When cocaine walks Wall Street
Sharpe Capital suit reveals seamy side of securities industry
OPINION By Christopher Byron
MSNBC CONTRIBUTOR
Oct. 3 — One of Wall Street's darkest and ugliest
secrets is the widespread use of drugs — in
particular cocaine — among those who buy and
sell stocks for a living in the high-pressure
trading rooms of America's securities industry.
Now, a lawsuit filed Sept. 27 in a New York
court by a Nasdaq brokerage firm named Sharpe
Capital Inc. has inadvertently brought the whole,
ugly subject cascading into full public view.
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THE PICTURE NOW EMERGING in reaction to that suit reveals a
company seemingly blinded to the corrupting culture of drugs and money
enveloping the firm's most lucrative operation: that of trading stocks in
Nasdaq-listed and unlisted securities.
The company employs 316 people and makes markets in nearly 8,000 stocks,
many of them Over The Counter and "pink sheet" securities. It has offices on
Wall Street and in Boca Raton, Fla.; Jericho, N.Y.; Carmel, Ind.; and Tinton
Falls, N.J. Sharpe generates roughly $100 million in gross revenues, with
two-thirds of the business coming from its trading desk operations.
So deeply immersed and comfortable did Sharpe Capital's trading room
apparently become in this world of recreational drug use that no one at the firm
seems to have raised even a peep of protest as cocaine and prostitution
developed into a kind of secret currency that helped build the firm's trading
desk into a major Wall Street force in the current bull market.
The source of these astonishing revelations and charges? None other than the
co-manager of Sharpe Capital's own trading desk operation on Wall Street
throughout the entire period in question: Judy A. Payer.
Repeated requests for comment from the company regarding Payer's charges
proved fruitless. A request for comment from the company's co-owner, Larry
Hoes, was directed by Hoes himself to the firm's outside counsel, attorney
Greg Sichenzia. Two separate phone calls to Sichenzia seeking comment on
allegations of criminal wrongdoing at Sharpe Capital were not returned.
As reporting for the story progressed, a
person named Keith Chambers, who
identified himself as a vice president of
technology for Sharpe Capital, called and
asked what it was the firm was being asked
to comment upon. When advised that a
former top official at the firm was alleging
specific criminal and civil wrongdoing by the company, Chambers promised to
have one of the co-owners return the call for comment. No return calls were
ever received.
SUIT SEEKS $2.975 MILLION
In the suit that has brought all this to light, Sharpe Capital is seeking to recover
$2.975 million in allegedly excessive compensation to Payer and her husband
— William F. Kirincich — who together founded and ran the firm's 55-person
Over The Counter trading desk in the Wall Street office from 1995 until last
week.
The suit further alleges in a separate fraud claim against Payer that she
overstated various securities held by the firm to boost her own compensation
and conspired with a well-known New York investor, John Fiero, to hire
away Sharpe's trading desk employees and open up a competing business.
Yet the suit itself is far less interesting — and disturbing — than the
counter-charges that Judy Payer has now begun firing off publicly in her own
defense against Sharpe Capital and her now-estranged husband, William.
TRADERS WITHOUT LICENSES
Those salvos paint a picture of a fast — even chaotically — growing trading
desk operation, awash in drug use from the top down, while management paid
little if any attention to such basic questions as whether the desk's employees
actually needed to be registered with, and licensed by, the National
Association of Securities Dealers in order to conduct securities transactions
with customers of the firm.
Payer's charges gain credibility because she was, until last week — when the
firm fired her and evicted her from Sharpe's premises — in a position of direct
management responsibility, along with her husband over the day-to-day
operations of Sharpe's trading desk. In several extended interviews for this
story, Payer said she was coming forward out of fear that if she did not now
speak publicly, and fully, about the activities inside Sharpe Capital, the firm
would try to make her a scapegoat for any revelations that might eventually
leak out.
Her charges, lurid though they are, have been confirmed through interviews
with a second Sharpe employee, with non-employees who have done business
with the firm, and through reference to company and National Association of
Securities Dealers documents. No company officials, including Sharpe
Capital's own lawyers, returned telephone calls for this story or would offer
any comments on Payer's charges.
BLOWING WHISTLE ON HER HUSBAND
Among Payer's more astonishing charges are those that involve allegations of
drug abuse by her own husband.
Payer claims, for example, that during the
five-year period when she and her husband
co-managed the Sharpe trading desk, her
husband, William Kirincich, was known
throughout the Wall Street trading community
as an active and substantial user of cocaine.
