Rubenstein's Augur Read online

  glanced at the single page, then began signing.

  Cooper studied the document. “Half and half, huh, Sam?”

  “As agreed at the beginning, T.C.”

  “Before you knew how well the thing works. Still seem fair to you? You remember I

  put this whole damn thing together?”

  Larson didn’t respond.

  Cooper grabbed Rubenstein’s pen, signed the three copies of the contracts, gulped the

  last of his Seven-and-Seven, and rushed to the door.

  Rubenstein shook his head. “I’m always astonished.”

  Chapter 10

  Among Larson’s first ten marketing letters was:

  Larson Interests, LLC 17 Colonial Point Atlanta, Georgia 30339

  June 26, 2003 Mr. Robert C. Sweet, Chief Trustee The Mannerling Trust

  4600, The Iron Tower

  Birmingham, Alabama 35242

  Dear Mr. Sweet:

  I talked last week with Ms. Margo Wills regarding the hedge fund described below. She stated that I might send this letter to you. I am President of Larson Interests, LLC, a Georgia limited liability company (“Larson”), which, in turn, is the General Partner of Monarch Georgia Limited Partnership (“Monarch”). Monarch is newly formed under the laws of the State of Georgia on March 21, 2003. Monarch has not yet begun doing business.

  When Monarch begins doing business, its assets will be invested in Standard & Poor’s 100 index options (OEX). The techniques employed to make investment decisions are proprietary to Larson. Larson has employed these techniques for the one-year period commencing June 18, 2002, and ending June 20, 2003. Net of all normal transactional costs and taxes, the OEX trading by Larson for the period produced a return on invested capital of forty-seven percent (47%). Please see the accompanying report, prepared and certified by the accounting firm Dunhill, Davidson, Quinn, and Charles, of these investment results.

  I will telephone you in a few days to determine if The Mannerling Trust has an interest in learning more about the investment techniques being employed by Larson.

  Investment in securities should only be undertaken by those investors who are sophisticated and who can bear the loss of their entire investments. This letter does not constitute an offer to sell limited partnership interests in Monarch nor a solicitation of an offer to purchase such interests. Any such offer will be made only by the Confidential Private Placement Memorandum.

  Sincerely,

  Samuel B. Larson, President

  The DDQC letter was straightforward: Dunhill, Davidson, Quinn, and Charles 1100 Harris Tower

  Atlanta, Georgia 30303

  July 23, 2003 Mr. Samuel B. Larson Larson Interests, LLC 17 Colonial Point

  Atlanta, Georgia 30339

  Dear Mr. Larson: Pursuant to the instructions in your letter to us of June 11, 2002, we have conducted a yearlong examination of the trading activities and investment results of Larson Interests, LLC.

  Our activities included:

  1. Daily receipt of market prediction;

  2. Notation of time of arrival at our office of daily market prediction;

  3. Daily receipt of amount and type of investment;

  4. Computation of profits; and

  5. Statistical analyses of the investment tactics.

  Attached is a log of the subject receipts. Based on a beginning asset of one hundred thousand dollars ($100,000.00) and considering all transactional costs, we have computed the year’s gross return on investment of $47,322.00.

  Using standard statistical tests and generally accepted accounting principles, we conclude, with a Level of Confidence of five one thousandths (.005), that the Larson Interests, LLC, prediction of the daily movement of the S&P100 option index (OEX) was not due to chance.

  Very truly yours,

  Michael Y. Fletcher, CPA, Branch Manager

  The accompanying log supported DDQC’s report. July 10

  Margo Wills, Richard Sweet’s secretary, informed Larson via telephone that his

  materials had arrived and were being reviewed. Someone would call if there were an

  interest.

  Larson hung up and looked at Maggie. “Someone will call if there were an interest.

  How many times have I heard that?”

  Maggie smiled. The words were not new to her either.

  July 14

  The telephone roused Larson from his contemplation of an invitation to Jacci de

  Dibaux’s Bastille Day party.

