The billionaire charged with insider trading

This is an audio transcript of the Unhedged podcast episode: ‘The billionaire charged with insider trading’

Ethan Wu
This is a markets show. But behind the markets, there are human beings and those human beings, sometimes they get in some trouble.

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That is the tale of Joe Lewis, the legendary currency trader and British billionaire who this week was charged by US authorities with insider trading. Today on the show, we discuss the type of trading you really shouldn’t do. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu joined today in the New York studio by legal correspondent Joe Miller.

Joe Miller
Lovely to be here, Ethan.

Ethan Wu
Joe, you know, we talk about market moves, we talk about trades. This is something different. This is the type of thing you really shouldn’t do if you wanna be a market participant in the long term. Allegedly.

Joe Miller
Yeah, Let me tell you, this is really different even for a legal correspondent who’s seen his fair share of insider trader indictments in the last few months. For a start, we’re looking at an 86-year-old billionaire here.

Ethan Wu
Yeah.

Joe Miller
And one of our colleagues, shortly after the indictment dropped, just G-chatted me saying I need to understand why you would commit insider trading in your eighties.

Ethan Wu
You get bored after retirement. Like, what do you have to do?

Joe Miller
Yeah. This is an unusual insider trading charge. Usually when you see these kind of indictments, they involve some young traders on the floor of an investment bank who have a little bit of knowledge that no one else has and share it with their friends and make a quick buck or two. Here we’ve got an 86-year-old billionaire sharing tips aboard his private plane and his yacht.

Ethan Wu
Yeah. Yeah. No, it certainly is very different. But let’s back up and do some basics. Who is Joe Lewis?

Joe Miller
Well, Ethan, if you were a fan of Tottenham Hotspur, you would know who he is. Or indeed, if you knew anything about British soccer.

Ethan Wu
If I knew what a Tottenham Hotspur was (laughter) it’d be a very different show.

Joe Miller
Yeah, well, I must declare bias. I was born within spitting distance of Tottenham Hotspur Stadium in northeast London.

Ethan Wu
For the American listeners, this is a soccer team.

Joe Miller
It’s a soccer team and I support their arch-rivals Arsenal. So we just have to get that out of the way. But Joe Lewis, so he bought into Tottenham Hotspur in 2001 when he bought a controlling stake off Sir Alan Sugar, and he’s since put the club in a trust whose ultimate beneficiaries include members of his family. But he actually made his reputation and his fortune, as you mentioned, as an FX trader, as a currency trader. He was one of the people who bet against the pound in the nineties, a famous trade that George Soros made a lot of money on. He was among those. And he’s been living in the Bahamas for decades, and he’s sort of moved on from currency trading and owns an enormous portfolio of real estate, biotech companies, golf courses, all sorts of businesses around the world. He’s quite a recluse, is a bit of a wallflower, not an awful lot known about him, but we certainly know what his interests are and, you know, how big his empire is.

Ethan Wu
I wanted to flag this part that he’s a quiet man. And there’s this interview in The New York Times in the late nineties where he gave this amazing quote, which is it’s just incredible now, in light of what we what we know from the government. “One of the rewards of your success is the quiet enjoyment of it. Being on the front page of newspapers doesn’t allow for that”. (Laughs)

Joe Miller
I am absolutely certain his lawyers will be quoting that at trial (Ethan laughs) if it gets to trial.

Ethan Wu
Yeah. So British billionaire, 86 years old, made his money in the foreign exchange markets. And so he was born, you write in your story, Joe, above a pub in the East End in London.

Joe Miller
He was indeed. Although I must point out, coming from the East End of London myself, that there are lots of pubs in east London.

Ethan Wu
Not remarkable to be born above a pub.

Joe Miller
Exactly. The chances are higher than you might expect.

Ethan Wu
Right. Remarkable? Maybe, maybe not. How does he go from that to this kind of like world-bestriding businessman?

Joe Miller
So he was born in 1937, in the decade following the Great Depression, in the rough and tumble streets of east London. And what we know is he dropped out of school when he was 15 years old and, you know, like so many in that era, followed his family into the catering business. And then somehow, we don’t, you know, as I said before, you know, he’s a bit of a wallflower, so we don’t know exactly how, but he ends up essentially running a bunch of businesses and then going into the speculation on currency markets, which really took off after the gold standard was, you know, fully abandoned in the 1970s.

