Chapter 1

Lunch with the FBI

May 20th 2010
Mountain View, California

It started with a sandwich. It was just after two o’clock on a Thursday. I hadn’t eaten much breakfast and was grabbing a late lunch. I left the office feeling light-headed with hunger and stopped at Subway. This was a routine of mine that worked well with east coast hours. I was just getting over a cold and needed to get some food in my system quickly. I could feel my blood sugar dropping.

I walked in the little sandwich shop and noticed what appeared to be a couple sales guys in dark suits at the counter. I looked down at their shoes to size them up. Cheap ones. Probably selling insurance or real estate, I thought.

After getting my sandwich, I put it down on a table near the window and went to get a drink. When I got back to my table the sales guys were sitting at the next table over in the otherwise empty restaurant. I grabbed my tray to move away from the suits.

“Mr. Fleishman?” I turned and looked at the two men hunched over their little table. “We’re FBI agents here from New York,” the older one said as they both flashed their badges. “We’d like to talk to you about an insider trading investigation.”

I sat down and listened to the senior agent quickly deliver a stream of words that were not registering. I asked to see their badges again, hoping this was some kind of prank. The badges looked very large and legitimate. I could hear him speaking, but was not able to focus on what he was saying. My heart raced. I felt like I was falling and I had nothing to hold on to.

“I really want to hear what you have to say,” I said, cutting him off. “But I’m diabetic. Do you know what that means?”

“I should probably know more about that than I do,” he said apologetically.  His partner sat silently trying to look serious, but he just looked like a kid to me, maybe twenty-five. The one doing all the talking seemed to be about my age—just over forty.

“It means I have to eat this sandwich. Now.” I explained. “I really do want to have this conversation, but for now I just have to eat this or my blood sugar could get too low. I could get sick.”

So, that is how we began, in silence, staring out the window as I stuffed my face and cars raced by on a busy street just a dozen steps away from where we sat.

What was happening here? Was this some kind of sick joke? Was I really sitting in a Subway with two FBI agents who had flown out from New York to talk to me about an insider trading case?

After I finished most of my sandwich I told the agent I was ready, though I didn’t really feel that way. He explained to me that they were wrapping up a three-year investigation that involved my company Primary Global Research (PGR), our clients, and the industry consultants who worked for my company. This would eclipse any previous insider trading case. I would be arrested along with others at my company. Our consultants and clients would be arrested. PGR would be shut down along with several of our hedge fund clients. It was all going to be happening soon and they were here because they wanted my help and I needed theirs, they told me. I was involved in the insider trading conspiracy, they explained, and if I helped them, that might get me leniency from a judge at sentencing.

“And what am I going to be sentenced for? Recommending consultants?” I asked. “Do you guys even know what I do?”

“You are an account manager working with buy-side analysts at hedge funds. You connect them with consultants within your so-called expert network. Your company gets paid about $1000 a call and you make 10% commission on the calls.” I could not have described my job any better.

“So, what exactly are you guys alleging I have done wrong here?”

“You know that several of your consultants, the so-called ‘experts’ you set your clients up with on calls, are divulging inside information.”

“I do?”

The senior agent nodded at his junior partner who pulled out a mini cassette player. He played a call between a prospective client and me from a year earlier.

On the call I was pitching a sales prospect who was starting his own hedge fund here in Silicon Valley. I walked him through the website used by our clients to find industry consultants and information about them. They had caught me red-handed doing my job, selling our expert network research service. I didn’t understand why they were playing this.

I leaned over and craned my ear towards the agent’s hand and tried to hear the sound coming out of the tiny player. I was talking about a consultant of ours at Dell who was very popular with clients because he could help them predict PC demand trends. The number of hard drives Dell was buying was a good way to get a pulse on the PC market.

When Junior stopped the tape, his partner delivered these words like bullets: “You know when you set up a call with Devore at Dell, he’s disclosing inside information on Dell.”

“Excuse me?” I said. “Are you serious?”

My clients didn’t care about Dell. It didn’t have the dips and surges the smaller companies saw in their stock price. But many of them wanted to talk to Dan Devore at Dell to investigate up purchasing trends. They wanted to know about the smaller players in the PC demand food chain: the hard drive makers, the computer chip makers and the LCD suppliers. So investors did calls with Devore and other people all around the world to research these demand trends. If you discover that Dell is buying 20% more hard drives as they did during the same month last year, you have one piece in what could be a valuable picture—an investment thesis that perhaps the PC market is recovering faster than expected. This method of research is called the “the Mosaic Theory” and was at the heart of PGR’s business. However, the uptick might be specific to Dell or might already be priced into the stocks. An analyst has to do many calls to get a read on what is happening and consider the price-to-earnings ratio and other technical data related to a stock before betting for or against it.

