The myth-maker: Part 1, the appearance of wealth
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2) You can’t cheat an honest customer, but it never hurts to try.
Ferengi Rules of Acquisition
Let us suppose, as Leopold Bloom once said to Max Bialystock, that you are a dishonest man.
Let us suppose no such thing
You didn’t set out to become one. It just happened, and in the manner of its happening you have rationalized to yourself that you are not dishonest, you are just making up for all the disadvantages you face and the obstacles the world placed in your way. You were always clever, intelligent, nimble with words. A wonderful storyteller; it’s your knack, your gift. Perhaps you needed it to overcome your own feelings of unworthiness, or to feed your hunger for acceptance by those whom you saw as having status, power, or money. Your stories brought delight to your listeners, and if properly told, they could move people to open the gates of privilege. That was only a fair payment, wasn’t it? You gave them what they lacked – tales of determination and grit, a soupcon of raffish bohemian urban life, the spice of the exotic. In turn, they gave you their embrace, their trust, their money.
That tale-telling brought you an education at Harvard, a place where tale-telling can be its own reward, especially in the non-science disciplines, which positively dote on the spinning of personal myths. It brought you entree into Wall Street, into the world of clubs and societies and retreats, elbow-rubbing and confidence-sharing with those born to privilege, whose good opinion also brought you to Wall Street, where the right tale-telling could bring millions in salary and bonuses.
60) Never use credit where your words will do.
Ferengi Rules of Acquisition
Because you can always say more words
Unfortunately, as you became a banker or a money manager, the markets proved less susceptible to myth-making, less malleable, less willing to cooperate in the extended and ongoing heroic epic of your life. The good guys didn’t always win; your investments sometimes soured. These blots could not be acknowledged, of course, lest you slide back down the slippery slope you had spent your whole life clawing upward. Worse, you began to believe your own myths, and when those near you or under you confronted you with failures, both the message and the messenger were entirely intolerable, so they must feel the fire or your anger, and must be banished from your entire universe, lest their apostasy contaminate others.
Until, one day, you are turned down by your co-op board in your application to expand your already palatial residence, and you decide to use the bludgeon you have previously used – litigation claiming racism – to make them reverse their decision. Except, for the first time in your life, you are thwarted.
Part 1 of the timeline
And then, somehow, it all starts coming apart at the seams, as non-libelously hinted at by Fortune (October 25, 2012):
Fortune — Jan. 20, 2009, was a day of proud and joyous reflection for Alphonse “Buddy” Fletcher Jr. The New York hedge fund manager had come to Washington, D.C., to witness Barack Obama making history and also to host a pre-gala cocktail party. One of the honored guests was inaugural poet Elizabeth Alexander, a professor at Yale and a recipient of a fellowship Fletcher had established to promote race relations.
Nearly four years later much has changed for Fletcher and [his wife Ellen Pao] — though not for the better. After achieving coveted positions in the rarefied world of finance, Fletcher and Pao each filed sensational lawsuits that now jeopardize their careers, no matter the outcome.
I’ve cut out of the story all the scandal-mongering regarding Mr. Fletcher’s flexible sexuality, and Ms. Pao’s claims of sexual harassment at her employer – those interested can read the Fortune article – because of more interest to me (it is well known I have unusual interests) is how Mr. Fletcher bluffed wealth and liquidity, how that aggressiveness worked as a protective touch-me-not shield, and how it took a persnickety income-verification claim to call his bluff.
Part 2 of the timeline
Mr. Fletcher’s tragic flaw, his Gary-Hart follow-me-around moment of hubris, came when:
Fletcher, 46, sued the iconic Dakota apartment building, located on Manhattan’s Upper West Side, accusing the board of racial discrimination after it questioned his ability to pay for an additional unit in the complex.
Mr. Fletcher’s story traces an arc as parabolic as a projectile – up, cresting, and then accelerating down.
Imagination leads to initial wealth
I’ll resist the temptation to psychoanalyze Mr. Fletcher, though readers are welcome to do so; for now, it’s enough to follow Mr. Fletcher’s imaginative pursuit of status, and how he parlayed that and his evident intelligence into sudden initial wealth.
Freshman roommate Niederhoffer
Buddy Fletcher’s early adulthood is a swirl of successes marred by brief episodes of unpleasantness. “The popularity Buddy had was almost unmatched,” says Roy Niederhoffer, a New York hedge fund manager who was Fletcher’s freshman roommate at Harvard. Fletcher, who played varsity football at Harvard, was voted a class marshal, a kind of prom king meets social chairman.
Though I never took advantage of it, Harvard is a place where such social climbing can be done at warp speed if one really wishes.
He was a member of the Harvard Republican Club and the exclusive Phoenix SK club made famous in the film The Social Network because Mark Zuckerberg couldn’t get in the door. Fletcher became club president.