  “Sam Larson.”

  “This is Norman Hazlett, Mr. Larson. I’m employed by The Mannerling Trust.” Larson breathed deeply. “Yes, sir.”

  “I’ve reviewed your letter of June 26 and that from DDQC. I wonder if I might

  contact Mr. Fletcher?”

  “Of course, Mr. Hazlett. May I arrange a conference call? I’ll just check to see if

  Mike is—”

  “No need for that, Mr. Larson. It would be more efficient if you would alert him to

  my call and instruct him to answer my questions.”

  “Of course. When shall I say—”

  “Immediately.”

  “May I have him call you?”

  “No, Mr. Larson. I need to go through the exercise of placing the call myself.” “I don’t—”

  “A question of authenticity.”

  Larson waited until after lunch to call Fletcher.

  “The guy was very cool—a fellow accountant,” Fletcher said. “He asked if there was any question in my mind about how the analysis was done. It was a dumb question, but I was nice about it. I said that it was not a complicated computation and that I had it confirmed by one of my seniors.”

  “And that was all?”

  “He thanked me.”

  “Okay, thanks. Send me the bill.”

  July 16

  It was unprofessional, but Larson called Sweet two days later.

  “Mr. Sweet is out of town today, Mr. Larson, but he told me he’ll be calling you

  soon.”

  Larson described the call to Maggie.

  “What do you think soon means?” she said.

  “I didn’t have nerve enough to ask.”

  “How will you describe your technique?”

  “I’ve been working on that ever since I got in bed with Rubenstein. It’s not my way

  to lie, either by commission or omission, but I think it’d be an error to describe Augur right now.”

  July 17 The next afternoon Larson returned from three sets at the Cherokee Town Club to find a pink telephone message on his desk. CALL RICHARD SWEET AT THE MANNERLING TRUST.

  In a surge of optimism, Larson had coded the Trust’s telephone number in his automatic dialer. He pushed the button. “Returning your call, sir.”

  “Did Margo tell you I’d call?”

  “Yes, sir.”

  “We haven’t handled communications with you very well. You may count on us to

  do better in the future.”

  Larson swallowed. “Yes, sir.”

  “We’ve just concluded some manager changes, meaning that we have cash to place.

  What’s your schedule Monday?”

  “Open, sir.”

  “Two o’clock—our time?”

  “Yes, sir.”

  “I’ll put someone on for directions. We look forward to seeing you.”

  July 21

  The forty-sixth floor of the Iron Tower proved to be the penthouse. The elevator

  lobby was the reception room of The Mannerling Trust.

  The receptionist held out her hand. She was in her late twenties, tall, slender, and

  pretty, with black, very short hair, walnut colored skin, and big beautiful eyes. “Hi, I’m

  Bev Perkins.” She studied his face and hair. “And your coloring tells me you might be

  Mr. Larson.”

  He nodded, then looked around the room. “Looks like you’ve raided an old

  plantation to furnish this room.”
>
  “Very good, Sam—may I call you Sam? You’ll find us informal hereabouts.” “Yes, please.”

  “Well, you’re right about the plantation. The Mannerling Trust is named for Rudolf

  Mannerling, a Nineteenth Century planter, and this reception room is furnished with

  replicas of the furniture and fittings from his plantation.”

  “Mannerling Plantation?”

  “No, Cedar Brake Plantation, eighteen thousand acres of former cotton and sorghum

  fields, converted to pine forests. South of Montgomery.”

  “You said replicas?”

  “Yes. The originals are at Cedar Brake, which has been restored to what it was in

  Rudolf’s time. It’s used for conferences by the trustees.”

  “Interesting.” Larson looked at his wristwatch. “I came a bit early, of course—

  wouldn’t have done to get lost. Is it—”

  “We’ll hear a low chime when Richard is ready.”

  Larson walked around the room, examining displays and artwork.

