Born to Steal: When the Mafia Hit Wall Street (21 page)

The shorts cut the prices and destroyed the rips—and that sank Hanover, and even brought down the firm that had cleared trades
for Hanover. Adler Coleman was the name, and like Brod it was owned by respectable people and was a member of the New York
Stock Exchange.

In late February, Hanover was shut by the NASD because its capital had been depleted by Roy’s face-off with the shorts, and
Adler Coleman filed for bankruptcy. As the shorts came in for the kill, the press finally began to show a little interest
in Hanover, mainly because of Adler Coleman’s failure. And also because of other things. Oddities. Dorfman complained to
Business Week
that he had received death threats, as did a
New York Post
reporter who interviewed some Hanover people at a local bar. But generally, the press portrayed Hanover as a victim of the
shorts. Lowell Schatzer was quoted as saying the firm was a victim of a “bear raid.”

Not a word appeared in the press at the time—except for those death threats—even hinting that Hanover was anything but a legit
firm that had been torpedoed by the shorts. That story went swiftly into the press clips and databases and became the commonly
accepted explanation for the biggest chop house collapse of the era. One reason was that the bankruptcy court trustee for
Adler Coleman, Edwin Mishkin, publicly blamed the shorts. In a statement to the press in March 1995, Mishkin said, “Based
upon his preliminary investigation to date, [Mishkin] believes that questionable short-selling in these securities [the Hanover
chop stocks] led to the demise of Hanover Sterling.”

The “Hanover victim” canard became an instant part of the folklore of Wall Street, a major chunk of the little that appeared
in the press about chop houses in 1995. The press swallowed that bullshit so readily that Louis wasn’t surprised when nobody
noticed that he put A. T Brod out of business.

It happened just a month after Hanover collapsed. For the first time since he came to Wall Street two and a half years before,
Louis was experiencing something vaguely resembling failure. It was not a pleasant sensation.

He experienced that feeling for the first time in his life in the office of Jay Taneja. Louis was owed “commission” money—that
is, money from the rips. Jay wasn’t paying. He had reasons. Good reasons. He explained them. Louis wasn’t listening. He sat
there quietly while Jay Taneja was talking. He sat and heard the words and looked at him, and what he was thinking would have
made Jay Taneja turn pale. He was thinking, I will put you out of business. Louis sat there and thought and decided, that
very moment in Jay Taneja’s office, to put down A. T. Brod, to flush it down the toilet as if it were a hamster that had started
to smell. He had built A. T. Brod and now he could take it down. He took it down.

It was March of 1995. Spring. Fuck spring. Nothing was going right. Louis was owed money. Period. He didn’t want to hear excuses.
Jay Taneja was giving him excuses.

It was a market thing, pretty much the same thing that had happened to Hanover—only this time there was nothing in the papers.
Kemper Securities was holding on to Brod’s money, including their commissions, including Taneja’s own money. Louis didn’t
know, and if he knew, he wouldn’t have cared. He wanted his money.

“We were supposed to get paid a lot of money for the gross that we did the month before. We were supposed to be paid three
hundred grand. Jay Taneja calls us into the office. He says, ‘I can’t pay you the money unless you clean the inventory.’ There
was too much stock in inventory. People were selling stock outside the firm, and he kept buying it. It was actually shorts,
though we didn’t know that. They were selling stock.

“He ran out of his own trading money, so he decided to use the money that was in the commission account, to cover the buys.
He should have come to us and said, ‘Listen, guys, I got stock hitting the desk. I need to either go down [in price] or give
me some buys. ’Cause I can’t afford it no more. I’m running out of money.’ Instead he took it upon himself to use our commission
money.” Now all the stock was in inventory and he wanted it cleaned out. “So when he told me and Benny that, I was thinking
like, ‘What, are you kidding? You can’t pay me now, and you want me to clean up your inventory to get paid?’”

Louis did what he had to do. No problem, he told Jay Taneja. Louis went back to his office and closed the door. He then wrote
up buy orders for his customers—phony orders he knew they would quickly cancel: “wooden tickets.”

