The Ties That Bind
The Brit received his recall notice. He was going back to Pakistan to work with what was left of the team there. He didn’t want to go. He had even asked if he could work from here and just email the results or place them in a different directory on the server. This was England, and England was finally stirring.
His request was denied of course, so he put off going as long as he could. British officials were given the information uncovered at the interrogation camps, but they weren’t being told much about the source. Quite frankly they didn’t care. They had rounded up more suspects than they currently had the capacity to deal with. This meant a blind eye was being turned to who the Brit’s team was rounding up. They didn’t even want any records kept.
Amazingly, all of this was happening under the noses of every international journalist sent to cover the bombings. They followed the police around like good little lap dogs and the police gave them enough footage for the evening news. Those roundups were three to five people at a time. The Brit’s team was rounding up groups of ten and twenty at a time. They were pulling them in faster than the interrogation camp could get them processed into cells. Indeed, they were being told to slow down because the camp was running out of places to put them. They didn’t want to send them on until they were certain they had extracted all information. Besides, it took time to locate wealthy people in need of the organs which matched those they had. Of course the Brit’s team wasn’t told this part.
The real backlog wasn’t the prisoner processing — they were still considered prisoners at this point — it was the tech guys and gals trying to keep track of which machine had come from where when they began dissecting the confiscated computers and cell phones. More than once they had uncovered a critical piece of information identifying other members and not been able to determine whose machine or phone it had come from.
Part of the Brit didn’t care about the analysis, but his training told him to care. The best method of finding more to round up was to do the legwork. His primary frustration was the camp being sized so small. There were literally hundreds more they should be nabbing, but no room at the inn.
It was with some regret that the Brit packed his things and got ready to board a commercial flight to Pakistan. He stored the tools of his trade in the gun safe at the hotel and handed the owner a grand to keep it secure. In truth the owner would have done it for free, but this gave him the money to upgrade another room. The low-rent hotel crowd tended to destroy everything and he was sure they would be back once the Brit was gone.
He had heard from his team doing roundups that they were occurring in a lot of countries. It seemed more countries than England had come to the conclusion “due process” was something afforded only to the few you could handle in that manner. The rest were simply abducted and never heard from again. Some might call it evil, but it was a necessary evil.
America, Germany, and Russia were among the other countries where cell members were being rounded up. The same process was being used to hide it. The press was alerted to a “due process” roundup where they got some great news footage, but the more serious roundups happened while the media were busy looking somewhere else.
Lenny called Jeremy into his office to show him the position reports. He called the other two analysts in out of courtesy, but really only wanted to speak with Jeremy. The other two analysts weren’t bright enough to realize they knew enough they couldn’t be fired. They also weren’t bright enough to open their own trading accounts and follow any of Lenny’s plays. Jeremy was. Lenny didn’t have to ask: he was certain the boy had a small trading account where he was tossing around a few thousand dollars. He didn’t begrudge him making some on the side from the information making this company money. Well, he did at first, but this stream of information was coming through Jeremy, and Lenny considered any debt the kid owed him paid in full. He was quickly learning how to take over the business after Lenny died. Lenny would never retire of course. At least not as long as someone didn’t declare him mentally unstable and threaten to lock him away somewhere.
The position reports showed they owned over 9 percent of Pytho Corporation’s documented outstanding shares. Lenny wanted more, but the mutual funds he advised had gotten too greedy. Trying to erase some losses their own incompetence had cost their funds, they jumped in with both feet when Lenny told them Pytho had a new software product coming to market inside of a month with one major client already signed.
At least the fools had stopped asking how Lenny knew what Lenny knew. Most of them were smart enough to not ask who the client was this time as well. The problem before them now was keeping enough of a lid on this to avoid investigation and having their credit called in. Once again, Lenny had maxed out the credit limits for all of his paper shells and was now going to need cash to keep the operation going until Pytho made its announcement.
Most of the funds the other two analysts handled were indexed funds. The trades for those funds were almost completely automated. The only reason there was an analyst in charge of the fund was that the regulations required it. True, they could choose to override some of the system’s recommended purchases and positions, but neither of these guys had the brainpower for that kind of heavy lifting.
What they needed to do now was to liquidate some positions so they had the cash to handle day-to-day operations and acquire a slightly larger position in First Global Bank. Pytho had already been priced out of purchasing range. Lenny was busy laying all of this on the table for them when Jeremy piped up.