  “Your office space is smaller than I would have imagined.”

  “We also have the four floors below this one. Accountants and analysts and

  attorneys. And some big computers and their minders.”

  “I should have guessed.”

  He was about to take a seat when he heard the chime. She led him along a corridor,

  gesturing at a series of portraits.

  “Trustees.”

  She opened one of a pair of tall, oak doors.

  “Mr. Larson is here, Margo.”

  A pretty blond woman, short and freckled and in her middle thirties hurried to shake

  Larson’s hand. “Margo Wills, Mr. Larson, Richard’s assistant. We’ve spoken.” “We have indeed. Nice to see you.”

  She nodded. “Richard should be walking through that door any—”

  The door opened inward and a man in his late fifties appeared. Six feet tall, athletic

  build, very tan, thinning blond hair, and blue eyes. Excellent tailoring.

  “Recognize you anywhere, Sam.”

  “Recognize?”

  “Research. Come in.”

  He led Larson into a large office furnished in the same style as the reception area. “Take a seat.”

  “Thank you, sir.”

  “Call me Richard. We’re very informal here.” He pressed an intercom button.

  “Please tell Norm we’re ready when he is.”

  A tall, thin, middle-aged man entered a moment later. His dark hair was brushed

  back from an increasing forehead. Rimless glasses. More excellent tailoring. Larson’s earlier conversation with the man and Fletcher’s report had prepared him for

  the typical nopersonality accountant, but Hazlett hurried forward to grasp Larson’s hand.

  “Very pleased, Sam. Very pleased, indeed.”

  “You folks make a fellow feel at home.”

  “All part of the set-up,” Hazlett said. “Better be on guard.”

  “Just kidding,” Sweet said. “It’s part of our routine. As you might imagine, Norm

  and I have interviewed more than a few money managers in our time.”

  They drew their chairs side-by-side to face Larson across a small dining table. “Where would you like to begin?” Sweet said.

  Larson hesitated. “Since you have all that experience, perhaps you could tell me?” Sweet chuckled. “Got me on that one, Sam.” He paused. “I think we have three

  subjects to cover: A bit about you, an explanation of how you’re able to perform as you

  have been, and a discussion of reliability. Following that, we can answer any questions

  you may have.”

  Larson took a deep breath. “I’ve been practicing my preparation since I received

  your invitation, but your warmth and informality have disarmed me. I’ll get to the heart

  of the matter.”

  The first part of his presentation was limited to his reasons for leaving the brokerage

  business.

  “As to performance, I decided that my training, experience, and research talents were

  adequate to make me a successful money manager. I’ve developed a method of applying

  research results that allows me to do well predicting the market. You’ve seen the result.” Sweet waited for Larson to continue, but there was nothing further. He nodded.

  “Second, may we know a bit more about these research techniques?”

  Larson hesitated. “Exhaustive examination of a variety of circumstances—some of

  them esoteric—and attention to detail. How I apply the information is something I would

  like to keep to myself, at least for the time being.”

  Sweet and Hazlett exchanged glances.

  “Now part three,” Hazlett said. “What can you tell us about reliability?” Larson shrugged. “You’ve seen a year’s worth of my daily numbers. I can’t tell you

  more than that.”

  Hazlett frowned. “What about—”

  “If your concern is safety, there are two factors. One, I’m a day trader.” Sweet nodded.

  “Two, I’m never fully invested. The amount of my investment on any given day is a

  function of my confidence in my prediction.”

  “I follow,” Hazlett said.

  There was a lull, then Sweet continued. “How are your marketing efforts coming

  along?”

  “I’ve found several managers of managers who would like to conduct tests of my

  performance, but The Mannerling Trust is my sole current prospect for immediate

  business.”

  Hazlett chuckled. “Frankest statement I’ve heard recently.”

  Sweet began to pace. “We tend to own buildings and serve as partners in long-term

  investments. How might your approach mesh with that style?”

