Running With The Big Dogs: Sybil Norcroft Book Six (3 page)

Chapter Three

House No. 6, Maly Patriarshy Pereulok, South-west Side of Patriarshiye Ponds, Moscow, Home of Leonid Aleksandrovich Zaslavsky, the
vory v zakone
[syndicate boss and chief of the thieves-in-law] of the
Solntsevskaya Bratva, russkaya mafiya
[Russian mafia], October 28, 2019, 1100 hrs

R
enata Leonidovna Zaslavsky—the only daughter of the chief of the “thieves-in-law” as the Russian mafia termed their family driven crime syndicate—entered the family room and sat on the arm of Leonid’s favorite overstuffed chair and positioned her long legs on the ottoman.

“Daddy,” she said, “I have an idea…”

“Oh, no, Renatya,” the huge bear of a man said, pressing is head against her shoulder as if to hide his eyes in fear, “I know this is going to cost me dearly.”

She knew she had him when he used the family’s affectionate diminutive for her.

“The boys and I having been doing a little mining.”

“Um hummh,” Leonid said, his interest now piqued, “and what did you dig up?”

“We hacked into the U.S. Treasury internal site and found a series of encrypted e-mails between Treasury and the Fed. Once Afanasy and Lyosha were able to decyrypt the information, we got reams of paper on the failing financial institutions in America. The long and the short of it is that they might not be able to make their next interest payments on their national debt, and there will be a catastrophic drop in U.S. stocks, bonds, and the money market. There were suggestions of austerity programs, but neither Pennyweight nor Roperlarve was specific about what they might recommend to Willets. The date is clear however: the interest payment comes due on January first next year.”

“And—like always—they will find a way to kick the can down the road,” the elder Zaslavsky said giving a nod to the history of U.S. economic policy.

“Even presuming that, Daddy, they cannot continue that deficit spending forever. Right now, they owe the Chinese something like $108 billion, and the number increases exponentially every year. If they default, they will never get back to their original powerful economy, and all of the rest of the world will suffer as well.”

“Even us. That can’t be a good thing for business, my brainiac daughter.”

“Oh, but with all respect, honored father…”

Leonid rolled his eyes.

“What I was going to say, Sir, is that while all of the unsuspecting world suffers, we can profit beyond our wildest imaginations.”

“I suppose you and the boys know just how to do that.”

“We do,” she said smugly.

President Afonasii Glebovich Tikhondnko’s Office, Royal Apartments in the Terem Palace, The Kremlin, Moscow,
Rossiyskaya Federatsiya
, October 28, 2019, 1630 hrs
Present: President Tikhondnko; Boris Petrovich Orloff, Prime Minister of Russia; Andrei Levinovich Yudin, Chairman of the Federation Council of Russia [Upper house of the Federal Assembly of Russia]; Vadim Turchinevich Simonich, Chairman of State Duma Council [lower house of the Federal Assembly of Russia]; Rodian Stankevich, Minister of Finance; Colonel General Yevgeni Mitrokhin, Director of the SVR [Foreign Intelligence Service]; Michael Levinovich Ledvinov, Director of the MVD [Ministry of Internal Affairs];

Having had three attempts on his life in as many years, President Tikhondnko had devised a number of curious security measures. In order to ensure that no one carrying a weapon came to a state meeting with him, he introduced the pleasant custom of having all men share a
banya
[traditional Russian steam bath] with him and all women share a
banya
with his wife, Eugenia. For the important men who answered the president’s summons that brisk fall day, it was something of a leveling experience, and a daunting reminder that even they might be suspect. It therefore became a comfort to enter the
banya
; there was a very low potential that a violent act with a weapon would result.

In his office, President Tikhondnko had his steward serve two fingers of expensive Alizé vodka neat to each of the attendees, then started the meeting without further informalities, “Director Ledvinov had a very interesting call from house No. 6, Maly Patriarshy Pereulok, this afternoon. We have had a chance to verify the information. I’ll let Michael Levinovich give you the whole story.”

The Director of the MVD was a wizened old man of small stature who commanded respect from everyone in the government, fear in most them, and in all of the public. When he talked—which was seldom—people who mattered, listened. This was one of those times.

“Gentlemen, comrades, I received a call from House No. 6, Maly Patriarshy Pereulok, at 1421 hours today. Leonid Aleksandrovich offered the government a very interesting proposition. He told me that some of his compatriots have discovered secure financial information from American sources that indicate an impending melt-down of their economy. As near as they can tell at this point, the fall from power is inevitable.”