“We handed them in to trading and the inventory was cleaned out,” said Louis. “The next day we got paid a hundred and twenty
grand from the commissions we were owed. The day after that the trades were canceled. He was fucked. The next day the firm
went out of business. Fuck him. It served him right. I didn’t give a fuck. I had plenty of places to go. We had plenty of
money. We could be out of work for six months and it wouldn’t matter.

“It was chaotic. It was ridiculous what was going on. People were freaking the fuck out. One of Marco’s cold-callers had one
of Jay’s guys by the throat. Because they wouldn’t pay. That’s the worst thing you can do to a broker. A guy works all month
to get paid. He scams, robs, steals. You got to pay. What’s the sense of robbing and stealing and defrauding people if you’re
not going to be paid for it?”

It was all over. Brod was history. Louis was at the office when it happened, and he reacted by piling his things on his chair.
It had wheels, which was good.

“Benny said, ‘That’s it?’

“I said, ‘What are we going to do, stay here, wait until the rent runs out? I’m going home. I’m taking a break. Who cares?’

“He says, ‘You don’t care, Louie?’

“I said, ‘I don’t care, Ben. I just don’t fucking care.’ I didn’t give a fuck about the firm. I just cared that I lost money.
But I just shrugged it off and said, ‘Ehh, what are you going to do? Came easy, goes easy.’

“I wheeled my big leather chair, with my two client books, my Play Station, I wheeled it out on the street. I walked along
West Street up toward the World Trade Center. I waited for the cars to go, crossed the street, took it into my building, went
upstairs, and put it in my spare bedroom. And that was it. I started calling clients from home. I said, ‘Yeah, I’m leaving
the firm. It went out of business. The bums. I’ll send you out a transfer form.’”

In the end, it was the regulators who, technically, put Brod out of its misery. All those wooden tickets had kept share prices
rising for a day or so, but then they collapsed when the trades were canceled. The firm’s capital had now fallen below NYSE
and SEC levels. The NYSE performed the coup de grÂce on March 28, when it stopped the firm from trading.

For the second time in little more than a month, a brokerage firm had gone out of business because its stocks suddenly weren’t
worth anything. What did it mean? The significance simply didn’t reach too far into the psyches of either the press or the
regulators.

The wire services ran brief items that were mainly picked up in Ohio and especially in Cleveland, where Jay Taneja was portrayed
as a local businessman who had tried hard and run into a string of bad luck. “Though its 85-year-old chairman and founder
Albert T Brod begged for its life, the A. T Brod & Co. stock brokerage was put to death last week,”
Crain’s Cleveland Business
reported on April 3. “According to Mr. Taneja, A. T Brod was killed by short-sellers, its own poor management and a ‘ruthless’
executive at Kemper Securities Group in Chicago,” said
Crain’s
. The story went on to say that Jay had met with Kemper on March 29, a day after the NYSE pulled the plug. Kemper had called
the meeting, the newspaper said, because Brod owed it nearly $7 million for stock bought by Kemper on Brod’s behalf. That
was all the stock Louis and Benny were supposed to have unloaded, in return for their commissions.

J
AY
T
ANEJA
: “I took a big loss. Four, five million dollars. I was not from the Wall Street. I did not know. I got into it by mistake.
People took a lot of advantage. It was a nightmare for me. I did not know anybody. If you ask me, was I running the business,
I say no. I didn’t have any knowledge. I went through a complete New York Stock Exchange inquiry, and they did not find a
single thing on me. Why? Because they called me, ‘You are so dumb. Everybody thought you would have made a lot of money.’
And I lost a lot of money because I did not know the business.
^*

“I did not [hold back commission money]. I got money released from Kemper by putting my money, personal money, as a collateral,
to get that money released. All that money was released. They were claiming more money on the wooden tickets. . . . The problem
was money was not owed to them. But I got money released.

“I started a book myself.
Wall Street Mafia
. I wrote three chapters, and I withdraw myself. Because it was so scary.”

Louis kept his word when he said he was going to take it easy. Brod had been a grind. The constant stress was no good. It
was great money, but it was beginning to seem that the more money he made, the more it meant trouble. He and Benny relaxed
for a month or so, and started to give some thought to their next move. In the Wall Street of mid-1995 there were plenty of
opportunities for two ambitious young brokers who had a proven track record of success.