  Larson hesitated, then shook his head. “I’m disappointed, but I can’t think of any

  way at all.” He stood.

  “Relax,” Hazlett said. “It was a sort of a test. You can’t imagine how many

  prospective managers will try to find a way—any way at all—to fit their styles into our

  general mode of investment.”

  Larson sat.

  “You're here because we’re looking for some diversification, for some new ideas.” “I see.”

  Hazlett looked at Sweet, who nodded. “We’re recommending to the trustees that you

  manage a million dollars for us.”

  “I don’t know how to—”

  “Thank us, Sam?” Hazlett said. “No thanks needed. Or appropriate. Our necks are a

  little bit extended here. We’ll be watching closely.”

  Larson nodded.

  Sweet sat. “Now to your proposed fee arrangement.” Larson hesitated. “Tell us,” Hazlett said. “If it’s too much, we’ll tell you.”

  Larson breathed deeply. “I propose fifty percent of everything over twenty-five

  percent.”

  Sweet and Hazlett looked at Larson.

  Larson looked from Sweet to Hazlett and back.

  Sweet looked at Hazlett, then at Larson. He smiled. “Forty?”

  “Done.”

  Hazlett chuckled. “That bit of theater over, what do you need to know about us?” “That you have a million dollars you’ll let me manage.”

  Neither man responded.

  “Sorry,” Larson said, shaking his head. “More excitement than I could handle.” He

  extracted a form from his briefcase. “My attorney wants me to be certain that the Trust is

  a sophisticated investor.” He chuckled. “Sounds pretty silly, I know.”

  “We understand,” Hazlett said.

  “If I can just ask a few questions?”

  Sweet nodded.

  “Your assets?”

  “As of December 31, 2002, we had net assets of nine and one-h
alf billion dollars. Of

  these assets, we had real estate holdings and various partnership interests of

  approximately six billion, negotiable securities of three and one-half billion, and eleven

  million or so in cash.”

  “I had no idea.”

  “We’re not well known,” Sweet said. “Our filings are not published. We don’t even

  list our telephone number. I wonder how you even heard of us.”

  “My old firm’s branch manager here—Tubby Demorest—mentioned you.” Hazlett smiled. “We know Tubby.”

  Larson dropped his pen. “This is ridiculous. May I have some bank references?” “I think we can find some,” Sweet said. “We’re majority shareholders of two banks

  here in Alabama and one in London.”

  Larson smiled.

  Hazlett stood. “I’ll get that information for you.”

  Larson stood. “I think that’s all Bernie needs for his file.”

  Sweet walked with Larson to his door.

  “You look like you’re in pretty fair shape, Richard.”

  “Thank you. Tennis, mostly.”

  “I play a little myself,” Larson said. “Maybe we could play some day.” Sweet laughed. “You remember I mentioned research earlier?”

  “Yes.”

  “Our research regarding you was not limited to finding a photograph.”

  Hazlett was waiting the receptionist’s desk. “I think these references will do.” “I’ll be back as soon as I have my forms ready.”

  “Don’t delay. We dislike having our assets unemployed.”

  July 25

  Four days later Larson was waiting in the Trust’s lobby for Hazlett.

  “That’s Norm’s bell,” Bev Perkins said. “Higher in pitch.”

  She led him along another corridor. The paintings were scenes of the U.S. Civil War. Hazlett pointed to piles of blue-backed legal documents on a long library table.

  “Sorry about all the paperwork.”

  Larson nodded.

  “Yours arrived FedEx this morning. Richard and I reviewed and executed them.” “Richard’s not—”

  Hazlett smiled. “He’s playing golf. He thought I could handle this.” Larson smiled and began signing.

  “We’ll transfer the money through the Fed this afternoon. From Forney’s Bank,

  London, to the Monarch account at Bank Southeast.”

  Larson nodded.

  “There is one item Richard asked me to confirm.”

  “Okay.”

  “We’re the single limited partner?”