72 Mount Auburn Street: Through these doors no Zuckerbergs go
At one point, according to three former club members, including close friend Stephen Cass, Fletcher was impeached over concerns he had improperly used club funds. Some members resigned in support of Fletcher. Fletcher was later reinstated, and he and the two friends resumed their relationship with the club.
Mr. Fletcher moved quickly from platform to platform, and always upward:
Fletcher moved to Wall Street after graduation, excelling at equities trading at Bear Stearns, then Kidder Peabody. He quit Kidder in 1991, dissatisfied with his bonus, and set up his own firm, Fletcher Asset Management. He also sued Kidder for racial discrimination, alleging that the firm decided that the amount he was owed “was simply too much money to pay a young black man.”
Alternatively, perhaps Mr. Fletcher was never making money, just manipulating numbers:
Manipulating numbers, or emotions?
Kidder representatives have never previously spoken publicly about the lawsuit, but Granville Bowie, who was then Kidder’s human resources manager — and one of the targets of Fletcher’s racial discrimination suit — told me that the real story was very different: The firm said no to paying the bonus because Fletcher had refused to tell anyone just how he was generating those electronic profits.
According to Bowie, Fletcher claimed that although he was trading with the firm’s money, his trading strategies were his and his alone. “Fletcher had a business that … frankly, we didn’t know what it was, and we didn’t know how it was making money,” Bowie says. “He took the position, ‘I’m making money … go away.’” That attitude made the young trader’s supervisor, managing director Thomas Ryan, nervous. Were Fletcher’s profits for real?
Remember, folks, it was 1990 back then and we were so much more naive as to that sort of financial manipulation.
“I am more ignorant than you are.”
Initial wealth leads to assertion of wealth
From his early success, Mr. Fletcher was able to persuade a few large institutions to invest their capital with him. (Again, we were naive back then, and the idea of a money manager simply using new clients’ money to create returns for previous clients had gone the way of the dodo – hadn’t it?)
At his new firm Fletcher boasted [of] triple-digit returns and frequently told reporters he had never had a losing quarter. He also developed expensive tastes: a multimillion-dollar apartment in the Dakota, an 1,100-acre estate in Connecticut, and a chauffeured Bentley.
Obviously, Mr. Fletcher was getting cash from somewhere. Perhaps he was getting it from client accounts – because after all, he was rich and successful, wasn’t he?
While still in his twenties, Fletcher also gave generously to charity, setting up a personal foundation in 1994 and donating to cultural institutions that celebrated African Americans. He pledged a large, undisclosed sum to Harvard to fund the Alphonse Fletcher University Professorship.
Here is where creativity starts truly to flower.
Assertion of wealth leads to presumption of wealth
You or I might think that “giving to charity” meant cash … but that is for the common people, not for the rich.
The pledge came in the form of three securities, including a “contractual right” to buy shares in the biotech company Calgene.
Remember, it was the dot-com time back then, and all sorts of companies were flying high with massive stock-market valuations predicated not on boring old earnings or sales, but on concepts – like a revolutionary tomato.
The Flavr savr tomato, Calgene’s greatest invention
Exactly one year later the school sued Calgene in an attempt to redeem a contract to buy shares worth $3.8 million, by Fletcher’s estimate. Calgene said it had voided the contract before Fletcher had even given it to Harvard, legal documents say. Harvard and Calgene [By then owned by Monsanto – Ed.] settled in December 1999.
Of course, by then Harvard was fully invested in the Fletcher University Professorship, with Mr. Fletcher’s good friend Skip Gates firmly established in the role.
121) Everything is for sale, even friendship.
Ferengi Rules of Acquisition
A teachable moment?
Presumption of wealth leads to illusion of wealth
With all his claims of spectacular returns, one would have through Mr. Fletcher’s fund would be rolling in money, that he would be the modern-day Peter Lynch of Fidelity’s Magellen Fund. (Though Mr. Lynch’s credo, Invest in what you know, might have been issued as a caveat on Mr. Fletcher’s offering memoranda.
What do I know about Fletcher? Nothing.
In his 2012 SEC registration, Fletcher says he has $555 million under management, a relatively modest amount for a fund boasting a two-decade record of outstanding returns and that was also actively looking to raise funds.
Meanwhile, Mr. Fletcher’s company bore an eerie resemblance to Bernie Madoff’s trading desks, in that they were hives of apparent activity with no visible substance. The firm’s Web site, for example, is long on unverifiable claims:
[We have] invested in dozens of promising companies led by solid management teams with responsible business practices.
Why not list them? Mr. Fletcher’s corporate biography describes his:
Uncommon investment strategy combining traditional investment management, corporate finance, quantitative methods, and social responsibility.
Yes, but does it freshen breath and whiten teeth?
Invest with us and find out
47) Never trust a man wearing a better suit than your own.
Ferengi Rules of Acquisition
Trust me anyway
[Continued tomorrow in Part 2.]