Jeremy had logged into the company email system when he got back on Sunday to schedule a meeting with Lenny and the other two analysts. Because he knew better than to include any details, he simply put “Analysis Review” as the subject for the meeting. He did not put any other information in the request.
Normally Jeremy would have included only Lenny and simply would have walked into Lenny’s office first thing Monday morning. The other two analysts knew that Lenny had offered up the expense account to get this information and that Jeremy was the one to bring it in. Jeremy had taken quite a few digs from the business school twins about his generic state school degree. They weren’t necessarily bad guys; they simply thought they were better than Jeremy. He wanted them to know the kind of weekend he had on the company dime and that he alone pulled in this information. Their prestigious schools had accounted for nothing on this one.
Promptly at 9:30 AM, Jeremy walked into the conference room. Lenny was already there and the other two were getting coffee from the kitchenette. When they walked in he told them to close the door. While Lenny trusted the receptionist, he didn’t trust luck enough to believe nobody would walk in the front door.
Lenny looked at Jeremy and said, “You have something more than additional information on the data center moves, don’t you?”
“I had to promise a future weekend at Salish Lodge and some jewelry to get it,” Jeremy responded.
Lenny nodded.
“Pytho Corporation is working on a be-all-and-end-all banking software package. The client they are targeting is First Global Bank. Already it handles the U.S. And Canadian banking regulations. They have brought in a rash of auditors from multiple auditing firms to both spec and test the banking regulations of each target country. French regulations are in QA now and the other countries First Global Bank does business with won’t be far behind. Here is the product information.” Jeremy placed the Cds on the table then continued. “It looks like the big chunk of their sales pitch will be ‘turn the knob’ functionality. If the bank wants to get into another line of business, they can simply ‘turn the knobs’ of the software package and it will be ready to go.”
Lenny hung his head, shaking it from side to side. “P.T. Barnum was right. There is a sucker born every minute.”
Jeremy continued, “What the sale is hanging on, is the bank’s own auditors giving the blessing that French banking regulations have all been met. Once that happens, it doesn’t matter if they even deliver the other countries.”
The other two analysts looked at Jeremy as though he had just grown a third eye. One of them said, “Isn’t the entire pitch based on getting a global view of the bank on one screen?”
“That was the initial pitch and one the MBA is having orgasms over, but it isn’t the important issue. First Global Bank has twice the IT workers and more than three times the cost operating in France due to the taxes and lax work ethic in the country. Simply eliminating all of the French IT workers will pay for the entire project the first year.”
Lenny piped up, “You can bet Pytho Corporation is wining and dining the auditors doing the certification right now. They will be hurling twenty-something sex toys into hotel rooms with them and leasing cars in scores just to get the auditors to say they passed. First Global just had to go through the manually intensive process of consolidating financial information from all divisions to put out their quarterly reports. Even if the auditors come back saying they think Pytho is a month away from completing France, the sale will go through.”
Finally, one of the prestigious school boys piped up. “What good is this information to us? Do you think Pytho stock will jump enough to make it worth our while?”
Lenny looked at Jeremy and could see he understood. “Tell them what you have figured out and I will fill in the pieces. You are becoming a natural at this.”
“It means that the final data center moves won’t happen. The bank will begin converting the locations serviced by the current data center locations onto this software once it is installed in the offshore data center. One to six months after each business entity is running on this new software, all but one or two IT workers will be let go and the on-shore data centers will be sold along with the machines in them. Within the year, they should have migrated all business units to this new software, discarding all other machines and all other IT workers. Have either of you checked on the FDIC insurance requirements for data center workers?”
Both looked at each other then responded, “No.” “Full background checks from government agencies are required for anyone with control or significant access to electronic systems handling funds insured by the FDIC. Just how much background checking do you think has happened for the offshore workers since the bank doesn’t own the data center?” Lenny was sitting there nodding. “You have a big part of it, but you missed the best part.” “You mean the part about this being a DOT-zero software release, so the odds of it actually working are remote?” “That’s a piece of it.”
“What’s the other part?” asked Jeremy.
“Turn the knob,” responded Lenny.
Everyone looked at him and finally he went on. “The biggest marketing fraud to be committed by software vendors to date is claiming ‘turn the knob’ software configuration capabilities. This product will be a spin-off or a module of their existing product which already does complete order, inventory, warehousing, credit, manufacturing, and whatever else.”
Lenny continued, “Assume for a minute that each knob has only ten positions. How many knobs do you need before the permutation of possible configurations exceeds any testing capabilities? It isn’t long before you have to have an automated regression testing product which runs for one month solid, throwing no errors, just to get a change out the door. The simple truth behind ‘turn the knob’ marketing is the software you are running is predominantly untested. Oh, there will be a small subset of tests run, but it will be left to the users in the field to find the problems. There are human interventions and workarounds when problems crop up in order processing or inventory management. No great losses occur and few crimes are committed. With banking software, severe problems could happen for years without anybody being able to track them down. Just look how long those traders losing billions on options and derivatives were able to hide their losses.”
“What Jeremy has given us is the timeline for our shred. Yes, we can now play Pytho stock because the product won’t be announced until after it has been installed and the French IT staff eliminated or at least greatly reduced. It will allow us to do a slow accumulation prior to the run-up. Their quarterly numbers weren’t as good as expected so the stock is currently declining. Nobody will look twice at our accumulation thinking we are simply buying in a dip. They didn’t offer any meat with their guidance, so others aren’t buying. Once they have moved all U.S. And Canadian operations off to this new software platform, we can begin our shred of First Global Bank and Big Four Consulting, but we would be wise to wait until after Pytho has made their announcement and we have cashed in there as well. We can then do a triple shred.”
“You did well, Jeremy. If you think you can get even more information out of this lady, feel free to get the jewelry at Tiffany’s instead of Helzberg. We may very well clear a billion dollars next quarter.”
The two prestigious business school boys simply sat there with mouths open. They had just been spanked big time and both of them knew they would never find a play like the one Jeremy had just found. They also knew the only reason Lenny would limit his play to a billion dollars was fear of an SEC investigation.
Lenny had advised each of them, and even the secretary, to set up bank accounts in countries that didn’t have extradition treaties with the U.S. He advised them to have most, if not all, of their annual bonuses sent to these accounts in case there was ever a problem. He had allowed each of them to invest some of their paycheck in the funds Lenny was running. There were a handful of funds outside of the company where Group Lenny provided buy, sell, and sell-short recommendations. Each of them had put some money into those funds as well. The analysts running them had learned to take Lenny’s advice. Many years, it was only Lenny’s trades which made money for the fund. Until this moment they hadn’t understood just how risky their jobs were.
Finally, one of the business school boys came back to the room mentally. He tried to speak, then realized he needed to close his mouth first. After that he asked, “Which of the outside funds are we going to allow to play along with this?”
“I have not yet decided,” Lenny responded. “This will be a high-risk play. Too much movement too soon will demand an SEC investigation. Most of the funds we advise have greedy dumbasses running them. Given the returns I’ve gotten for them before, they will jump in with both feet rather than be patient. There are perhaps two which could participate early in such a play, but it is too early to let them know.”
Lenny hit a few keys on his notebook computer, then said, “First Global is up twelve dollars per share over its price before the announcement.” He pointed at the other two analysts and said, “You two need to verify we’ve liquidated our position. Report back to me as soon as we no longer hold any position in the company. I will start the next step when I feel it will go unnoticed.”
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