The brokers were everything. The firms were nothing. That was the lesson of A. T Brod. But Louis also saw that, powerful as
brokers were, they could still be fucked. When Jay Taneja said he wasn’t going to pay them their commissions, there wasn’t
anything Louis and Benny could do to get the money. It was a problem. It added to the stress of the situation.

Overall, the good of the system outweighed the bad—the stress, and the occasional snippets of crummy press. Stories about
hard-driving stockbrokers were beginning to creep into the papers. But the thousands of tattooed, shaved-headed, Armani-clad,
unregistered kids rarely got any kind of attention from anybody. That’s how well the system was working, with all its flaws.
The regulators were still wonderful in 1995. They could cause problems but they didn’t, because they didn’t get it.

By the mid 1990s the NASD was under competent leadership, run by an ambitious former brokerage exec and government official
named Frank Zarb. Another veteran Wall Street guy was in charge at the SEC—Arthur Levitt, a publicity-conscious former chairman
of the American Stock Exchange. These were good, solid guys. Not that it meant anything. When it came to the chop houses,
nothing much had changed since the days when Massood Gilani was being told to mind his own business.

At Brod, the NASD would do periodic examinations. The accountants would come by in their polyester suits and go through trade
tickets and try to see if there were any red flags—while they were right in the bullring and the red flag was being waved
in their faces, and they didn’t see it because they weren’t looking for it. It didn’t matter if they cared about their jobs,
as Gilani did when he blew the whistle on Hanover, or if they didn’t give a shit. They didn’t understand how the firms worked,
or how the brokers made money. They were looking for regular commissions, not rips concealed as trading profits, so they never
found them. It was as if they were doctors looking in the throat to find out if some guy had hemorrhoids.

It was a splendid ignorance, and it was not confined to the regulators. Sometimes the managements of large, well-established
brokerages had no idea what was going on under their noses. They were not ashamed of it. On the contrary, ignorance was sometimes
embraced—so long as it did not cross over into the legally troublesome area of “failure to supervise.”

Louis read the
Wall Street Journal
every day now, at least the front page. He read about how a guy named Joseph Jett was able to convince a whole bunch of people
at Kidder Peabody that he was the greatest bond trader in the history of mankind. He used complex strategies. They were so
complex that nobody understood them. Eventually the SEC charged that Jett had been playing games with the accounting system
and using his employers’ ignorance against them. Jett denied the charges. No, he said, his bosses weren’t ignorant. They knew
what he was doing. Yes, Kidder Peabody said, its management was ignorant. But not criminally or civilly-liable ignorant. Only
Jett was truly guilty, they said.

Were the Kidder people criminals or just stupid? It was a question being seriously debated at the time. It was a close question.

Louis had no opinion on that issue. He thought most people were stupid. He also thought Wall Street was crooked. In fact,
he held that opinion so firmly that he decided the time had come. He was going to get himself a license and become a genuine,
bona fide stockbroker.

Louis decided to become Louis—officially. He had been Benny long enough. With a brokerage license, he would be able to call
people on the phone and say that he was Louis Pasciuto.

It had to happen eventually—even if Benny wasn’t pretty damn sick and tired of Louis using his name. Getting a license was
okay with Louis. After all, here he was—twenty-one years old, a veteran of three major chop houses. He had run crews of cold-callers
at two of the firms and was raking in over $100,000 a month. He had clients in show business and the world of sports. He had
personally driven one of his three employers out of business. He had done all of this without being a licensed broker.

Louis filed the paperwork to take the test for the NASD broker license, the Series 7, about a month after leaving Brod. By
that time, he and Benny had started work at a little firm with an office in the World Trade Center. Its name was Sovereign
Equity Management.

Louis took the Series 7 when he was at Hanover. He had better things to do with his time than study, so he got 40 percent.
Louis figured that if he really applied himself he could definitely ace the test. Only one problem: He still had better things
to do with his time then memorizing a lot of bullshit sales-practice rules that everybody knew were a crock. It was a dilemma,
but easily solvable.