Payer said she became aware of her
husband's drug problem three years ago but
that both she and the firm permitted him to
continue to co-manage the trading desk anyway, even though his continued
drug use was widely known among the employees.
During this period, the Over The Counter trading desk evolved from nothing at
all into by far and away the most lucrative operation at Sharpe Capital. Payer
and her husband reaped an almost unbelievable bonanza as a result, regularly
taking home close to $1 million per month in commission income alone. Payer
said this wealth supported a $500-per-day cocaine habit for her husband,
who, according to Payer, by last month had spent more than $500,000 on his
cocaine addiction.
COCAINE FOR BUSINESS
As recounted by Payer, Kirincich's cocaine habit even addicted Sharpe
Capital, which quickly became dependent on the surging revenue generated by
the trading desk through Kirincich's coke-greased socializing with officials at
other Wall Street firms.
To that end, said Payer, her husband would regularly obtain drugs from a New
Jersey drug dealer named "Jay." A separate source for this story said that Jay
conducted his drug dealing activities out of an old age home in Jersey City,
N.J., where Jay's grandmother was a resident.
According to Payer, her husband and at least one other Sharpe trader would
then use the drugs to solicit business from the trading desks of other Wall
Street firms. These included, said Payer, the trading desks of PaineWebber,
Charles Schwab and Merrill Lynch.
In the process, Payer said, cocaine became a kind of "payment for order flow"
currency with which Sharpe's trading desk paid kickbacks to some of the
biggest and best-known firms on Wall Street to get their business. Rather than
laundering drug money, the trading desk at Sharpe simply cut out the money
part and begun using the drugs themselves as the firm's bribery currency.
Payer said her husband was known throughout Wall Street as a procurer of
not just drugs but women as well, and said traders from other firms would
phone their home in Seabright, N.J., daily — up until as recently as the start of
last month — arranging evening get-togethers with her husband.
Payer identified the top trading desk official of one of Wall Street's largest and
most prestigious securities firms as a regular and frequent after-hours socializer
with her husband.
Efforts to obtain comment from the individual for this story were unsuccessful.
"My husband took them to all the strip clubs," said Payer. "They went to Tens,
to The Gallery, to Scores. He was so well known there that he used to get
Christmas cards from all the strippers."
DRUG USE WIDESPREAD?
Illicit cocaine use extended beyond her husband at Sharpe as well, said Payer.
Referring to her own employees on the trading desk, she said — certainly with
some degree of exaggeration — "They're all on coke." Among the firm's users
she identified George Santangelo, co-owner of Sharpe Capital, with whom she
said her husband had several times acknowledged having engaged in cocaine
use.
Payer said she never personally witnessed
the two men doing drugs, but that her
husband spoke of it in such a matter-of-fact
way that she had no doubt the incidents had
occurred. A telephone call requesting
Santangelo to respond to Payer's claim was
not returned.
Since the start of September, William Kirincich has been an in-patient at Sierra
Tucson, a well-known and expensive drug and substance abuse detox clinic in
Arizona.
Efforts to contact and obtain a comment from Kirincich at the clinic for this
story were unsuccessful until this story was on deadline for publication.
Meanwhile, Kirincich's presence at the clinic was confirmed by a second
individual who met with him when he flew to New York for a meeting last
month with Sharpe Capital's owners.
Kirincich's in-patient status at the clinic was further confirmed by a U.S. Trust
Co. money market account statement in the name of "Payer-Kirincich." The
statement shows a wire transfer in the amount of $11,836.00 on Sept. 15h to
an account at BancOne, Arizona in the name of Sierra Tucson Inc. Payer said
this was money that she herself wired to Sierra Tucson to cover treatment
costs for her husband at the clinic.
Then, on deadline for this story, a man identifying himself as "Billy K"
telephoned in apparent response to a message left for Kirincich at the clinic.
When informed that a comment was being sought from him regarding Payer's
claims of his "extensive use of drugs at Sharpe Capital and on Wall Street," the
caller said, "No comment" and hung up the phone.
RETURNING TO THE SCENE
Payer said that in mid-September, Kirincich left the clinic and flew back to
New York at the invitation of Sharpe's co-owner, Santangelo. The purpose of
the meeting, said Payer, was for her husband to meet with Santangelo and
discuss moving Payer aside in order to resume day-to-day control of the
trading desk. Payer said her husband told her that Santangelo offered to let
him continue his drug treatment program on an outpatient basis at an unnamed
New York area clinic, at Sharpe's expense, if he would agree to return to
work on the trading desk.
