“I had already checked this with Lester, and a first-class operations guy was worth one hundred fifty thousand dollars a year, he said. So I said to Mike, ‘How's ten percent of revenue up to half a million a year?’ And that was it. Mike was mine. Then I turned to Lester and said, ‘Call Jim Taormina and get him down here. I want to cut a deal with him before the day is out. What's standard for an OSJ?’
“Lester mumbled, ‘Well… uh—’
“‘Ten percent of revenue,’ snapped Mike, ‘plus a ten-dollar ticket charge, only on the buy side, though. Sell tickets are free. But the most important thing is that I don't want him holding our money. We get to sweep the trading account once a week. He can hold a small deposit, maybe twenty-five thousand; that's it.’
“I nodded. ‘All right,’ I said to Lester. ‘Call Jim, and tell him that I'll pay fifteen percent of revenue, but with a cap of thirty thousand dollars a month; that's the most he can make off me. After that, I keep everything. You think he'll go for that?’
“‘Uh, of course he will,’ mumbled Lester. ‘He's on the verge of bankruptcy. But he's, uh, sort of a low-energy guy, Jim. I'm concerned you might scare him off
“ ‘Don't worry,’ I said. ‘I know exactly how to speak to a guy like Jim. Just get him down here and I'll do the rest,’ and, of course, I was right. And Stratton got started just like that. Lester excused himself from the conference room, and Mike spent the next few hours giving me a crash course in the brokerage business. And when Jim finally showed up, he was a complete lay-down. I cut a deal with him in less than a minute.”
“And what about your SEC subpoena?” asked the Bastard.
I chuckled. “Yeah, well, that turned out to be the biggest joke of all. In fact, by the time they got around to deposing me, Stratton had already been in business for a year! And when they did actually sue Stratton, they never tried to use what happened at the Investors’ Center as a knockout punch.” I shrugged my shoulders. “But that's the SEC for you: The right hand never knows what the left hand is doing.”
After a few moments of silence, the Bastard asked, “How much longer did the Investors’ Center stay in business?”
“About five or six minutes,” I said casually. “In fact, after I left Lester's office, I swung by the Investors’ Center, which bore an odd resemblance to what I imagined the headquarters of the Third Reich looked like as the Russians were closing in on Berlin. There were papers everywhere, and brokers were running around carrying boxes, but that was nothing compared to the next week, when our paychecks bounced. Then brokers started tearing things off the walls.”
I shrugged. “Not surprisingly, the Blockhead turned out to be very adept at this sort of thing. First, he wheeled out an industrial-size Canon copier for our future brokerage firm, and then he used a crowbar to break into the office's safe and steal all the new-account forms. There were literally thousands of them, a veritable gold mine of people who'd shown a propensity to invest in penny stocks. It was those new-account forms that served as our first lead source, when we started cold-calling two weeks later. That was how long it took to get our space together.”
“What did you use in the meantime?” asked OCD.
“I used my friend's car dealership. It was just down the road from the Investors’ Center. I stayed there for about two weeks, until I found the right space, in the town of Lake Success, Long Island. It was just east of the Queens-Long Island border, and in spite of being small, the building was clean and upscale. With a bit of cramming, I figured we could fit twenty brokers in the boardroom. That would be perfect, I thought. With twenty brokers I could make a fortune.”
OCD, with a chuckle: “Twenty brokers?”
I nodded slowly. “Yeah; I guess I set my sights a bit low.”
“What was the breakdown of ownership?” asked the Bastard.
“Seventy-thirty,” I replied. “Seventy percent me, thirty percent Kenny.”
“Danny wasn't a partner?” asked the Witch.
“No, it was just the Blockhead and me. Danny bought in later, over time.”
The Witch again: “How much start-up capital did you put in?”
“About eighty thousand,” I replied quickly. “And despite my owning twice as much as Kenny, we split the investment equally: forty thousand each. That was because I was the lead horse,” I said respectfully. “So splitting the investment seemed fair. The only casualty in all this was Elliot Loewenstern, the budding Penguin. What happened at the Investors’ Center had spooked him, and he took a job in Manhattan, at Bear Stearns. He did come back, of course, right after I hit on my idea of selling five-dollar stocks to the rich.”