“Here’s a wild thought. Why don’t we sell off our Pytho position to below 3 percent of the company then use the money to buy First Global Bank?”
veryone looked at him.
“You just said Pytho was above the price we were willing to pay and still climbing thanks to the mutual fund buffoons. Let it climb for another day at its current pace and it should be cresting above our lowest targeted sell price. If I’m reading this report correctly, that is an eight dollars per share profit over what we paid on the first day. Dump those shares and see if it still keeps climbing. If it is still above an eight dollar profit for the next day’s purchases tomorrow, dump those shares. In the mean time, we will take a position in First Global Bank. Nobody knows about it. Its share price has settled back down after the boost from quarterly numbers. Rumors are already all over the place about Pytho’s new software product. It is only a matter of time before people find out it is banking software.”
“You don’t think we should trim some of the shares we hold in other companies?” asked Lenny.
“Oh, our other funds have some real dogs in them that have been losing money since the day we bought them. They should have been sold long ago, but selling them won’t give us the kind of play we are looking for. We can still go ahead and dump the losers we are holding, just set the parameters on the trading engine and let it trim the dead weight. That won’t give us the kind of cash we are looking for and it won’t stop us from paying short-term interest which we are doing right now.”
Lenny sat back in his chair and put his hands together in front of his mouth. He was obviously thinking this over. In truth, he was starting to think he was getting old. In his younger days he wouldn’t have remained focused on the first play and would have already implemented Jeremy’s suggestion. Perhaps he really was getting that old man disorder where they fixate on something which has little or nothing to do with the current situation. He had seen other old men get it and watched people start to marginalize them. Sadly it usually happened to an old man in charge of something so there were terrible business outcomes.
Turning one of the reports to himself he looked at the purchases for the first day. No doubt about it, the highest price they paid on the first day was a full eight dollars per share below the current trading price. Every account would have its note paid off and cash left over to do Jeremy’s play using just those shares. Jeremy’s play was the smart one.
Yes, it was possible Pytho would go up another eight dollars per share on the growing volume of rumors, but when First Global announced they were going to be able to trim nearly all of their IT staff and a boatload of internal accountants because of this software package, they were really going to pop. Lenny’s own rough estimate was they would save nearly $10 million per year. That kind of cash tended to fall straight through to the bottom line.
He could easily release his analysis to the mutual funds they consulted once a position had been acquired. The mutual fund managers would start inquiries at First Global Bank as to whether or not they were going to purchase this software. A new rumor mill would start stating that First Global could save $10 million per year by using this software. A mad rush to First Global would occur simply on the speculation they were the first customer — speculation which would prove to not be unfounded given the fact Lenny already knew it to be the case. In less than a week they would be up over twenty dollars per share.
Having a new software product is nice, but until you can report sales, you can’t get too big a boost in your share price. Most would assume the sale to First Global Bank paid the bulk of the development costs and the support contract would allow the product to continue for a few years. There were other banks in trouble who would be willing to purchase the software if they could get even half of the savings First Global got.
“We will do what you say, Jeremy,” Lenny finally said. “It’s a good play. I will handle the sales parameters for this. Why don’t you set up the trading parameters to weed the dogs out of our portfolio this afternoon? We can all meet tomorrow and discuss how much First Global to purchase.”
“I need all three of you to go digging through the banking corporations. There are a lot of them in trouble. We are looking for some that simply aren’t doing well but aren’t too far into the FDIC watch list.”
The business school boys looked at him as if he had just started speaking in a foreign language. Jeremy smiled. “Why not make a play of our own?” laughed Jeremy.
“Exactly!” said Lenny. “Only we want a bank with its data center in the U.S. And plans to keep it there. One with at least twenty developers on their IT staff. If they happen to have some branches in other countries that is fine. We want someone that can save enough money getting rid of their IT staff they’ll beg to get this software due to their financial position. The shred we do later on Pytho won’t ruin them. They didn’t choose the data center. A bank with its data centers in the U.S. Will allow it to step aside pointing a finger. Yes, their share price will drop some, but not horribly once the truth comes out about who offshored the data centers. First Global will lose its insurance, be under investigation, and a prime target for hostile take over. Who better to take them over than a bank already running their software? Simply transfer the data and the communication links on Sunday and start as a new company on Monday.”
