Broker, Trader, Lawyer, Spy (4 page)

BOOK: Broker, Trader, Lawyer, Spy
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The judge did accept jurisdiction, and permitted discovery. That is the process by which lawyers obtain testimony and documents from the other side in a legal battle. Lawyers can force documents, records, e-mails, and other material from the opponent’s files onto the record. That’s how Schuette’s e-mail later ended up as part of the court record.

And the Diligence case did not die a quiet death.


imploded, Nick Day closed the Connecticut Avenue offices of Diligence, LLC, in Washington in exchange for much more modest digs. He moved his own residence to the picturesque French Alpine town of Saint-Gervais, which is only an hour’s drive from Switzerland. He is still in business, although he says that fallout from the Bermuda incident—which included recriminations, resignations, and lawsuits—taught him a lesson. He and his firm have changed their ways in its aftermath. “We essentially help businesses deal with the risks of operating in challenging markets,” Day says. “It’s a role which government agencies don’t necessarily have the resources or understanding to be able to fulfill.”

Mike Baker, who left the firm well before the Bermuda operation, bounced around at other corporate intelligence firms, for a time running Prescience LLC, his own private intelligence firm serving hedge fund clients. He took on work as a Hollywood script consultant on intelligence matters and writes commentaries for He says he is working on a book. In early 2009, though, he and Day
went back into business together for the first time in years. Day’s firm, Diligence, purchased Baker’s firm, Prescience, and Mike Baker went to work in Diligence’s New York offices at 7 Times Square.

These days, Guy Enright is working for Deloitte and Touche in London. He didn’t come away empty-handed from his encounters with Nick Day. As Project Yucca wound down in 2005, Day, still in the guise of Nick Hamilton, gave Enright a Rolex watch worth thousands of dollars. Enright was led to believe it was a thank-you gift from the British government.

But that, too, was a lie.


been clear who, exactly, owns Diligence, especially since several investors and owners have come and gone over the years. Day refuses to reveal who owns the spy company today. But one possible source of financial backing is one of the oldest banking families in the world, the Rothschilds.

In the spring of 2007, the British and American press reported that Diligence had received an infusion of an unknown amount of capital from a fund controlled by Nick Day’s longtime friend Nathaniel Rothschild, then thirty-six years old, the wealthy son of Lord Jacob Rothschild and heir to one of the world’s most famous and ancient banking fortunes. The
New York Times
once called Nathaniel “the man who may become the richest Rothschild.”

By 2007, Day had become a close associate of Nathaniel Rothschild. The two men had a lot in common: they were roughly the same age, both British, and both high-living businessmen who thrived on global intrigue. The friendship was a sign of just how far Nick Day had risen, professionally and socially. Through Rothschild, Day gained entrée to a family that had long dominated European banking, and had figured out—hundreds of years earlier—the value of marrying business and intelligence.

Nathaniel is in line to become a baron, and thus the fifth in a line of Lord Rothschilds. His family’s history dates back to 1744,
with the birth of Mayer Amschel Rothschild in the Jewish ghetto of Frankfurt, Germany. His roots are in England, but Rothschild maintains offices and a spectacular home in New York. He travels around the world on a private plane. Rothschild, who is known to friends as Nat, was born on July 12, 1971.

Nat’s ancestor Mayer Rothschild founded a financial house, and then a family dynasty, sending his five sons to five different European capitals to open financial offices of their own. When he reached age twenty-one, Mayer’s son Nathan went to England: first to Manchester, and then to London, where in 1809 he opened offices at New Court in St. Swithin’s Lane that to this day serve as headquarters for the bank that bears his name. By the 1820s, Rothschild was prosperous enough to lend capital to the Bank of England, heading off a potential economic crash in London.

From their earliest days, the Rothshilds understood the importance of combining finance and intelligence. Nathanial coordinated high-stakes financial deals with his four brothers on the continent, who were based in France, Italy, Austria, and Germany. Through couriers, clients, and confidants, they developed an elaborate intelligence network that spread across Europe. Nathan Rothschild arranged for money to be shipped to the duke of Wellington’s armies during their epic battle against Napoleon. In 1815, Rothschild knew of Wellington’s spectacular defeat of Napoleon at Waterloo an entire day before the British government itself was informed.

In 1875, Nathan’s son Lionel raised enough capital for the British government to acquire a major interest in the Suez Canal. And in 1885, Nathan Mayer Rothschild II became Baron Rothschild. Over the next fifty years, the family grew and prospered, branching into railroads, mining, and science. Two branches of the family in France became active in the wine industry, founding Château Mouton Rothschild, which produces one of the world’s finest clarets; and Château Lafite Rothschild, which produces elite
premier cru

Nat is the only son of four children. He attended Eton and
Wadham College, Oxford. An extremely privileged young college student, he joined the Bullingdon Club, a rowdy all-male drinking society.

