The Icarus Prediction: Betting it all has its price (9 page)

“And?” prompted Jarrod.

“One tranche was guaranteed by Wilton House.”

Jarrod felt a lump in his throat as he began to uncover the logical chain of unfortunate events. “Oh, no. You mean you…?”

“Yes.”

“Was this before…?”

“Yes.”

Jarrod fell back in his chair and gaped at the ceiling as the whole picture came into focus for him.
“Ohhhhhhh shhhhhiiiiittttt.”

Blackenford mumbled, “I even had Skadden Arps review the instrument on the tranches. They said it was ironclad. Wilton House was on the hook for certain bonds.”

“That’s so comforting now,” observed Jarrod. “Wilton House.”

During the financial meltdown of 2008 when the world found out a tiny cabal of bankers had been able to mortgage a planet’s future with something arcane called financial derivatives, a media gadfly named Ostimet Wilton, who was a half-Turkish, half-British, wore thick horn-rimmed glasses, and spoke with a contrived accent, was all over the networks and cable channels lambasting AIG as criminally irresponsible. Waving his trademark foot-long cigar, he would hold court on CNBC or Fox Business News and pontificate that his insurance company Wilton House was actuarially sound, that every potential loss was covered. And if he’d been running AIG, the whole debacle would have been avoided.

The media couldn’t get enough of Ostimet Wilton. He testified before Congress, published a book, and was even on a short list for a major treasury post when his firm filed for bankruptcy. It turned out Ostimet Wilton was selling the same CDO policy to multiple beneficiaries and salting the money away in an offshore account. He was last seen reportedly in Uruguay.

Jarrod said, “So you mean you bought into these Dubai Concourse CDOs because Wilton House was on the hook for the obligation?”

Blackenford nodded and said in a repentant voice, “They were trading twenty cents on the dollar, but the Street hadn’t picked up on the Wilton House fine print. Marlin Kain was excited and we could reap a 300 percent windfall inside of sixty days.”

“But to make sure I’ve got the timeline right, you acquired the tranche of CDOs before the revelations of Wilton House came to light?”

The older man nodded, keeping his gaze on the floor.

“So you bought in on a long position on the CDOs at twenty cents on the dollar, but then Ostimet Wilton became a fugitive, Wilton House revealed itself to be a house of cards, and the CDOs went to zero.”

Another nod from Blackenford.

“Was this a personal investment or for the firm?”

“Firm,” he replied in a whisper.

“And how much did you commit?”

Silence from the general partner. Not good.

“William, I said how much?”

A tremor seemed to go through Blackenford’s corpulent body as he mumbled something inaudible.

“Say again, William?”

He looked at the younger man with a ghostly pallor in his eyes as he said, “Eight hundred and fifty million dollars.”

Jarrod leaned forward and grasped the overhand of the desk. His head swirled as his breath and respiration spiked. When he was sure he would not pass out, he stood and walked aimlessly through the room, rubbing the back of his neck, sweating and freezing at the same time. Finally, he wound up back at the same place and stood behind his chair, holding onto it for balance. After the shock wave and his brain finally reconnected, he couldn’t help but blurt out, “
Eight hundred and fifty million!
William, the firm doesn’t have that kind of capital! Where did you get the money?”

“Borrowed,” he said simply.

Jarrod rolled his eyes. “Who on earth went for that deal?”

“Euclid Bank. A six-month installment note.”

“And so that’s why you sold the
Valkyrie
? And haven’t paid the rent? There’s a payment due?”

Another nod.

“How much?”

Being interrogated was not something William Blackenford cared for. Based on William’s scowl combined frequent glances towards the door, it was clear he wanted to exit the conversation. “One hundred and fifty million. It’s the second payment. Due next Tuesday. The first one nearly wiped us out. If it hadn’t been for the
Valkyrie
sale and your performance this month, I couldn’t make the second payment. But after next Tuesday the well is dry. That is it, there is nothing more to discuss”

Jarrod did the math in his pounding head, and it didn’t square. “William, I’m not done. The firm’s unlevered capital is about $150 million. How did you get Euclid to float an $850 million loan?”