“And don’t try and feed us that bullshit about the Mosaic Theory,” the senior agent said mockingly, apparently reading my mind.

Since I still did not appear ready to become a government operative, they played another tape for me. On this call I was talking to a PGR consultant who worked for a semiconductor company (AMD). On the call I explained that we did not do any business with  the hedge fund Galleon, so he should not be worried about having spoken to any analysts at this fund. It was the day after Galleon founder Raj Rajaratnam had been arrested on insider trading charges. Why were they playing this tape? I wondered.

After the junior agent stopped the mini-cassette tape, his partner went off on tangents that I found hard to follow, referring to people in the hedge fund industry he seemed to think I knew but I’d never heard of before. I felt guilty. I felt like I was pretending I didn’t know these people.

“I know that look, James,” he said. “I’ve seen it too many times before. You know you’re guilty. Now’s your chance to make things better. I want to help you. This is what I do. I help guys like you, a family man. I think about you pushing your daughter on the swing in front of your house and it just breaks my heart.”

They pressed on. A pyramid of about fifty rectangles was quickly produced and shown to me. The James Fleishman rectangle was on the bottom right. They wanted me to know I was not a significant player but definitely a part of this vast conspiracy. This is how they worked, the agent explained. They start on the bottom and work their way up. To get the portfolio managers at the funds, they flipped the analysts. So what did they want me to do? Turn in my bosses at PGR for a conspiracy I knew nothing about? “But I don’t know about anything illegal going on at PGR,” I told them.

“James,” he said slowly to emphasize his disappointment, “We expected you’d make a smarter choice here.”

They had successfully freaked me out, of course. This clearly was no joke or whim on their part. My company had been wiretapped and under FBI surveillance for quite some time. They had collected an enormous amount of information and detail about our business. They were coming after us—after me. Two FBI agents from New York flew across the country to try and flip me. It seemed impossible to believe, but there they were.

Had I unwittingly been part of some conspiracy that would imprison me for years despite my lack of criminal intent? Should I be working with them to save my wife from having to raise my two-year-old daughter alone?

“So, what is it you want me to do exactly?” I asked. “Wear a wire?”

“Yes,” the senior agent nodded, “and collect historical information. Have conversations with people you work with and your clients. You will have a very busy month.”

The thought of entrapping the people I worked with in conversations that could be used by the government for prosecution sickened me. Maybe I could do the FBI’s bidding in order to help my cause and not feel bad about it, because there was no dirt to collect? Not quite. If the evidence I collected wasn’t incriminating, the FBI would view it as unhelpful to them and therefore unhelpful to keeping me out of prison.

At this point I couldn’t agree to flip, but I couldn’t see how saying ‘no’ would help me either. So I told them I needed to think about it. Apparently they did not like that. They went outside to talk.

They came back a few minutes later and the senior agent told me his partner mentioned that he might not have done such a great job of explaining things. He continued to try and persuade me how helpful they could be if I agreed to work with them. I began to feel like I was at a car dealership.

“When you’re working for us,” he explained with pride, “we’re putting points up on the board for you. And all that goes in the letter to the judge when it’s time for your sentencing. The more you can help us, the more we can help you.”

But I was still not ready to say yes.

The senior agent mentioned something about “never having to do this” and then pulled out some papers from his pocket. It was a grand jury subpoena. I had no idea what that was so the agent explained that I would have to compile a long list of communications relating to my work at PGR and present those documents to a grand jury in New York the following week. If I had a change of heart and decided to work with them, I needn’t worry about this appearance.

They had to go. They had their eyes on another prospective cooperator. But before they left, they wanted to educate me about obstruction of justice. They had been working this case for well over two years and they certainly didn’t want me to screw it up. They had just revealed it to me and did not want others who they were going after to be aware of it. So, they wanted me to repeat for them what constituted obstruction of justice. I refused at first, not happy to be their puppet. Finally, I relented and said that I understood that if I told anyone about this discussion it would constitute obstruction of justice—especially the people I worked with. According to the agent, it was my decision whether or not to tell my wife, but that was all that was permissible. Was he implying that talking to a lawyer would be obstruction of justice?

Standing at the door before we walked out, they handed me their cards and the senior agent wrote his mobile number on the back of his.

“You want me to call you, right?” I knew the answer to this question but just wanted to hear it.

After a brief moment of silence, Junior said, “Yes.” I imagine his senior counterpart scolded him for that later—ruining the facade that I needed them and not the other way around.

A very close friend of mine worked nearby at Google. I had to share with someone what was happening and figured my phone was bugged. Ten minutes later, I was driving through the Googleplex. Young, hip professionals in jeans and shorts walked along the sidewalks. Some were riding bikes and scooters. No one seemed to be in any kind of hurry. I watched them with envy. These people seemed so relaxed, confident and content. They all seemed so very free.


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