“Let me guess,” Colonel General Mitrokhin said, “those ‘compatriots’ would be none other than his beautiful and brilliant daughter, Renata Leonidovna, Afanasy Fedoseev, and Lyosha Demidov.”

“The same,” Ledvinov said, “while we were discriminating against them flagrantly, Zaslavsky and his Mafiosi studied them and selected out the bright ones. They were children of the streets abandoned by their prostitute mothers when they became inconvenient. They were discovered by the
russkaya mafiya
when they were still prepubescent. Recognizing talent—even genius—when they saw it, the Mafiosi had the boys educated in everything that had to do with computers. They gave them last names; as you recall, Russian people began receiving surnames only about 100 years ago during the first population census of 1897. Until that time, all that passed for a last name was a nickname, and many of those in villages were absurd and even demeaning. Both boys—Afanasy and Lyosha—were arbitrarily given surnames of senior Mafiosi. Neither boy had a patronymic because neither had a father.

“The boys were given status and treated well but were more or less prisoners in gilded cages in their early years as junior Mafiosoi. As time went on, and they grew older; they also grew craftier; and finally, they became minor
russkaya mafiya
princes and were allowed considerable latitude for travel and social activities. They have had three hard and fast rules of life: no drugs or alcohol in a land and industry rife with addiction, no freedom from their watchers/body guards ever, and no betrayal of the
russkaya mafia
—early on they learned that use of their talents against their benefactors was considered to be a capital crime. Like other young hackers, they enjoyed their lives as princes and had no thought of killing the goose that was laying their golden eggs. The two boys have reveled in their status as top hackers in the computer underground community.

“Any expense put out for them has returned the Zaslavsky family a thousand-fold of profit. The present proposition sounds like more of the same. I want you to realize that what I am about to tell you is lacking in details. Those details are what the Americans call ‘trade or proprietary secrets’, and they belong to the Zaslavskies. They are willing to share, but they continue to hold the linchpin elements.

“They have people in strategic places in the stock markets—New York, San Francisco, Los Angeles, Boston, Chicago, you name it. All the hackers have to do is to send a sell order and a poorly performing stock will slide towards oblivion only to be purchased on what is known as a ‘short sale’ or ‘shorting’. It is complicated, but in essence short selling is going against the upward trend of the stock market. The practice is most commonly done with financial instruments traded in public securities, futures, or currency markets, due to their liquidity. Speculators sell short in the hope of realizing a profit on an instrument which appears to be overvalued, and that is where our insider information comes in. We know that almost all stocks are going to go into free fall, which ones will go down first, and which ones will yield the most profit. As decadent America gets its comeuppance, our Russian financial institutions, the government, and, of course, the Mafiosi, will reap the obscene profits. In a sudden leap—which will take place in less than a year—we will replace the United States at the top of the heap and will trump out the Chinese who have been expecting to take that place gradually as the U.S. takes the plunge. The morons in the PRC just don’t have the educational background to operate at this level.”

“I hate to appear to be one of those ‘morons’, Comrade Michael Levinovich; but I need a little clarification of how this grand scheme works,” said Boris Petrovich Orloff, Prime Minister of Russia.

“Happy to oblige, Comrade Boris Petrovich. The process is rather complicated; and, on the surface, seems counterintuitive. One sells financial instruments such as securities that one does not as yet own. Then, later, one repurchases them. The bet is that the price will decline during that period between selling and rebuying. If that proves to be correct, the person ‘selling short’ profits and pays off the original costs. Of course, should the financial instrument rise in value, the short seller loses; and the loss could be unlimited if the instrument rises in value with no end in sight. In practice, the individual selling short is required to post collateral to cover potential losses. If the individual fails to do so, then the broker liquidates the short seller’s position; and the losses are covered. Usually the seller must borrow the securities in order to manipulate the delivery of the short sale. Sometimes, in the U.S. the seller must pay a fee to borrow, and must reimburse the lender for any losses.

“Historically, the returns over many decades have been approximately 10% profit; but, in the case of well understood short selling—such as having insider information—the profits can be colossal. Short selling—especially in times of economic recessions—is very much frowned upon, but not illegal. In short, because we know that the stock and securities markets are going to plummet in the next several months, we can expect to profit at rates exceeding 100%. Frankly, Comrade Boris Petrovich, we in the government do not have the technical expertise to succeed as short sellers; but our ‘friends’—the Zavlavskies—do; and we need them. Joining forces with them on a short-term basis will be what the Americans refer to as a win-win proposition.”

