Jeremy had never been a smart individual. If it hadn’t been for friends helping him and doing his homework, he would have never gotten through college. He had a long list of friends from college who were now successful and his only real asset was his contact list. Combined with his expense account it turned up very valuable information. His boss, Lenny, was a cheap bastard when it came to things like paychecks and bonuses, but he never batted an eye when you turned in a $300 receipt for drinks and dinner if on the back you listed a stock symbol you were researching. He knew information was more valuable than money and that you had to spend money to get information.
It had been quite a morning at “Group Lenny.” That wasn’t the official company name, of course, but it was how he and his friends referred to it. In truth, Jeremy had to look at his business card to remember the company name. Lenny had the reputation, not his company. The reputation Lenny had earned was that he accepted investments only from people with tens of millions to toss around and he generally averaged returns in the 100 to 400 percent range. As a result, Lenny didn’t advertise and didn’t let anyone in the media know anything about his company. They weren’t even listed on the company roster for the office building. People with tens of millions to invest were smart enough to keep their mouths shut. The last thing Lenny needed was a bunch of reporters or SEC investigators running around trying to figure out how he achieved those returns.
There was no real magic. Quite simply, Lenny, and everyone working for him, broke the law. They used every contact they had to obtain information two to three days early. Nobody at this group would use information obtained only one day in advance. Trading one day before big news about some company tended to be investigated by the SEC. If you had a three day window, you could spread out your trades and leak the news via channels once you had your position in the market. This type of thing was done all of the time. Nobody ever seemed to question how financial reporters broadcast a company’s news days before it was officially filed with the SEC. As long as you had a few reporters you could feed third-hand you could get away with it.
On this particular day Lenny had assigned his staff the task of finding out how First Global Bank was beating analyst estimates by so much. Jeremy assumed the news was already being leaked since the automated trading should have acquired their position by now. The number-crunching algorithms on the computer system flagged an unusual drop in IT expenses and some increased income from asset sales. There had been no news of First Global Bank selling any major assets, so this set Jeremy to searching the various online databases and making some phone calls.
Six phone calls into it he found someone who knew First Global Bank had sold their New York data center for a boatload of cash. Jeremy made some other small talk with the contact, then agreed to meet them for supper at a four-star restaurant they both liked.
A data center sale was not outside the realm of sanity, but it didn’t account for the staggering difference in earnings. First Global Bank had eaten a good number of bank chains in the past couple of years, so it made sense to consolidate data centers. Loss of the New York center struck Jeremy as odd since First Global had a brokerage division, which would mandate keeping your trading engine as close to the New York trading floor systems as possible. Milliseconds meant millions when filling market orders.
The Web searches now centered on commercial real-estate sites and related news sites. It turned out that First Global Bank had a lot of their data centers up for sale or had given up the leases on them. Could they possibly have completed merging all of the other bank chains onto their original system? Didn’t seem likely. There were a lot of countries involved and First Global had been only in North America and Canada prior to the acquisition spree.
When the hour approached 4:00 PM, Jeremy struck pay dirt. One of the skirts he used to do in college was now working at Big Four Consulting. After offering to meet her for supper the following evening at a four-star restaurant she really wanted to try and the possibility of a roll in the hay, she volunteered that Big Four Consulting had won a contract to offshore all of First Global Bank’s data centers. By the end of the project, the ten original sets of data centers would be down to one set located in the cheap labor market of India. Admittedly, First Global Bank had already consolidated down to four sets of data centers before Big Four Consulting got involved, but the project was quite large anyway. Jeremy thanked her and asked what time he should make the reservation tomorrow.
Exactly at 4:00 PM, Lenny called the analysts into their meeting. Lenny went around the room asking each analyst what he or she had learned. The other two simply regurgitated what the computer analysis had told them. Jeremy informed him he had to fly out tomorrow to repay the contact who had given him the information Lenny needed. First Global Bank was moving all of their data centers offshore. In about another year, they would have no computer systems in any country other than India. The nine sets of data centers they had were being sold or having their leases terminated. All of the hardware inside of them were being sold as well. They had outsourced all of their data center work to a partner of Big Four Consulting in India.
The other two analysts had graduated with 4.0 GPAs from good business schools. Jeremy had barely graduated from a state college. Yet here he was, once again bringing home the bacon.
“You can verify this?” Lenny asked.
“The New York data center just sold for a killer profit,” Jeremy responded as he handed Lenny the printout from the commercial real-estate Web site. “Two more are up for sale,” as he handed over two more screen prints. “It appears some were leased and now have leases listed as available.”
“At first I thought they had simply completed a consolidation project getting all of the other banking chains onto their original system, but it didn’t fit given all of the countries involved. Then when I found the person who knew the details, it all made sense. They never attempted a consolidation project. They simply got rid of all the machines and outsourced to the land of cheap labor and low rent. I doubt anyone’s banking records could ever be subpoenaed now given that the data centers are in another country.”
Lenny sat back and thought for a moment. “This is very interesting indeed. Does anybody else have this information yet?”
“I don’t think their shareholders even have it,” responded Jeremy. “Normally you don’t send out letters to shareholders when you are simply moving computer systems around.”
Lenny pondered awhile longer. “The board had to know. A project of this size would have had to get their approval and funding. I imagine their next step will be to use all Indian IT labor to do the consolidation project. Only one problem with this situation. Not one person depositing money in these banks knows the banks no longer control the access to the data systems.”
The three analysts looked at each other, then at Lenny. Finally Jeremy asked, “Does any depositor know if their bank controls access to the system it uses?”
“It is both assumed and required,” responded Lenny. “Your research said they were selling off all of their computers, but said nothing about buying new computers. This means the offshore data center is providing a turnkey service. The banks don’t own the computers they are now using, which means people who have not been vetted by the FBI, SEC, FDIC or whatever government agencies in this country perform the background checks. Each country has its own rules, but there are some common rules across most of the countries we do banking with. No convicted felons and nobody on a terrorist watch list can ever be employed at a bank or financial institution. When the data center isn’t in this country and the bank doesn’t own it, who is to say what type of people are hired and now have accounts with complete access to the system?”
At that moment, the reality of what Lenny was saying sank in for all three analysts. After the money was made over the next couple of weeks with the share price run-up, Lenny was going to start a very slow process of shorting the stock. Once he had achieved the kind of short position he wanted, this very story was going to leak. It would be timed to leak right about the time the offshoring project was past the point of no return.
Jeremy was told to book a convenient flight out tomorrow. No need to come into the office if he didn’t want to. He needed to find out which divisions of the bank already had 100 percent of their data center operations migrated offshore. “Focus on the U.S. Branches for now,” Lenny told him. “You also need to book a date with her for the day/evening after they complete migrating the last data center. I’m sure you can find a jacuzzi hotel suite in a nice restaurant to thank her properly.”
“Do you really think we can do a shred with just this?” Jeremy asked.
“How little you watch the news, Jeremy. In 2002 a former UBS Systems Admin planted malicious code that took down about 2,000 servers in their network. His arrest and trial have been appearing in the news over the past couple of weeks, but most articles are focusing on weeding out bad employees. Imagine a story surfacing about a global bank who didn’t bother to screen that type of employee at all? Once the federal agencies get wind of it there will be congressional hearings. We will not only shred the bank, but we will shred Big Four Consulting as well. Whether they know it or not, they’ve been a willing accomplice in a crime.”
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