When it comes to the financial markets, conspiracy theorists have a field day. Spend a few minutes Googling this and you learn how the world is apparently controlled by five Jewish men sitting with their feet up on a Bahamas beach. But this book is not a conspiracy theory; it is an honest account of a person, and an event that affected real money.
The name Samuel Israel III made headlines in 2008, in one of the largest American criminal manhunts in recent memory. That manhunt ended up overshadowing the crime that Mr Israel had committed - the largest Ponzi scheme till then in American history. And the man did not stay in the record books for much longer than the end of 2008, when Bernard Madoff was exposed and Mr Israel's crime began to look like an accounting error. But the Israel story is much bigger than the sums of money involved, as Guy Lawson has discovered.
Investigative journalism often gets very little credit, and fleeting at that. But nothing is as gripping as this genre; done well, painstaking research unveils a story to the minutest detail. This effort by Mr Lawson, an investigative reporter, is no different. His book is the result of countless hours of interviews with Mr Israel in prison, and travels across the Atlantic to piece together the caper.
Mr Israel's life began in one of America's wealthiest and most influential families. His family, Jewish but not practising, along with another Jewish family ran rings around the commodities market for generations. They would deal with dictators in Third World countries who supplied raw materials, and would hobnob exclusively with the White House. Yes, we are already uncomfortably close to the "five Jewish men" theory.
Mr Israel, though, decided not to toe the family line. He instead ran away to make a fortune on Wall Street, the ultimate place to live the American Dream. As someone who fetched pizzas and coffee for a trader in the bear pit of the stock exchange, he would keep his eyes and ears open, aspiring to climb up the greasy pole. He soon acquired a mentor and, in a few years, acquired skills and built a reputation for himself. He was wealthy enough to afford a home without a mortgage. Mr Israel was hooked to drugs, alcohol and occasional womanising, but surprisingly settled down to marry his high-school sweetheart and had children. But he never flouted the law; he only exploited its loopholes.
Everything seemed peachy. Then, as a middle-aged man, he decided to do the thing that would finally create a brand for him - his own hedge fund. With its office in the basement of his home, the firm had an unspectacular first year. In the second year, it started paying for some bad calls made by Mr Israel and his principal trading partner. And he found himself straining to play catch-up with the markets, recouping his losses and building a reputation - beginning his slide down the metaphorical slippery slope.
What followed was a story complete with false numbers, a non-existent audit firm, and Mr Israel passing on every chance to set the record straight and start over. Growing ever more full of himself, he led an increasingly isolated life fuelled by a toxic mix of hard drugs, prescription painkillers and alcohol. His fund ended up being a Ponzi scheme, and might have even weathered the coming economic storm - such was the reputation he had built with his numbers. But the con got conned by a network of even more sophisticated criminals who were guilty of something even more insidious - Prime Bank fraud.
The book highlights what is now common knowledge - how lax enforcement, regulatory oversight, and a lack of common sense led to hedge funds committing nothing short of blue murder. But what was more distressing was that people who were supposed to be street-smart succumbed to what was essentially a load of bull faeces, fuelled by nothing but pure greed. For anyone with a degree of common sense, Prime Bank fraud (which promised returns of over 100 per cent on invested money) should have rung alarm bells. But you will find the list of people who succumbed to it nothing short of fascinating.
Some of the passages in the book might initially sound like a far-fetched fantasy, but there are anecdotes such as the one about the con who conned Mr Israel, or Robert Nichols correctly predicting how Osama bin Laden would be caught. Also true was the one about Goldman Sachs, which finds itself under fresh scrutiny now for subtly using a metaphorical wormhole to boost profits while trading in aluminium. Don't bother reaching for the pinch of salt when you read this book.
OCTOPUS - THE SECRET MARKET AND THE WORLD'S WILDEST CON
Guy Lawson
Oneworld Publications
352 pages; Rs 419