“And when was that?” asked the Bastard.
“About a month later,” I replied casually. “In early November.”
“What made you think of it?” asked OCD.
I cocked my head to the side and smiled. “Do you mean was there a eureka moment?”
“Yeah,” he shot back, “a eureka moment. As in, Eureka! I just figured out a way to steal a quarter billion dollars and f**k over the SEC in the process!”
Hmmm, I thought, very clever and cynical this OCD was. Alas, he also happened to be right, although I would dispute the amount of money I stole. I mean, it couldn't have possibly been a quarter billion dollars! Or could it? With a sinking heart, I said, “Yeah, well, whatever the amount was, I tell you the God's honest truth that I didn't start Stratton with bad intentions. But, like they say, the road to hell is paved with good intentions.”
“Fair enough,” snapped the Bastard. “You can tell that to the judge at the appropriate time.” He flashed me his warden's smile. “But for now let's just stick to the facts.”
I nodded in resignation. “Well, it started with George Grunfeld and what he'd said to me my first day at the Investors’ Center. This whole notion about rich people not buying penny stocks had never made sense to me, so I had Danny do a little experiment for me—trying to sell penny stocks to rich people. But rich people weren't interested. So I figured maybe they were turned off because the stock was less than a dollar, so I found a six-dollar stock and had him try that. But that didn't work either, and I have to say it surprised me.
“I mean, I really thought rich people would go for that, but when I called Danny into my office, he completely disagreed. ‘Maybe if I were calling from Merrill Lynch,’ he said. ‘But not when I'm calling from Stratton Securities; there are just too many things working against me. They haven't heard of me, they haven't heard of the firm, and they haven't heard of the stock. You see what I'm saying?’
“ ‘Yeah,’ I said, ‘I see exactly what you're saying,’ and—boom!— just like that it hit me. I had my eureka moment. ‘Come back in here in fifteen minutes,’ I said to him, and before he was even out the door I had already picked up my pen and started writing a new cold-calling script. Fifteen minutes later, he was back in my office and I was explaining my new system. ‘Okay,’ I said, ‘when we call someone for the first time, we're not gonna try to sell them anything; we're just going to introduce the firm and ask them if they'd be interested in hearing from us down the road.’ I handed him my new script. ‘Read this to me and tell me what you think.’
“He looked at the script for a second, and then started reading: ‘Hi, this is Danny Porush, calling from Stratton Securities. I know you're busy, so I'll get right to the point. You probably haven't heard of us before, because for the last ten years we've been strictly an institutional block-trading firm, dealing with banks, insurance companies, pension funds.’ Danny started laughing. ‘This is classic…’
“ ‘Just shut up and keep reading,’ I said.
“He nodded and continued on: ‘However, we've recently opened up our doors to the more substantial private investor, and what I'd like to do, sir, with your permission, is send you out some information on our firm, Stratton Securities, and then get back to you down the road, next time we're making a recommendation to one of our institutional clients. Sound fair enough?’ Danny stopped and flashed me one of his famous smiles.
“Ironically, Stratton really had been in business for ten years, and the only business they had done was trading with other brokerage firms, and since brokerage firms are considered institutions, I wasn't really lying about Stratton's business being strictly institutional.” I smiled at my own twisted logic. Then I gave up my smile and said, “I won't deny that the script was a bit misleading, but that's besides the point.
“Anyway, Danny was getting about ten leads a day, and after a week it was time to execute step two of my plan, which was to start off by selling a big stock, meaning a New York Stock Exchange stock they were familiar with. That's why I chose Eastman Kodak: because of the name recognition and also because it was a very sexy story. They were in litigation with Polaroid at the time over patent infringement, and my script focused on how Kodak was sure to trade higher once the litigation settled.
“Yet, as good as my script was, Danny wasn't all that impressed. He said, ‘Even if someone buys ten thousand dollars of Kodak, my commission is only a hundred bucks. So what's the f**king point?’
“ ‘Think of it as a means to an end,’ I replied. ‘Next week, after they've paid for their trade, we'll call them back for step two.’ And, with that, Danny shrugged and walked off, spending the next ten days opening accounts on Kodak, twelve of them in all, and each for around five thousand dollars, which was a hundred shares.
