submitted by Clay Tompkins, email@example.com
Of the ten stocks in which Ben Orthwein made markets, his most lucrative was Silicon Technologies. Manufacturing the memory for nearly every PC maker, it figured as the first derivative of the boom in personal computing. ST never failed to make the “Most Active” list and it had made Ben Orthwein a rich man.
As part of its complex capital structure, Silicon Technologies had issued a number of preferreds that were traded actively. Convertible into common stock, these preferreds made a profitable cottage industry for the 7 brokers who stood in Orthwein’s crowd day in-day out arbitraging the spread between the two securities. Ben, in private, referred to these brokers as “The Parables” as each seemed to demonstrate every feature of the human morality tale. Pride, avarice, despair, sloth, gluttony, lust and wrath were all on daily display in this small knot of brokers.
Curtis Van Valkenburgh, one of this band of arbitrageurs, had joined the exchange years before! thanks to the money his uncle, the cartoonist Peter Arno (born Curtis Arnoux Peters, Jr.), had left him. Like his uncle, he ran hot and risk-taking was his nature. Unlike every other broker on the floor, his badge did not show his initials. Instead, his badge read “AON”, which his fellow brokers knew stood for “All or Nothing”. They despised his preening self absorption, but feared his temper and and cutting tongue.
Like Richard Whitney before him, Curtis’s vanity was his weakness and his need to be lionized in the general mind prompted him to give generously to certain high profile charities. Sitting on a dais, honored by an audience of “the unwashed”, as he thought of them, gave Curtis the greatest satisfaction. A call from the Bronx Botanical Gardens to host an upcoming gala with a gift of $500,000 was hungrily accepted. In Van Valkenburgh’s mind, this would establish his place in the world with finality, even if it meant stretching his means to the maximum. In fact, this act of “generosity” would set in motion Van Valkenburgh’s expulsion from the exchange and teach young Schuyler thatchers “honor” held a place well above “glory”.
In the months after Curtis has agreed to support the Bronx Botanical Garden gala, Orthwein begins to notice a change in the broker. Where he had been acerbic and cocky, Van Valkenburgh now seemed furtive and reserved. Breaking the shoes of his fellow brokers in the crowd was replaced by what seemed constant anxiety and a remarkable string of what Curtis called “errors”. Orthwein watched this behavior with increasing concern, as he was an acute observer of human nature, and all of these changes promised no good end.
These “errors” Curtis had committed, repeatedly changing the “give up” on the orders (“give up” means the name of the clearing house, i.e. Merrill Lynch, that will clear the trade) irritated the others in the crowd and they began to understand that Curtis was front running his orders. When the market went against his buys he conveniently let the client have the trade, changing the “give up” after the fact, and kept the winners for his personal account. It seemed to Van Valkenburgh to be an easy way to pay for the Botanical gala, but he had not counted on the enmity he’d built up among the other brokers in the crowd.
In the Silicon crowd, Curtis reserved a special distain for “Fud” Simons. Short, rotund and covered with dandruff and bits of whatever meal he last eaten, “Fud” seemed dull-witted but was, in fact, the most cunning of “The Parables”. Having suffered years of verbal abuse from Van Valkenburgh, he now saw in himself the agency to force Van Valkenburgh’s expulsion from the exchange.
“Fud”s brokerage operation shared Booth X in the Main Room with Neuberger,Berman and he’d gotten to know Orthwein’s grandson over the months. He’d formed an opinion that the boy could handle himself. He took Schuyler aside and laid out a plan that “Fud” felt would not only raise Schuyler in his grandfather’s eye, but, more importantly, make his future in the Silicon crowd a comfortable one.
In the mid 90’s, hedge funds were still young and their information at times was “enhanced”. “Fud” had many of these accounts and they provided insights that he’d played to good use. It was what one of the funds told him about Silicon, that allowed “Fud” to play his hand against Curtis.
Van Valkenburgh had for years controlled the corporate buyback order for Silicon Technologies. For more than a decade, the company had been reducing its shares outstanding. It wasn’t a particularly difficult order for Curtis to fill daily, but it came with conditions, such that his buying couldn’t begin until 9:35 a.m. and had to end at 3:40 so as not to influence the opening or closing prices.
Weeks before, “Fud” had received a call from one of his “better informed” hedge accounts who told him that on Monday, September 25th Silicon would announce at 3:50 in the afternoon the firing of their CEO for embezzlement.
On the afternoon of that Monday, “Fud” is joking with the other brokers in the crowd when young Schuyler comes running up to him with an order at 3:45. “Mr. Simons, there was no one else to bring this, so they told me to get this to you immediately” and he hands “Fud” an order to buy 2 million shares “Held” ( meaning it had to be filled by the close) of Silicon with the “give up”, BSC, or Bear Stearns. It was well known that foreign accounts, unencumbered by insider trading rules, used Bear Stearns as their clearing house of choice.
“Fud” goes into a coughing fit, seemingly overcome by the responsibility, and is led out of the crowd and seated on another specialist’s jump seat to recover. Curtis, having seen the ticket, realizes that his ship has come in and starts buying everything he can during the next five minutes, 500,000 shares, sure that he can dump them to “Fud” when he returns to the crowd.
At 3:50, the news about the CEO’s embezzlement is released and a Governor of the Exchange rushes in to halt trading. Curtis turns white and turns to the other brokers to change the “give up” on his purchases and then, freezes, realizing that his company order has expired at 3:40.
“Ben, Mr. Orthwein, could you join me in the luncheon club? There is a problem…..