Shame on you !!!!!!!!!!!
When cocaine walks Wall Street
Sharpe Capital suit reveals seamy side of securities industry
OPINION
By Christopher Byron
msnbc.com
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. 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.
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