After college in 1995, he began his career in New York at Gleacher and Company, whose founder was a friend of Lord Rothschild. The same year, Nat married the socialite Annabelle Neilson, but their riotous relationship ended in divorce three years later. While in New York, Rothschild met Timothy Barakett, then just twenty-nine and a few years older than Nat. Barakett was raising money for a new hedge fund, Atticus Capital. He eventually made the young Rothschild a partner in his fund and set him loose to leverage the Rothschild family name and connections to raise money for Atticus. Nat bore down on business, and the fund achieved astonishing success until the crash of 2008, which hit Atticus, and scores of hedge funds like it, very hard.

Still, Barakett had leaped to the top of the hedge fund universe, ranking number seven in the trade publication
magazine’s survey of the best paid fund managers of 2007, with a personal take of $750 million. Another partner at Atticus, David Slager, ranked number thirteen, with single-year earnings of $450 million. Rothschild himself tied for thirty-eighth place, earning $250 million that year. In 2007, the reporter Landon Thomas Jr. of the
New York Times
quoted Peter Munk, the founder and chairman of Barrick Gold, who overcame his early skepticism and agreed to Nat’s entreaties to invest in Atticus. “This kid is special,” Munk told the
. “It’s back to when they were ruling the world.”

The Rothschilds of old bestrode the globe and saw political leaders come to them for money. Nat Rothschild continues that tradition today, maintaining houses in Paris, London, Moscow, and Greece. He’s said to be an adviser to the Russian oligarch Oleg Deripaska, who controls the Russian company Rusal, the world’s largest aluminum company. In March 2008, Rothschild and his father hosted the Republican presidential candidate John McCain at a fund-raiser at Spencer House on Saint James’s Place in London,
the lavish estate built for the ancestors of Princess Diana. Under American campaign law, foreigners can’t contribute to presidential candidates, but they can host events. For the invited American donors, attendance at the Rothschild fund-raiser cost between $1,000 and the campaign maximum, $2,300.

With connections like that, Nick Day and the corporate intelligence industry he represents have circled back to a much earlier era in which private business interests deployed their own intelligence networks around the globe. And although today’s corporate spies have the technology and techniques of modern espionage at their fingertips, their history is deeply interwoven with the history of capitalism itself.

From Bogus Island to Deep Chocolate
A High and Honorable Calling

The story of American private intelligence begins with Allan Pinkerton, a Scottish immigrant, an American patriot, and a dogged entrepreneur who used fists, brains, and force of personality to build an empire. In the mid-nineteenth century, 27-year-old Allan Pinkerton came to the United States with his young wife, Joan, to escape the desperate poverty and unstable politics of ghetto life in Glasgow, Scotland. The couple settled in Dundee, Illinois, a dairy farming outpost on America’s rapidly growing western frontier partway between Chicago and Milwaukee, Wisconsin. The town was founded by Scottish immigrants searching for work, land, and a future.

Allan and Joan survived a dangerous Atlantic crossing and shipwreck on Sable Island near Halifax, Canada; endured the theft of Joan’s precious wedding ring by Indians; and worked their way across the country by boat and horse and wagon before arriving in Dundee. By 1846, Allan, a cooper by trade, had set up a barrel-making shop and employed eight men. It was good, honest work, and by any standard, Allan was a success.

One June morning, he set out by small boat for a set of islands in the Fox River, where he spent the day chopping wood to supply his small business. Making his way through the forest, Pinkerton
stumbled upon a burned-out fire pit deep in the woods, well beyond where any people should be. Something felt wrong, as if the people who had been there were hiding. His curiosity piqued, Pinkerton decided to return under cover of night to see who had been there—and what they were up to.

Crouched in the weeds, Pinkerton staked out the site. Before very long, he saw several men arrive by boat and set up a campfire. It didn’t look good—a group of men this far from town must be up to something illegal or dangerous. Pinkerton returned to town and alerted the sheriff, Luther Dearborn. The mysterious campers turned out to be a group of counterfeiters. Together with a posse of men, Pinkerton and the sheriff returned to the site several nights later and arrested the entire band of criminals. At the site, they recovered a bag of tools and fake coins. Thereafter, the little patch of land was known as Bogus Island.