Ethan Wu
What do we, Joe, what do we know about Lewis as a trader?

Joe Miller
Not an awful lot. But our colleague Katie Martin has been speaking to some veteran traders who knew him back in the seventies and eighties and they had some colourful quotes to describe him. Apparently his nickname among FX traders was “Two Scoops”, and it took us a while or took Katie a while rather, to work out why he was called Two Scoops. And apparently it’s because any time he did a trade, he would wait a few minutes —- and this is a quote — “to see how the market digested it”. And if it went his way, he would buy another lot. (Ethan laughs) So he would like come back for seconds.

Ethan Wu
So the opposite of buying the dip.

Joe Miller
Yeah, exactly. And another trader said he’s no Soros, essentially, basically referring to his background — you know, Soros is, you know, highly educated LSE guy and Lewis is anything but — but described him as, and I really love this, an East End geezer with fingers in many pies.

Ethan Wu
(Laughter) What does that mean? What does that mean?

Joe Miller
A geezer means like a dude.

Ethan Wu
But what does the fingers in many pies mean?

Joe Miller
Oh, fingers in many pies means he’s a wheeling and dealing guy. You know, he has, like, lots of interests in lots of different industries and, you know, has never seen an opportunity he doesn’t like.

Ethan Wu
We have a bit of background on Lewis now. Let’s talk about what the government is alleging he’s done. As you know, flying to the top job, this is a bit strange in terms of an insider trading case. It seems to be about favours.

Joe Miller
Yeah. So usually when you get an insider trading case, at some point in the indictment, there’s an allegation of a quid pro quo. At some point the government says so-and-so shared tips about, say, a public company with their friend, their golf buddy, their doorman. And that person then trades on that information, and then they somehow share the profits and they both get rich.

Ethan Wu
Right.

Joe Miller
This indictment is completely devoid of such an allegation. Basically, what it says is this guy, right, who’s already a billionaire, is going around chatting to his pilots, to his ex-girlfriend, to his friends, saying, you know, perhaps casually to them, yo, oh, yeah, you know, I know something about flooding in Queensland, for example, in Australia that is gonna affect this company that he happens to own a public company or I’ve heard about the results of a clinical trial involving one of the biotechs that he owns. And then these people go and trade on that information and sometimes make money themselves. But there’s no allegation that that money then filters back to Joe Lewis.

Ethan Wu
Yeah, there’s no kickback. There’s not, at least as far as we can tell, like an explicit scheme for profit sharing. And like you said, he’s a billionaire, right? He doesn’t need the money.

Joe Miller
And the question Ethan is, does that matter when it comes to US securities law? Because insider trading, essentially insider trading law is not the most fully litigated area of US securities law. It’s still evolving because there haven’t been that many test cases that are quite like this one.

Ethan Wu
Yes.

Joe Miller
And the long and short of it, without getting into all of the technical detail is, is you have to, according to the statute, have derived a personal benefit from sharing these tips, right. And the question is, what constitutes a personal benefit?

Ethan Wu
Does your girlfriend or your pilot feeling good about you constitute a personal benefit?

Joe Miller
Right. Exactly.

Ethan Wu
You know, I think we should say that from the charges US authorities have brought, there’s some indication that they really did feel quite positive about him. There’s a really, really good excerpt from a related SEC civil filing that came at the same time as the DOJ criminal filing we’ve been discussing. It’s a conversation between Patrick O’Connor, one of Lewis’s pilots and a friend of his, and they’re discussing another man named Brian Waugh, who is also a pilot for Lewis. Here’s O’Connor talking to his friend over text: “Think the boss has inside info. Otherwise, why would he make us invest. Boss lent Waugh and I $500,000 each for this. I’m pretty sure he knows the outcome. Wow. He really loves you. He told me to buy and asked if I had spare cash. I said, ‘All invested and I need him’. I was like a little puppy looking up at him. He couldn’t refuse. Waugh just holds on and says, ‘I got big balls’.” So, I mean, allegedly, Lewis gave them not only the stock tip, but also the money on which to trade the stocks. And they’re feeling pretty grateful.

Joe Miller
Yeah, they seem pretty happy about it, don’t they? (Ethan laughs)

Ethan Wu
They do. Yeah. You’ve actually seen them in court, right?