The business school boys sat there shaking their heads. The Ivy League didn’t teach anyone to think like this. With the plan all laid out before them it was obvious it could work. Given the way these other two guys’ minds worked, the introduction could probably be made without anyone knowing “Group Lenny” was involved. Finally one of them piped up.
“You know we have a timeline problem here, don’t you?” “How so?” both Lenny and Jeremy said in unison.
“It will take months to get a new bank talked into closing the deal. First Global has already started the rollout in France if I’m understanding the situation correctly. We’ve got about six months to get a new bank on the software so they are comfortable with it when you drop the hammer on First Global.”
“We won’t drop the hammer on First Global until they actually offshore the U.S. Data centers,” responded Jeremy. “The clock doesn’t start until that happens. None of the other countries’ operations are explicitly governed by the FDIC; most have their own insurance bodies. It is possible one of those bodies will choose to drop the hammer on First Global before we do, but it will only be for operations in a single country. They could sell that business unit to get out from under the problem. You do bring up a point, though …” Jeremy drifted off.
“What point is that?” Lenny asked.
“We need them to find a U.S.-based bank for your play, then we need to find out what other insurance bodies are insuring the operations in other countries for First Global. One of them could have or be about to have a similar regulation about data centers staying in-country for security purposes. We need to find one other banking customer in each of those countries over the next couple of weeks. If this play works in the U.S. Why not another country as well? We could have one of our paper shells issue them a loan for the software if they need it.”
“Do you think we will have enough cash to play the whole board?” asked Lenny.
“We will know some time tomorrow morning after dumping the shares we want to be rid of this afternoon. Besides, we have to cover all of the bases. If some foreign agency nails First Global before we are ready to shred them, we still want to make money from it.”
“Good point,” Lenny responded after some thought. “It might be better if one of the foreign governments starts the shred anyway. The reporters will sniff around and find out there is an American regulation stating nearly the same thing. From there it will snowball.”
The Ivy League boys had really only thought about the situation as far as the other U.S. Bank not being far enough along to even accept the data from First Global when the opportunity came along. They were absolutely floored by the scenario which had just been spun out before them without any prep work.
Firms this size typically had a profit pool of $5 million to $10 million when it came time for profit sharing. Lenny’s usually had $20 million to $30 million. Nobody was paid squat for salary here. The bulk of the money in the profit-sharing plan usually went to Lenny, but they had both gotten bonus checks for around $300,000 last year. This year, if the plan played out, the firm would have about $500 million in the pool. They had already achieved a 400 percent return this year for their handful of investors.
It was the other Ivy League boy’s turn to pipe up now. “This is all well and good, but we need to control our traceable participation in this.”
“Getting squeamish?” Lenny asked.
“A few weeks ago you were here spouting we might have a billion-dollar year this year. I’ve got news for you: even with the dogs in our portfolios our last little play with First Global Bank had us bringing in nearly $800 million. One play! Not counting all of the other smaller plays we have done this year. The play we are talking about now, just the one where we buy Pytho stock and sell after the post-announcement run-up is going to pull in some $700 million to $800 million in itself. We still have the second play on First Global buying up before they announce the cost savings of this new software.”
Lenny nodded.
“I assume you are going to try and get your typical 20 to 40 percent position if you can do it with cash.”
Again Lenny nodded.
“You are estimating a fifteen to twenty dollars per share run-up in the price?”
“Correct.”
“Well sir, we will be pulling in over $2 billion on that play. Coupled with the other plays, we will probably get some SEC inquiries about how we managed to do nearly $5 billion in business with only $600 million in assets.”
The room got quiet for a while. Everybody wanted the money. Technically, what they were doing was illegal, but it wasn’t as if they robbed banks or sold drugs. They simply got information before other people got it. Martha Stewart managed to go to jail when the SEC was inquiring about just that topic. Nobody in this room wanted to go to jail.
Finally Lenny said, “In the morning we will see what our cash position is. Perhaps we will take only a legal percentage in First Global this time. Then again, maybe it is finally time to use that offshore investing company we set up. Issue it a loan and let it make all the rest of the purchases. We set it up for the day we actually got a big play like this.”
Jeremy sat there after the others left.
“You have something more on your mind?” Lenny inquired.
“Does your cousin in Russia have an online trading account?” Jeremy asked.
Lenny sat there and slowly got a wide smile. “The taxes would be less and I’m sure he would do it for a small fee. He is not in Russia anymore, though. Last time I heard from him he was in Germany. I can send him an email tonight and ask him to give me a call.”
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