For Pinkerton, it was a transformational moment. Catching the counterfeiters showed his neighbors, and maybe Pinkerton himself, that he had the curiosity, patience, and intelligence of a natural investigator. Pinkerton would go on to become the world’s first great private detective, and set up an agency that would bear his name and provide investigative and intelligence services to the biggest companies of his day. Pinkerton would, in many ways, invent the role of the private detective, and he served as a forerunner of today’s corporate intelligence operatives.


at Bogus Island, Pinkerton became a local celebrity. Gossips would stop by his barrel-making shop just to hear him tell the story of how he’d caught the crooks. Before long, his tale came to the attention of Henry Hunt, a general store manager in Dundee. Hunt and a shopkeeper named Increase Bosworth
were worried about another ring of counterfeiters who had been passing bad notes in the area, defrauding local businessmen. The two prevailed upon Pinkerton to take on a job for them in the “detective line,” as they called it.

Pinkerton agreed, and his new partners gave him what details they had. A man who had just passed a bum $10 note was having his saddle repaired at a nearby harness shop. Pinkerton, still dressed for work as a cooper, headed for the saddle shop to see what he could find out. The shop owner tipped Pinkerton off to the identity of the customer who had passed the $10 bill, and Pinkerton strolled up to him, pretending to admire his horse. He also took careful note of the stranger: gray hair, gray eyes, about sixty-five years old, gold ring on his left hand. Pinkerton struck up a conversation with him, trying to give the impression of being the kind of guy who might be a useful recruit for a shady operation. The stranger, intrigued, invited Pinkerton for a chat outside town, where no one else could hear it. He said he was John Craig, from Vermont, and he asked about Pinkerton’s background and occupation. Craig thought Pinkerton might make a good pass-through for the dummy money operation, and he offered to give Pinkerton fifty $10 bills in exchange for $125 in real money.

Pinkerton scrambled back to the storekeepers for the cash. He turned it over to Craig, who left the fake bills for him to pick up later under a rock. Now Pinkerton knew that there was a counterfeit ring, and what the going rate was for the bills. But he needed to catch Craig with the bills on his person in order to make an arrest. He set up another deal, for a $4,000 purchase to be made in the lobby of the Sauganash Hotel
in Chicago. At the right instant, Pinkerton made a prearranged signal, and the local Cook County sheriff charged into the room and collared Craig.

Word of the successful undercover operation and arrest landed
Pinkerton the job of deputy sheriff of Kane County, where he worked part-time while continuing his barrel-making business. But he wasn’t destined to stay a cooper much longer. In 1847, William Church, the sheriff of Cook County, offered Pinkerton a chance to move to Chicago and become deputy sheriff there. Allan and Joan Pinkerton moved to the bustling young city.

Pinkerton thrived in Chicago. The city was growing at an astonishing rate as thousands of new immigrants from Europe and the East Coast were pushing its city boundaries out into what had once been a rural landscape. In just over three years, Pinkerton became one of the most legendary lawmen in town. In 1849, Mayor Levi Boon appointed him as Chicago’s first—and only—detective. It was a tough world, and law enforcement officers were called to use their fists and boots in the pursuit of a rough sort of street justice that could keep the straining city under some sort of control.

Next, Pinkerton jumped from the police force to a job at the U.S. Post Office, where he worked solving petty crimes as a mail agent. At the post office, he went undercover again, posing as a mail sorter to help nail a postal worker who had absconded with $3,738 in cash stolen from inside letters. The criminal and his brother turned out to be nephews of none other than the postmaster of Chicago himself. When the news hit the papers, Pinkerton was singled out for high praise as the best detective in the country.

Press like that can change a career, and that’s what happened to Pinkerton. In 1850, he quit government service and set up a private agency with a lawyer as his partner. They called it the North-Western Detective Agency and opened a small office at the corner of Washington and Dearborn in downtown Chicago. The business began slowly and had its troubles. For one thing, historians believe that Pinkerton ousted his partner, Edward Rucker, within a year of starting the firm. But over time it became successful, and eventually it became a private intelligence juggernaut. By then, it was renamed Pinkerton’s National Detective Agency. The firm would
no longer bill itself as a creature of Chicago—Allan Pinkerton signaled his national ambitions in the letterhead of his company.

In the 1850s, laws were enforced locally, county by county. There was no FBI, and the federal government didn’t have much ability to track criminals from one state to another.
With the sprawling western frontier attracting all sorts of rogues and scoundrels, and improvements to transportation making it possible for them to commit crimes in county after county as they moved west, there was a desperate need for a police force. That’s what the Pinkerton agency became.

But the agency didn’t work for the taxpayers. Pinkerton was an intelligence agency that worked for corporate clients and wealthy individuals. It went after criminals who were causing the most damage to the biggest companies of the day: railroads, mining concerns, telegraph services. Pinkerton wasn’t as concerned about crimes against people as he was concerned about crimes against property. The company’s logo, a human eye above the slogan “We Never Sleep” inspired the term “private eye,” still used today.


the biggest names in business as his clients. He went to work for the American Express Company, which was beginning to transport packages containing all sorts of valuables on specially designed fast railcars. He worked for the Pennsylvania Railroad, just one of several rail clients whose nationwide scope helped push the Pinkerton name across the continent. And he worked for Western Union, which was establishing a cross-continental communications network of telegraph stations.