“I…I pledged the firm’s capital and my personal assets”

Jarrod knew William had the lodge in Gstaad, the Park Avenue apartment, the Hampton’s estate, thoroughbreds, art, and so forth.

Even then, the math didn’t square.

“William, after draining the firm’s capital account and hocking your personal assets, and the cash from the energy play, that’s maybe 350 million. Where did the other 500 million come from?”

No answer, and the silence that followed was deafening as Jarrod realized his boss, mentor, and surrogate father had gone and done the unthinkable. Stryker’s knees buckled and he fell back into the chair. Wide-eyed, he asked, “William…did you pledge the client discretionary accounts?”

The trace of a nod.

Blackenford Capital had about $2.3 billion under management. A billion-three of that was in client-directed accounts, which meant any buy-sell trading couldn’t be done without the client’s OK.

The other billion was in Blackenford’s hedge fund in the form of “discretionary accounts.” That is to say, a pension fund might invest $10 million in the discretionary fund, and under the terms of management, Blackenford could do anything he wanted to with the money in pursuit of higher returns. The firm’s equity trading, commodity trading, special situations, and Jarrod’s energy trading divisions were largely discretionary accounts. Blackenford could invest the discretionary funds in pork belly futures, a Russian diamond mine, real estate in Australia, or pledge them in any way he saw fit. The rub being that if the returns were not there, or—worse—loss of capital, Blackenford’s reputation would be smeared and the remaining capital would flee to other management firms.

A $500 million hickey would wipe out half the discretionary accounts, and while it fell within the power of the general partner to pledge those funds, that kind of loss would ruin the firm, and anyone who had fingerprints on Blackenford Capital would be lucky to get a job as a drive-through bank teller.

Jarrod held on to the edge of the desk as he came to grips with the enormity of the cataclysm.

“Let me make sure I understand,” he said evenly. “Next Tuesday you make another 150 million as payment, and that wipes out all the firm’s cash?”

A nod from William in reply, his eyes still on the floor.

“Then it’s thirty days to the next $150 million payment, and at that point, we’ll have to start invading the discretionary accounts?”

Another nod.

“And other than my energy trades, there is nothing in the immediate term to staunch the bleeding?”

Blackenford shook his head.

The hot and cold flashes returned, followed by a feeling of overwhelming bewilderment. He stared at Blackenford and asked, “William, why would you do such a thing? Why take such a massive risk? The firm was doing fine. You dodged the 2008 financial meltdown. What could you possibly want that you don’t already have?”

Blackenford looked up with tears welling in his eyes, and replied softly, “I wanted to be a ten.”

“A ten?” Jarrod was incredulous. A billion dollars in a year. “Being a nine isn’t enough? Why on earth risk everything for more money than you could ever spend, even if you achieved it?”

At that, a glimmer of the old Blackenford surfaced, and when he spoke, there was trace of venom in his voice. “You,” he said. “You came from nothing. An air force brat. You’re self-made. But me? I inherited the Blackenford dynasty. Grandson of an admiral, son of a Federal Reserve board member. No matter what I achieved, people always murmured behind my back, ‘He did it with Daddy’s money.’”

Jarrod rolled his eyes. “I had no idea inherited wealth was such a cross to bear.”

Blackenford’s face flared with crimson. “It didn’t use to be. When I was your age, being from old money was something to be envied. But then this hedge fund stuff mushroomed, and a bunch of geeks displaced us. Nebbish nerds from nowhere became the new dynasties. Old family names were passé. You know who is on the board of the Bridgemount now? One of them was an assistant statistics professor at Iowa State. Somebody out of a cornfield! Now he’s the head quant at a hedge fund and a ten. He gets rock star treatment when he walks into the place. I’m lucky to get a decent table in the dining room now, and I was chairman of the board! But if I was a ten, all that would change.”