The prime minister said, “So, our risks are that this is illegal; and we could be exposed; we could be wrong about what the Americans are doing; and the markets could remain stable and not fail; and we would lose our figurative shirts and be exposed as financial terrorists.”

“Not really, Sir. The Zaslavskies and their lackeys will be the only public face. Even in the event of the failures you suggest, all we will lose is money; and our part will remain hidden.”

President Tikhondnko looked around the room with a questioning face. The faces looking back at him were all registering an affirmative expression.

“Then, let us get into bed with the devil,” the president ordered.

Chapter Four

White House Conference Center [an annex building of the White House], 726 Jackson Place in Washington, D.C., October 29, 2019, 0800 hrs
-Present: POTUS; VPOTUS; Surgeon General Sybil Norcroft; Attorney General; Speaker of the House; Senate Majority Leader; Secretaries of State, HHS, Treasury; Chairman CEA [Council of Economic Advisors]; Chairman, Federal Reserve Board; Chairperson, Council of Economic Advisers for the Congressional Joint Economic Committee.
Re: Proposal to create a National Health Service to forestall impending failure of the United States economy.

P
resident Willets opened the meeting on an upbeat note, “I have been in contact with PRC Chairman Liew Bao-Zhi by telephone last evening and again this morning. It is in their best interests to support us on a temporary basis. He insists on absolute secrecy about the PRC’s involvement. His conservative wing would have his head if they knew that he was going to allow an opportunity to destroy the power of the United States pass without jumping on it. They know next to nothing about geopolitical finances, and would never be able to grasp the fact that destroying the U.S. economy would plunge their own rapidly developing nation into the doldrums for decades to come as well. Now, it is time for us to hear from Frank Margoles from HHS and Dr. Norcroft, the Surgeon General.”

Dr. Margoles smiled and indicated that Dr. Norcroft would make the presentation since it was more or less her baby.

“Thank you, Dr. Margoles, Mr. President, and all of you. I have been working on this for several years. Allow me a moment to let you know how I got interested. I have five friends—middle-aged independent practitioners of cardiology—whose business operates in the red despite them having a thriving clinical practice. I, like you, had to ask, how can that be? The answer is simple, and chilling. Nonhospital clinicians in subspecialties such as cardiology, neurosurgery, orthopedics, urology, etc. cannot collect enough on their billing to make ends meet. They are leaving private practice in droves. However, hospitals and other large health organizations can only hire so many physicians; and, because supply of physicians applying for those jobs outstrips the demand offered by the HMOs and hospitals is now quite low, the only alternative for my friends and doctors like them is to retire early and usually to get new jobs outside of medicine. That flies in the face of a critical shortage of doctors to serve our population and constitutes healthcare delivery nonsense.

Newly graduated physicians are in an even worse position. They have mountains of debt, and decent jobs are not available. Many of them will never practice clinical medicine and even insurance companies and large corporations are over-staffed by overqualified medical personnel. The patients out there in the country are having real difficulty obtaining a doctor. Physicians’ assistants and nurse practitioners cannot absorb the whole load because—although they are fine people—their educations are limited; and crucial skills possessed by physicians are becoming less and less available.

“The PPACA [Patient Portability and Affordable Care Act of 2010, or “Obamacare”, as it is pejoratively known] has failed miserably to deliver on its promise. The concepts were excellent: patient centered health care delivery systems managed by a number of different accountable care organizations; payment based not on fee-for-service, but rather on evidence based performance and efficiency; bringing into the system the forty million uninsured who were—and, unfortunately, still are—clogging our emergency rooms.

This included a mandatory agreement by all Americans to have insurance and therefore to remove ‘free-riders’ from the equation which would go a long ways to alleviate costs of our system. Better preventative care and better early care would prevent paying the huge costs of taking care of late stage problems, especially in chronic diseases. Better life-style decisions on the part of better educated patients would help to eradicate the health consequences of obesity, high blood pressure, diabetes, sedentary life styles and the like.