Joe Miller
Yeah. They appeared in court yesterday for their arraignment alongside Joe Lewis. They all pleaded not guilty.

Ethan Wu
Wow.

Joe Miller
And I’ve got to say, Ethan, you’ve never seen two private pilots who look more like two private pilots in your life, you know, sort of busting out of their short-sleeved shirts, aviators indoors, that kind of thing.

Ethan Wu
Jeff Bezos immediately post-midlife crisis is the vibe I’m getting. Paint the picture in the courtroom. What was that like?

Joe Miller
It was all over very quickly in around 25 minutes or so. It was a run-of-the-mill arraignment at which a magistrate judge essentially makes sure the defendants understand the charges that were brought against them, reads them their rights, asks them how they plead and then sets bail. I suppose the most interesting part of it was, you know, Joe Lewis sitting there in his very crisp grey suit. I mean, one of the best-cut suits I’ve ever seen in my life, I must say.

Ethan Wu
OK.

Joe Miller
Man knows how to spend his money. But yeah, I mean, the most interesting part of it were the government’s bail conditions. And he is released on a $300mn bond, which is secured against his yacht and his private planes, and he is not allowed to board his yacht anymore.

Ethan Wu
That’s some serious collateral.

Joe Miller
Yeah.

Ethan Wu
So this is clearly, you know, if we take the SEC’s complaint on face value, I’m sure there’s going to be in the litigation an argument over did this affect how Lewis was able to pay his pilots, for example?

Joe Miller
Absolutely. Yeah. I mean, because one of the things you are trying to prove is, for example, that the personal benefit that he derived allegedly from sharing these tips would be say that he didn’t have to give his pilots a raise and instead he just gave them these tips. But there isn’t anything in the indictment itself at the moment. And the government doesn’t really have to lay out its full case in an indictment, just basically, you know, enough to get the charges through a grand jury. But there isn’t anything in there that says, oh, yeah, and Lewis then didn’t give a raise to his pilots for 10 years. Or, you know, Lewis was flown around the world for free for the next decade or something like that. That may come, but you’re right, that will be the crux of the matter. And it’s kind of a lopsided case because the, you know, the headlines are all about Joe Lewis being charged. And all of the salient detail in the indictment is about the other characters, really. I mean, the pilots have been charged. They pleaded not guilty yesterday, too. But, you know, these are the pilots texting, you know, their friends and each other, you know, saying Boss is helping us out and told us to get out ASAP.

Ethan Wu
And there’s the point about the encrypted app.

Joe Miller
Yeah, yeah.

Ethan Wu
Do you have that in front of you.

Joe Miller
“All conversations on app is encrypted, so all good. No one can ever see”. (Ethan laughs) Except, that is, the long arm of the US government.

Ethan Wu
Yes.

Joe Miller
Yeah.

Ethan Wu
If you, listeners, if you are trying to insider trade, don’t say that no one can see you insider trade. It’s not becoming.

Joe Miller
You’d be surprised, Ethan, how many indictments for insider trading contain messages like that.

Ethan Wu
(Laughter) We should just add that Joe Lewis is contesting this litigation. His lawyer gave give the FTC a statement. “The government has made an egregious error in judgment in charging Mr Lewis, an 86-year-old man of impeccable integrity and prodigious accomplishment. Mr Lewis has come to the US voluntarily to answer these ill-conceived charges and we will defend him vigorously in court”. Joe, maybe you could talk about the sense you have of Lewis’s chances in court. I believe you’ve spoken with some legal experts who focus on this type of litigation, given that it’s an unusual case. How strong is Lewis’s defence here in your view?

Joe Miller
I did speak yesterday to a few sort of heavyweights of the white-collar bar, so to speak, experts in, you know, defending people against charges of securities fraud in particular, and insider trading. And look, there’s no one out there who is gonna read this indictment and all of the quotes in it and think that, you know, Joe Lewis is not in big trouble.

Ethan Wu
Sure. (Laughter)

Joe Miller
You know, just described to me as a blockbuster case and one which will be very, very closely watched by the white-collar bar, particularly for the reason we’ve discussed, because there isn’t this, you know, explicit quid pro quo. The interesting sort of contour of this is, you know, personal benefits that have been accrued to Joe Lewis, allegedly. You know, will his defence essentially be, he’s a billionaire. What are you talking about?