Stryker couldn’t believe he was hearing what he was hearing. “Well, I guess what you’re saying is that whether it’s the sandbox on the playground or a yacht club, it all comes down to who has the biggest cock in the room.”

Blackenford waved a hand in dismissal. “You don’t understand. You
couldn’t
understand.”

“I guess not. But tell me this, before the firm goes down a rat hole, how did you, Mr. Due Diligence, not see through Ostimet Wilton and his house of cards?”

“You think I didn’t look? I checked all the regulatory filings. And they had audited financial statements from a Big Four firm.”

Jarrod impulsively swatted a stack of books off William’s desk and sent them flying about the room. “
Audited financials don’t mean squat, William!
Enron had audited financials! Madoff had audited financials! They’re nothing more than expensive toilet paper. Managements and their auditors can cook the numbers any way they want. You’ve preached that to me a dozen times. You always taught us to go behind the numbers—talk to suppliers, customers, bankers. Find out what’s really going on. You think my energy play came from reading the Bloomberg terminal? I got my hands dirty. Why didn’t you do that here?”

Blackenford stood silent and then let out a big sigh. “Jarrod, It is worse than you think, I’m sorry. It is my fault. Unfortunately your hands are dirty as well because of me, you are going to be dragged through this mess as well. You unknowingly signed off on our internal audit reports that outlined this deal with Wilton House”

Jarrod was frozen with both fear and anger as he recounted signing off on the 1900 page report just a few months earlier.

“William, that report was huge and you knew god damn well I wouldn’t have been able to decompose this Wilton House mess before I signed it! I trusted you. How could you do this to me? To the firm?”

Blackenford didn’t answer. He only stared at the floor in silence. But Jarrod knew the answer. The general partner didn’t look behind the numbers or worry about the risks because he wanted to believe he’d found the golden goose, or the unicorn, or whatever the hell he was looking for. Peering too deeply might have spoiled the view, so he averted his gaze—and $850 million vanished in smoke.

Not knowing what else to do, Jarrod simply walked out the door, knowing no matter where he went, the coming implosion would cremate his career and dreams.

William would be the primary villain once the news got out, but the senior staff, Jarrod included would also certainly be sued. Probably even prosecuted as part of chaos that would undoubtedly ensue.

Yes, William had been right at the very beginning.

It was over.

The driver of the antique Skoda truck bounced around on the rickety springs of the cab as it clambered along the washboard dirt road. The rugged mountains of the Caucasus Range had given way to the flat, never-ending vista of the Russian steppe, and even in the moonlight, it seemed to go on forever.

Elbruk Matsil was on the lower rung of the Chechen separatist organization known as
Riyadus-Salikhin
, and he had a reputation for being a trustworthy and loyal soldier. It was a reputation he had cultivated for several years with the cash that had been thrown his way by his American case officer.

Born in North Ossetia to a Georgian father and Chechen mother, Elbruk’s loyalties had always been fluid by necessity. Today’s friend was often tomorrow’s enemy, and he had found money to be the most trustworthy ally of all. So—for today at least—the Americans enjoyed first claim on his loyalty. He’d been living in the hills outside of Grozny with one of the surviving splinter groups that was still struggling for the independence of what was left of the bombed shell of Chechnya. Out of the blue, he was told by his commandant that he was going back to Georgia to pick up a package. He would transport that package through Georgia, Kabardino-Balkaria, and then into Russia itself. Elbruk was chosen because he could pass for a native in all three jurisdictions, and when he asked what he would be transporting, the reply was “machine parts.”

As he got off the train in Tbilisi, he first went to a city park, and near a playground, he stuck a thumbtack on a specific dead tree as a signal to his case officer that he was in town. The case officer, however, had not appeared the next night at the appointed rendezvous point; Elbruk wondered if his loyalties were still employed. He found an Internet café, logged on, and saw his monthly retainer was still being deposited in his bank account. So he remained loyal. There could be a dozen reasons the case officer missed the meeting.

