was hotter than it was. That would allow insiders to profit when they sold their shares.
“We’re probably going to get a slap on the wrist,” my friend said. “$100 million fine. But remember... E-mail is forever, bro.” I never forgot those words. Of course, sometimes not only do you not want a paper trail; sometimes you want a fake paper trail. Around the same time my friend warned me about e-mail, my former boss Raj Rajaratnam received inside information that had the potential to take down the entire market when it became public. If you’re into inside information, this is the best kind. Rajaratnam was the founder of the Galleon Group, and is currently serving an 11-year sentence for insider trading. After Raj analyzed the illegal information, our hedge fund was furiously liquidating every stock we owned, even though it was a raging bull market. I wasn’t sure why we were selling and then shorting everything. Then Raj stepped out of his office, cupped his left hand on the side of his mouth as if he’s about to whisper something, and yelled over to an analyst: “Send me an e-mail with some fundamental reasons to sell Nortel,” he said. “And make sure you put something in it about them canceling from the Robertson Stephens conference.” We sold every single stock we owned in a matter of hours. And then we went short those same stocks. Our portfolio went from 100% long to 100% short in the same trading day. At the time, I called it the billion-dollar flip. Two minutes after the closing bell that day, Nortel Networks reported a terrible earnings
28 March 2018
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