For the express companies, the Pinkertons tracked down stolen packages and the crooks who swiped them. For the railroads, they hunted stickup artists on the western frontier. And for the telegraph
companies, they busted white-collar criminals who sent bogus information over the wires to Wall Street as part of an elaborate insider trading scheme.

In 1871, the U.S. Department of Justice outsourced much of its investigative work for the year to the Pinkertons on a $50,000 contract. The firm grew so large and successful that its mission, tactics, and organization ultimately became the inspiration for the U.S. Secret Service and the FBI itself.

For their time, the Pinkerton detectives aggressively deployed new technology and centralized information-collection techniques. Photography had been invented as recently as 1840, and Pinkerton grasped how the technology could be used in fighting crime. He invented the mug shot, and his agents were clever in getting pictures of crooks across the country. Once, they got a notorious criminal so drunk at a saloon that a bartender on the Pinkerton payroll took his picture as he slumped against the bar and grinned sloppily for the camera. That picture was soon circulated across the country and used to identify the man.

The Pinkertons understood the edge that the telegraph gave them in sending coded information across state lines. But it also gave corporate crooks new avenues for thievery.
One case set a new standard for technological innovation—and financial corruption. In 1864, a stockbroker in California was arrested for conspiring to tap telegraph lines to intercept news before it hit the markets in order to arbitrage the insider information. The
Sacramento Daily Union
of Friday morning, August 12, 1864, detailed the scheme under the headline: “Tapping the Wires for Stock Operations.” A well-known stockbroker, D. C. Williams, checked into a hotel in the small gold rush town of Placerville, California, early that summer. The State Telegraph Company had offices in the same hotel, and Williams, an expert in telegraph technology, intercepted
the messages simply by hearing the clattering of the telegraph machine and mentally deciphering the long-dash and short-dash code. That gave him advance notice of the goings-on in the region. He used the information to develop invaluable insights into upcoming corporate events that would set off gyrations in the stock market. This was enough to let him make plenty of money through insider trading on the tidbits of information that came his way. But Williams had an even more elaborate plan in mind: to bribe the telegraph agent in exchange for help intercepting information on the outcome of a crucial mining lawsuit in the Nevada Territory.

Williams planned to take over the telegraph controls when the news came through. He’d know the result of the case—and which company’s stock price would soon surge—and he’d be able to keep the news from being passed on to San Francisco long enough to buy and sell the appropriate shares before anyone else knew the outcome. With his finger on the telegraph key, Williams could send fake messages down the line as he wished.

Meanwhile, the telegraph agent would help by cutting the lines to the east, preventing any messages from getting through that might tip off telegraph operators that something was up. Williams offered the man a healthy sum and an incentive bonus for his work: at least $300 if the stock scam failed, and between $700 and $1,000 if it succeeded. In today’s dollars, that would be a payment of more than $20,000 for a successful outcome.

Unfortunately for Williams, the telegraph operator was an honest man who went to his boss with details of the plot. Alerted to the swindle, police investigators found letters from Williams to coconspirators in San Francisco and Virginia City, Nevada. In one missive, Williams predicted that the group could make more than $80,000 on the deal—a staggering sum in those days.

“We ought to make enough on this one thing to lay by for years to come, if necessary,” he wrote. And there was no end to how many times the conspirators could pull off the scheme: “Whenever an important decision is hereafter to be given anywheres throughout the
country, we can do the same thing.” The nationwide insider trading scheme never came to pass: Williams was arrested on misdemeanor charges, was unable to post bail of $2,000, and was put in jail.

Williams’s telegraph swindle was a rare case in which the local police made the bust on their own. But it was just the sort of new, continent-spanning crime against companies and financiers that the Pinkertons were suited to detect. In most cases, local police forces were overwhelmed by the sophistication of corporate thieves, and couldn’t handle crimes beyond their jurisdiction.

The Pinkertons, by contrast, had unprecedented access to rail travel through their connections at the railroad companies. They could move around the country in ways that no force before had been able to do. They hired female detectives, a progressive move for the day, and used them to infiltrate society salons where bumbling male detectives could not go. They collected detailed files on every criminal they came across, establishing physical descriptions, habits, modus operandi, and other details for every man they tracked. The filing system was so thorough and contained so many names that for some crimes the Pinkertons could simply cross-reference a witness’s description with the type of crime and pull together a list of suspects to round up. The Pinkerton corporate files from the years 1853 to 1999 are now at the Library of Congress in Washington, D.C. They consist of an astonishing 63,000 items.

BOOK: Broker, Trader, Lawyer, Spy
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