He had to press on and take the load north for the long drive from Tbilisi. Now, under the moonlight, he looked at his GPS and figured the farmhouse should be nearby. Sure enough, a flashlight was waving in the distance as he approached. He turned off the road and followed the light into a large barn. The doors closed behind him, and he killed the engine. In the low light, he found himself surrounded by a half dozen men, two of whom held submachine guns. He was becoming nervous as he extinguished the lights and gingerly stepped out of the cab.

No one said anything until a light flared in the shadow. Elbruk saw the match flame illuminate a bearded face with a brown fedora perched above it. Then it faded, leaving only the ember of the cigarette in the darkness.

“Were you stopped?” the voice from the darkness asked.

“Nyet,” replied Elbruk cautiously. “Only at the border. And the ingots gained me safe passage.”

The figure moved forward into the light, his movements betraying a slight limp as he asked, casually, “Any left over?”

Elbruk’s shaking hand went into his jacket pocket and extracted a dark sock. He emptied out four small gold ingots—each one double what a border guard would make in a year.

The man in the fedora extended his hand, and Elbruk placed them gently on the outstretched palm. The fingers closed around the ingots, and the man said, “You are to be commended. A soldier without honor would have told me he had to use all the ingots.” He handed one back to Elbruk and said, “For your trouble.”

Elburk nodded with humility, declining to point out he had another one hidden in his shoe. Then he studied the face under the fedora, and his mouth went dry.

“B-B-Basayev?” he stammered. “Shamil Basayev?”

The man in the fedora cracked a wry smile, then nodded, saying, “Keep it a secret between us, my friend.”

“D-D-Da, Commander. Of course, of course. B-But how…?”

Basayev held up a hand. “All in due time, my friend. But now, let us see what you have brought us.”

The henchmen dropped the tailgate and pulled out an elongated wooden crate from the bed of the vehicle. It took four of them to carry it to a table, where one of the groups applied the ministrations of a crowbar and popped the wooden lid. Gently, they lifted the heavy metallic object out, cleared the table, and set it back down.

It was a dull gray metallic color and looked like something akin to a fire hydrant, only several times larger.

“What is it?” asked Elbruk to no one in particular.

He was ignored as Basayev motioned to one of his henchman and said, “Markov.”

Mitrofan Markov, a bookish-looking man wearing framed glasses stepped forward to put a toolkit and a mechanic’s light on the table. He pulled out a Phillips-head screwdriver and unscrewed the fasteners holding a side panel in place. He then took the light and peered in, fiddling with the wiring. Then he took a tape measure and calibrated the length, circumference, and diameter of the object. Then he looked up at Basayev and said, “Perfect.”

At this, Basayev smiled and said to Elbruk, as he lit up a second cigarette, “Tell me, my friend, do you remember when the airliners crashed into the World Trade Center on September eleventh?”

Elbruk was surprised at the question but responded with, “Of course.”

“Do you know how long Osama planned the attacks?”

Befuddled, Elburk shook his head.

“Over five years,” Basayev said with admiration. “Osama told me himself when I visited him a few months before his murder at the hands of the American infidels.”

Elbruk’s jaw dropped.

“A tragedy. He was such a visionary. But to the point, five years of his meticulous planning unfolded in a few glorious minutes. Who could forget that incredible day?”

“No one,” replied Elbruk softly.

“Exactly!” thundered an ebullient Basayev. “No one could forget! But what made it possible was patience and planning. Meticulous planning. You see this?” He pointed at the fire hydrant. “This little device will create more havoc for our oppressors than 9/11 ever did. And it all came from years of meticulous planning.”

Elbruk looked at the fire hydrant with genuine curiosity. “What is it? A bomb?”