More family practitioners and nurse practitioners and physicians would be available to take care of patients earlier and better to lessen the impetus to be treated by expensive specialists. Doctors, hospitals, insurance companies, drug and medical device companies would unite in their own best interests to improve the health of the nation and to reduce our skyrocketing costs. Waste, fraud, over usage, defensive medicine, and a host of other evils would be eliminated.

“However, the PPACA had three fatal flaws that doomed it from the beginning; and the rate of decline of our health care system has not improved, nor has its role as a driving force towards national bankruptcy been removed. At the getgo, the Affordable Care Act was guaranteed to fail because it was conceived in partisan politics and its qualities were determined by a win and lose Democrat versus Republican stand-off. Second, no viable provision was made to deal with medical malpractice; the American Trial Lawyers Association won that issue—a Democrat victory which resulted in the continuation of defensive medicine, waste, corruption, and over usage for self-protection of the doctors, nurses, and hospitals. The final major flaw, and one rife with secrets, lies, and corruption, was that the insurance companies were allowed—or, more accurately, they prevailed, because of their enormous financial power—to continue business as usual. The president promised, lied, and obfuscated. The insurance companies quietly dropped patients who were sick or old or poor—so much for the portability portion of the PPACA. The most egregious action by the insurance companies was to raise premiums as much as triple, and to decrease coverage by foisting incredibly high deductibles on the unsuspecting and struggling middle class. The most telling symptoms of the sickness of the PPACA is that unfortunate middle class citizens are electing to pay an unproductive fine or as the Supreme Court termed it, “a tax,” rather than go broke trying to pay for their family’s insurance premiums.

“The Republicans won that part of the political struggle; and between them, the two parties made great strides towards wrecking the middle class thereby reducing the nation’s tax revenues and its ability to pay on the principle of the national debt or even the interest. Ladies and gentlemen, we have been going around trying to milk a duck for years. It is time to quit, to remove decent medical care from the greed and politics of the capitalist market place, and to provide a simple, honest, efficient, evidence based, single payer, health insurance system. We have never had a ‘system’. It is time, posthumous, that we did; and its form needs to be a National Health Care System. We need to stop the national angst over having a ‘socialized’ medicine system like the rest of the civilized world.”

In the next three weeks—and with the close observation of the Chinese—the legislative, judicial, and executive branches of the United States federal government pushed through measures that: raised taxes 10% across the board, established a National Health Service with the help of Canada, cut federal spending by 30% in every department and bureau. In addition a new security force was established which was tasked with ferreting out waste and fraud in every government agency and project with enough of a law-enforcement presence to investigate and to prosecute tax cheats, Medicare and Medicaid frauds, and price gouging by all vendors serving the system.

It was not a smooth beginning; but it was a beginning; and in short order individual state governments joined the struggle. The gears of government grind slowly; but, after the president declared a national emergency and caused a lowgrade panic among the citizenry, it was amazing how rapidly change could be brought to pass by an aroused public. Americans are slow to anger, and reluctant to make large changes; but, in contrast to their usual apathy and contrariness, the members of the American democracy are very good at reacting positively to a real crisis.

One aspect of the lack of smoothness was the irate response by some citizens and their political representatives as diverse as the hard-core unionists and pension fund managers in the East and the Tea-Party diehards in the Southeast and West of the Great Plains. The president and vice-president, Sybil Norcroft, Frank Margoles, Speaker Sengupta, and Senate Majority Leader Randolph Coombs bore the brunt of a firestorm of criticism. However, this time—unlike the previous most unpopular measures championed by many of the same national leaders to gain control of the H
₅
N
₁
influenza pandemic—the federal and state officials did not disagree in private with the measures to save the country; so, no impeachment movement gained momentum. However, there were very serious threats made against any and everyone who was responsible for the extremely unpopular austerity measures. Sybil Norcroft, former neurosurgeon, and Georgetown wife and mother was shortly to learn the degree to which those threats would be carried.

SEC Enforcement Division Office, SEC Headquarters, 100 F Street, NE, Washington, D.C.,
November 12, 2019, 1000 hrs

The daily reports from the floor of the New York Stock Exchange bored most of the SEC agents because they were monotonous—day after day, the same bland reports of routine buying and selling. John Bridger Warden was different. He had the eye of a gem cutter and the soul of an accountant. He loved looking at the reports, and his greatest excitement in a given day was to find the discrepancy—the crime.