News of the offer reached traders on Sharpe's trading desk — undoubtedly
via Payer herself — leading to one of the last meetings she attended at Sharpe
Capital. The meeting, in mid-September in the firm's 27th-floor conference
room, involved Payer and upwards of 20 of her traders, along with the firm's
two owners, Hoes and Santangelo. The group had gathered to a discuss a
report the traders found disturbing — namely, that Payer's husband would be
returning from his Arizona detox program, by invitation of the owners, to help
manage the trading desk once again.
A number of traders expressed concern at having to deal with Kirincich's wild
mood swings, yet neither of the owners, nor anyone else in the room,
expressed any apparent surprise when one member in attendance, Francis
(Burke) Murphy, spoke up and declared, with apparently some degree of
hyperbole, "Look, we've all done coke here. I've done coke with Billy in the
past. But we know when to stop!"
The scene was confirmed, in detail, by a second person who attended the
meeting. Repeated requests for comment or response from Sharpe Capital, its
owners or the firm's lawyers brought no response.
DRUG TESTING IDEA GOES NOWHERE
Payer said she spoke to the firm's compliance officer, Kurt Switala, as recently
as this summer, suggesting that Sharpe should implement a drug-testing policy
for employees. But, said Payer, Switala dismissed the idea, saying drug tests
were unreliable.
Payer said she also spoke to Larry Hoes, one of the co-owners, at around the
same time, and made the same recommendation. But, said Payer, Hoes
nodded non-committally and said he'd "take it up with Compliance." Payer
said she never heard back on the subject from anyone.
In this environment of warped judgment and frantic enrichment, neither Payer
nor her husband — nor anyone else at the firm — seems to have paid any
attention to a basic SEC requirement that anyone engaged in stock trading
activities for a Wall Street securities firm be registered and licensed with the
National Association of Securities Dealers.
Payer said that of the 55 employees at work on Sharpe's trading desk at the
time she was fired, more than a third held no valid license to perform the
activities they engaged in on the trading desk. These activities involved
accepting and executing trades for customers, taking positions in stocks using
the firm's capital and filling in for licensed traders when they were away from
the office or on vacation.
This claim was checked against NASD broker registration records, revealing
that at least 13 individuals listed on company telephone records as working on
the trading desk possessed no valid NASD licenses to perform their duties.
Payer said each new hire was sent by her to the firm's Compliance Office to
be interviewed and screened, and that when they came back approved, she
simply put them to work. She acknowledged that even her own two trading
desk assistants lacked valid licenses to work on the desk, but that she let them
work on the desk anyway. She insisted the company was fully aware of all this
and encouraged them to go forward anyway.
Among those without a valid license: Francis (Burke) Murphy, whom Payer
said was, and is, in charge of the trading room's so-called "agency desk."
Payer said this desk was responsible for generating the vast bulk of Sharpe's
business from many of Wall Street's leading brokerage firms, and that her
husband, and Murphy, together conducted most of the socializing that brought
in the business. NASD records show that Murphy holds no registrations of
any sort with the association, the official licensing body for Wall Street
employees.
PAYING THE PIPER
Both Payer's — and Sharpe's — problems seem to have come to a head as a
result of the huge speculative surge that developed last autumn and winter in
low-priced NASDAQ stocks. The exploding volume caused enormous back
office bottlenecks to develop at the firm when, said Payer, Sharpe's clearing
agent — Quick & Reilly, a unit of Fleet Bank — fell more than a month
behind in processing orders and no one on the trading desk was told. Payer
said the problems surfaced in March when the Nasdaq bubble popped and
Quick & Reilly suddenly informed Sharpe that its trading desk had to "make
good" on millions of dollars worth of so-called open orders that she said the
trading desk had thought to have been executed and completed months earlier.
Payer said that because of the reversal in Nasdaq stock prices, these
make-goods wound up costing Sharpe $8.8 million. She said that the firm is
now trying, in its lawsuit, to hold her accountable for the loss when it was not
her fault at all.
Which side is right in that dispute will obviously be settled only when the case
gets to trial. By pre-emptively spilling the beans on Sharpe's hidden world of
drugs, women and trading desk mismanagement, Judy Payer is obviously
hoping to take a potential issue away from her adversaries and smear them
with mud before they splatter her with it in a courtroom instead. In the
process, she has peeled back the scab on a long-festering wound that may
soon be starting to bleed more revelations than ever. |