Ethan Wu
Right.

Joe Miller
And is that a defence? And, you know, will that work? The government has a lot riding on this because the government is, you know, prosecutors are always trying to broaden the definition of the various crimes under various statutes in order to essentially give them the maximum power to go after what they see as wrongdoing. You know, and they’ve made a big song and dance about this indictment. Damian Williams, the US attorney for the southern district, you know, did a video statement. They don’t do that for every sort of, you know.

Ethan Wu
He was very triumphalist about this.

Joe Miller
Absolutely. And I think, you know, this will be seen as a test case for insider trading. And, you know, no one ever underrates the government’s chances. The government very rarely loses cases, especially in the southern district of New York.

Ethan Wu
OK, Joe, we’ve discussed kind of the contours of this case, but just for listeners, for any individual investors out there, is there a lesson that we can take away from Joe Lewis’s travails?

Joe Miller
Yes, Ethan. Don’t do insider trading. (Ethan laughs) The one thing I will say is that if you ask people who watch the US government, prosecutors, the SEC closely, they’ll tell you that some things that government do well and some things they don’t do so well. But one of the things they really do well is insider trading. It’s pretty much the easiest pickings for law enforcement. They go backwards from the trade. So however hard you try to disguise it, they will look for unusual spikes, for unusual trades, and they will go from there and walk all the steps through backwards until they find you. And they nine times out of 10 will find you.

Ethan Wu
Yeah. Yeah, they’re very good at it. I mean, the number of guys that have been arrested because they just told their wife about the stock of a company that they were on the board of. It’s just preposterous. But like, you know, they’ll get you nine times out of 10.

Joe Miller
I mean, you know better than me that most trading these days is algorithmic. So if something is unusual, it really stands out. And you don’t have to be a genius to essentially work that out. You know, the government has programs looking at this. You know, they’ve got their own algorithms essentially trying to detect this kind of spike or, you know, a sudden sale or, you know, something happening hours before and a company announces, you know, something or disclosure comes out.

Ethan Wu
Mm-hmm.

Joe Miller
They’re just watching.

Ethan Wu
Yup.

Joe Miller
Don’t do this stuff.

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Ethan Wu
The government is watching, Big Brother’s watching. So for the schemers out there in the audience, just don’t do it. We’ll be back in a moment with Long/Short.

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Welcome back. This is Long/Short, that part of the show where we go long, a thing we love, and short, a thing we hate. Last week, listeners, I was feeling kind of down. I had a pretty dismal short. I was short civilisation. Never something you wanna be. So I’ve tried to come with some good news today. There’s been a lot of great developments on the medical front, on the biotech front. Just a couple of weeks ago, Eli Lilly released this kind of blockbuster drug that was shown to slow the development of Alzheimer’s. There’s been a lot of writing about potentially the fact that we’re in a golden age of medical innovation. You know, for all the things about modernity that are kind of sad, this is one thing that is clearly, clearly good. I am long medical innovation.

Joe Miller
And I Ethan, I’m short a 330-year-old bank whose clients allegedly (laughter). No, whose clients really do include the royal family. And I’ll tell you why. This bank is Coutts, which guarantees the utmost discretion to its clients, unless, of course, you’re called Nigel Farage, (Ethan laughs) who you might be familiar with, was the leader of the Brexit campaign, leader of the UK Independence party. He lost his account at Coutts. The bank then briefed the BBC, saying that that was because the amount of money held with them had fallen below the threshold. But it turns out that’s not true. There was a 40-page dossier in which they discussed not liking his political views and it’s led to NatWest CEO, which owns Coutts, standing down. And this morning, the Coutts chief executive standing down. And I don’t care how old you are as a bank, I think if you guarantee discretion and you end up with egg on your face in such a spectacular fashion, I’m short.

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Ethan Wu
This is just the most British scandal there’s ever been. Possibly. (Laughter)

Joe Miller
Status. It’s all about status.

Ethan Wu
This is all about status. All right, Joe, thanks for being here. Listeners will be back in your feed on Tuesday with another episode of Unhedged. Catch you then.

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Unhedged is produced by Jake Harper and edited by Brian Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, John Schnaars, Eric Sandler and Jess Truglia. FT premium subscribers can get Unhedged newsletter for free and a 90-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer. I’m Ethan Wu. Thanks for listening.

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