“Then I called him back into my office and explained step two, which wasn't quite what he thought it'd be. ‘You mean you don't want me to get them to dump their Kodak and buy a house stock?’ he asked.
“ ‘No,’ I said. ‘I want you to tell them that everything looks great with Kodak and that they should hold it for the long term.’ I handed him a script I'd written for a company called Ventura Entertainment.” I paused, offering my captors a wry smile. “I'm sure you're all familiar with Ventura; it was the first stock we ever recommended.”
“Yeah,” said a cynical OCD. “And it was also the most overvalued entertainment stock in the history of entertainment stocks.”
I nodded sheepishly. “Yeah, but it wasn't intentional. I just couldn't keep up with the demand.” I shrugged. “But, that aside, Ventura was only a six-dollar stock back then, a tiny start-up not even listed on NASDAQ yet. It was still trading on the Pink Sheets. In truth, it could have just as easily been a penny stock, but by sheer coincidence the company's president, a man by the name of Harvey Bibicoff, had been thinking the same thing as me— namely, that a six-dollar stock sounded more valuable than a twenty-cent stock. So when he took Ventura public, he structured it with only a million shares outstanding, as opposed to the twenty million shares a typical penny stock would have.” I looked at OCD. “You follow me, I assume.”
He nodded. “Yeah; a million shares at six dollars is the same as twenty million shares at thirty cents.”
“Exactly,” I said. “On a mathematical level they're one and the same; however, on an emotional level they're entirely different. And as Danny stood in my office, studying the script, I knew it was perfect, especially the opening, where I transitioned from big stocks to small stocks.
“ ‘Read it to me,’ I said to him. And he nodded and started reading: ‘Mr. Jones, two reasons for the call today. First, I wanted to give you a quick update on Kodak. Everything looks great there; the stock is right where we bought it, and it looks to trade higher over the short term. There's been heavy institutional interest over the last few days, so for right now we'll just sit tight.
“ ‘And the second reason for the call is that something just came across my desk this morning, and it's perhaps the best thing I've seen in the last six months. It's one of our own investment-bank deals—a company we're intimately familiar with—and the upside is much greater than Kodak. If you have sixty seconds, I'd like to share the idea with you.’ Danny looked up and said. ‘This is f**king great! Let me give it a whirl!’
“I nodded in agreement. ‘Okay, but remember: These people are rich and sophisticated, so they're not going to fall for hype and bullshit. You use logic and reason, and massive pressure. Never forget, Danny: We—do—not—work—on—callbacks! You have only one shot with these people. So stick to the script like glue.’ With that, Danny reminded me once more that he was Danny-f**king-Porush and that he could sell oil to an Arab and ice to an Eskimo! Then he nodded and walked off.”
I shrugged. “In retrospect, it's rather ironic that I was only hoping to get a slightly bigger trade from my new system—maybe a thousand shares of Ventura, versus two hundred shares—but that was what I had in mind at the time.
“But five minutes later Danny came running back in my office, literally out of breath. ‘Jesus Christ!’ he snapped. ‘The first guy bought twenty thousand shares from me! Twenty—thousand-f**king—shares! Then he apologized to me for not buying more! He said that he wasn't liquid right now, but as soon as he was, he'd buy more. Can you imagine?’
“And that was it. In that very instant, I knew. I knew that Danny's client hadn't made a distinction between sending a hundred twenty thousand dollars to Stratton Securities and sending a hundred twenty thousand to Merrill Lynch. And it was all because we'd recommended a blue-chip stock first. Meanwhile, Danny was happier than a pig in shit, because he'd just made twenty thousand in commission. But what he didn't know was that I'd just made an additional sixty thousand dollars below the bid. And that was where the real juice was!”
“Explain that,” said the Bastard.
“Okay, follow me for a second: Ventura was five bid, six offer-meaning that if a client wanted to buy it he had to pay six dollars, but if he wanted to sell it he could only get five dollars. That's why Danny's commission was a buck a share, or twenty thousand dollars. But Harvey was giving Ventura warrants that had an exercise price of two. In other words, Ventura was costing me only two dollars a share. All told, on Danny's twenty-thousand share block, I made sixty thousand below the bid, plus ten thousand above the bid, which was my half of Danny's commission. And all of that was from a single phone call, from a single lead. But that was only the beginning.