November 12 started off as more than routine. Several Floor officials at the NYSE had sent reports of suspicious activity to the MSD [Market Surveillance Division] of the exchange—the regulation division responsible for monitoring trading activities on the floor and the records of trading by member firms of NYSE-listed securities. The MSD flagged a series of what appeared likely to be trading abuses and recommended formal investigation by the NYSE Regulation’s Enforcement Division. Randy St. James in enforcement flagged over 100 highly suspicious short sales and sent his report on to the officer of the day, John Bridger Warden, with a note telling Agent Warden that NYSE was opening a formal investigation; and the SEC would likely want to be involved. He forwarded a copy of the report and the Regulation’s Enforcement Division’s preliminary findings and conclusions to the FBI.

Warden poured over the raw data and referred frequently to the new SEC OCIE [Office of Compliance Inspections and Examinations] Risk Alerts to detect and thereby to prevent options trading that circumvents SEC short-sale rules. He found 128 instances of options trading that seemed to have been executed for that very purpose. The regulation dubbed “SHO” tightened requirements for short sales of borrowed securities. Warden knew that short sales are legal and that short sellers are allowed to profit from price declines by replacing borrowed securities at a lower price.

SHO required short sellers who fail to deliver securities after the settlement date to close out their position immediately, unless they qualify as bona fide market makers for a limited amount of extra time to close-out; and none of that day’s short sellers appeared to fall into that category. Agent Warden checked each trade against the regs to see if the trading strategies observed by the OCIE staff only gave the
impression
of satisfying the SHO “close-out requirement,” while in effect evading it. These 128 trades appeared to be sham close-outs that violate the SEC rule, which was written to ensure that trades settle promptly, thereby reducing settlement failures.

Agent Warden alerted his counterparts at the FBI, MSD, and Andrew Grantland from the New York Regional Office by a Go-to-Meeting electronic conference after a two hour scrutiny of the trades. The trading day had hardly even begun.

“Amil, you on the line?”

“I am, John,” answered Amil Sondregger, the SAC of the FBI’s east coast securities fraud division.

“Erick, are you with us?”

“I can hear everyone perfectly. The Go-to-Meeting set up is working perfectly. I am reading your highlighted trades as we are talking,” Erick Nielsen, chief at MSD, said.

“I’m with you guys. This Go-to-Meeting hook-up is working perfectly. I have eight officers here at Brookfield Place on Vesey Street huddled around the screen. We’re all ready,” Andrew Grantland said.

“All right, then, you guys,” Agent Warden said, “this is what I’m seeing. We have 128 instances of fairly flagrant failures of the ‘close-out requirement’ by evasive options trading. There are more short sales violations coming in even as we are talking on the phone. I am watching my computer screen, and picking out one or two a minute. I am probably missing two or three times that many.

“The most worrisome ones are truly abusive naked short sales—out-and-out securities fraud in which stocks are being sold without ever being borrowed and without any apparent effort to borrow. We are seeing a blitz of ‘short-and-distort’ false information to drive down stock prices artificially. Losses by companies like AT&T, GM, Chrysler, Delta Airlines, AIG, and Walmart—to name a few—are soaring as a result of a very cleverly arranged misinformation program. The misinformation looks superficially like intra-company communications that hint at a severe bear market for their stocks because of expected failing year-end mandatory reports. If it were true, we would be looking at widespread insider trading. If the advertising whisper campaign is false—as we are all but certain is the case—it is felonious activity designed not only to injure a company and thereby to profit, but the intent appears to be to wreak real havoc on the securities markets as a whole.”

“How many different traders, and what companies do they represent?” Nielsen asked.

“Is this coordinated?” Grantland asked.

“It’s too early to be certain,” Warden answered, “but it smells of fish. That’s my gut feeling but a lot more than a hunch at this point…Hang on, a moment, I’ve got an updated list coming in from my agents…”

There was a three minute pause.

“Sorry about that. I have bad news and worse news. The numbers of counts are escalating beyond anything any of us could imagine. We now have a list of crimes as long as your arm: there are fifty new counts of trading exclusively in hard-to-borrow securities and threshold list securities; twenty-two for trading in near-term listed options on that kind of securities; a dozen and a half large short positions in hard-to-borrow securities or threshold list securities; eighty-six more large failures to deliver positions in accounts, most of them in multiple securities; 188 counts of continuous failure to deliver positions; two score counts of using buy-writes, married puts, deep in-the-money buy-writes or married puts, to satisfy the close-out requirement.