Basayev chuckled. “Nothing so crude as a simple bomb, my friend. I could throw a hundred suicide bombers at the oppressors tomorrow, but with little effect. You shall see, as the British say, in the fullness of time. Now get some sleep. You will be taking me back to Georgia tomorrow.”

Elbruk stared at a company logo imprinted on the inset of the bottom rim. It read DORTMÜNDFABRIK—HAMBURG. He had never heard of the firm.

*

The Bowery

New York City

Jarrod Stryker awoke on a bench beside a bus stop, totally discombobulated about where he was and how he got there. Groggily he looked at his watch and the hands read 3:37. Since it was pitch black, he figured out it was
am
, not
pm
. He pushed himself up, and a searing bolt of pain shot through his cranium. He was hovering in that netherworld of being drunk and hung over at the same time: both, yet neither.

Slowly he stood, holding onto the bench, and it vaguely came back to him. The Guilford Bar—a watering hole in the financial district where i-bankers and hedge fund managers went when they had the need to get seriously plowed, which in their line of work was often, if not daily. After that, Jarrod remembered nothing.

After a few deep breaths, Jarrod looked around and had no clue where he was. At least he had his overcoat on, given the chilly spring night.

A naked streetlight illuminated an intersection in some kind of industrial area. Old low-rise brick buildings lined the street, and Jarrod supposed they were warehouses of some kind.

He could have easily used his phone to launch Uber and get out of there , but he was too groggy to focus on the tiny screen. He shuffled off aimlessly in search of a cab.

He’d made it about two blocks with no sign of civilization, but then he came to the entrance of a down-market bar. He tried the door, but it was locked, closed for the night. He resumed his trek and had passed a second bar when a voice behind him said, “Got a light?”

Startled, he turned and saw a shadowy figure wearing a leather jacket, an earring, and a buzz cut.

“I said, you have light?”

“Afraid not. I don’t smoke.”

“Too bad. One of life’s leetle pleshures.”

Through the fog, Jarrod detected an Eastern European accent on the twenty-something voice as it said, “Nice watch.”

Jarrod turned to get away and was brought up short by a second leather-jacketed figure—a shorter and more wiry version than the first. The one blocking his path had a cigarette in his lips that bobbled as he said, “The watch. Now.”

Jarrod turned back to the bigger thug and saw his hand going inside his jacket.

It was a peculiar thing about agency training. You could be in an alcoholic haze, and it would still kick in automatically. He’d practiced it uncountable times at the Farm. “Never let them pull it out,” said the instructor. “Whether it’s a knife or a gun, you have a split second to turn the situation to your favor, so don’t hesitate. If you take time to think, you’re dead. So your reaction has to be so fast it’s instinctual.”

And that’s what happened.

In one fluid movement, Jarrod stepped forward, grabbed the mugger’s forearm, and shoved it deeper into the jacket, catching him off balance. Simultaneously, Stryker brought his right elbow back and launched it into the thug’s trachea with a sickening
crunch
.

“Get ’em off their feet,” was the second prime directive. He was unaware what the wiry one behind him was trying to pull, so he whirled around with his leg extended in a soccer-style kick. He got lucky and connected on the thug’s ankle, and the momentum dominoed into the other ankle, knocking the wiry one down like a ten pin. After hitting the concrete, the wiry one tried to rise again, but the toe of Jarrod’s Gucci loafer slammed into his nasal cartilage, and twin geysers of blood erupted from his nostrils.

As the big one was rolling on the ground and clutching his throat and the wiry one was screaming in some foreign tongue through a bloody face, Jarrod took off running.

Six blocks later, chest heaving, he stopped and leaned against a lamppost, thinking that was one helluva way to sober up. Adrenaline apparently purged the alcohol from his system, and he was amazed at the clarity of his mind.

As his breathing came under control, the path he had to follow to avert the looming disaster was laid out before him with pristine clarity, and why he hadn’t seen it before was a source of supreme bemusement to him.

Then—the heavens be praised—a cab came around the corner, and he hailed it.

There wasn’t a minute to lose.

*