“I knew right then and there that if Ventura went up, and there were thousands of clients in the system, they would send in millions more.” I paused for a moment, considering my words. “Of course, it would turn out to be hundreds of millions more, but at the time I wasn't thinking that far ahead. I still had serious obstacles to overcome, not the least of which was that Harvey had only a million warrants to sell, and with my new system, I would eat through those in a matter of weeks. Then I would have to buy stock in the open market.
“But first things first, I thought; I had to shut down the ‘Old Stratton’ and retrain everyone. But I went to Mike first to tell him my plan. It sounded good, he thought, but I could tell that he definitely wasn't bowled over. ‘Give it a shot,’ he said casually. ‘However much business you bring in I can handle with no problem.’ And those were the famous last words of Mike Valenoti.
“A minute later I was standing in front of the boardroom, ready to give the meeting of a lifetime. I still remember this day like it was yesterday. ‘Everyone, hang up your phones!’ I said to the brokers. ‘Hang up your phones right now! I have something to say.’
“Most of them were right in the middle of calls, and they didn't hang up the phones at first. So I winked at Lipsky, and he rose from his chair and began disconnecting their calls in mid-pitch. Then Danny joined in the act, and a few seconds later the room was quiet.
“ ‘Okay,’ I said. ‘Now that I have your attention, I want you to gather up your leads, your pitches, your rebuttals, your client books, and anything else on your desk that relates to being a stockbroker. I want you to gather it all up and throw it right in the f**king garbage can!’
“Of course, no one did anything at first; they were too dumbfounded to move. So Lipsky started snarling at everyone. ‘Let's go! Chop chop! It's time to clean house, like the boss says!’ And next thing I knew, Danny and the Blockhead were walking around holding trash bags, and the last vestiges of the old system were disappearing before my eyes. Within minutes, there were only twelve wooden desks, twelve old telephones, and twelve obscenely young stockbrokers, dressed in varying degrees of cheap, off-the-rack suits. And they were all staring at me wide-eyed, waiting to hear what I'd say next.
“ ‘I want everyone to listen up,’ I said, ‘because what I'm about to say is going to change your lives forever. The simple fact is that all of you are going to be rich beyond your wildest dreams.’ And I went on to explain my new system to them, pointing to Danny as proof that it worked.
“ ‘How much commission did you just gross in one trade?’ I asked him.
“‘Twenty grand!’ he shot back. ‘Twenty—f**king—grand!’
“‘Twenty f**king grand,’ I repeated, and I began pacing back and forth, like a preacher, letting my words hang in the air. Then I stopped. ‘And using my new system, Danny, how much do you think you can gross in a single month? Just a ballpark…’
“He pretended to think for a moment, playing the part perfectly. ‘At least a quarter million,’ he said confidently. ‘Anything less and I'll fall on my sword!’ And with that, the room broke out into complete pandemonium.”
I shrugged. “The rest was easy. I retrained my Strattonites, using the straight-line theory. It was something that I'd come up with at the Investors’ Center but hadn't considered crucial then, because when you're speaking to poor people it's more a question of whether or not they have money to invest; if they do, convincing them is easy. But with rich people, the rules are entirely different: They do have money to invest; it's just a question of convincing them that you're the one to invest it with. Are you smart enough? Are you sharp enough? Do you know things their local broker doesn't? Are you a Wall Street wizard, worthy of managing a rich man's money?
“That's exactly what the straight line did: It allowed a twenty-year-old kid, with a high school diploma and an IQ just above the level of Forrest Gump, to sound like a Wall Street wizard.” I paused for a moment, thinking of a way to explain the theory. “In essence, it was a system of scripts and rebuttals that allowed even the most dim-witted of stockbrokers to control a sale. It kept things moving forward, from point A to point B—from the open to the close—until a client finally said, All right, for Chrissake! Pick me up ten thousand shares! Just leave me alone!’ I know it sounds simple, but no one else had ever done this before. There were hundreds of scripts floating around Wall Street, but no one had ever organized them into a cohesive system.