Trader, father... (page 2)
By 1996 he had married Maureen, whom he would ever after, on a daily basis, refer to as "the lovely Maureen," or "TLM" in writing, and moved his growing family to Rowayton, a place he never intended to leave. He had fulfilled his ROTC commitments teaching at Penn while simultaneously getting an MBA at Wharton, and then headed straight to Citi to trade bonds. For a family man like Gile, Rowayton was the perfect place from which to catch the 5:37 A.M. Metro North train to Grand Central Terminal - an idyllic little commuter town on Long Island Sound where the husbands spill off the train on Friday nights and head to Bayley Beach. There, they know, the kids will be playing some kind of sport and the wives will be waiting to barbecue. A lot of traders go out drinking in Manhattan after a long day, but Gile couldn't wait to get home. He was a treasurer of the civic association and founder of the youth basketball league.
His annual Christmas letters were filled with humor and happiness. "Maureen has immersed herself and the boys into roughly one gazillion activities," he wrote in 1997. "I think there was one time this calendar year when I phoned home and they were actually there. I didn't know what to say to something other than the answering machine, so Maureen just assumed it was a crank call." In 1998, with Maureen pregnant, he joked, "Should we have another boy, we will be taking donations for straitjackets for TLM," but later added, "The Gile boyz are super-sweet, super-active, and a super good time." The next several years were filled with jokes about the trials and tribulations of tearing down and rebuilding the house the Giles had bought in the beachfront neighborhood of Bell Island. Each letter ended cheerfully with sincere pleas to visit and to have a "fantabulous holiday season."
Which is what made the strange odyssey that began for the Giles in early 2004 all the more astonishing. On a winter day in late February, Maureen went to pick up the kids after school, and there at the playground was Craig, in the middle of the afternoon, dressed in his business suit. "Hi," she said, caught off-guard. "What are you doing here?" Later, when the boys were out of earshot, he told her that he was on paid leave for a few days, she recalls. "He said there was an investigation going on: 'They are looking at our books.' He didn't seem too concerned." Over the next two weeks Citi would call him in to answer questions, and he complied. "I never in my wildest dreams thought I would lose my job," he says, looking back. "I thought they would do some investigating, find some systemic problems, fix them, and move on." (He would later, in letters to Maureen from prison, call this his "head-in-the-sand syndrome.")
Then, two weeks later, in mid-March, he got a call. He'd been fired. It was a shock. The Giles were hurt and angry. The termination cost him stock and options worth about $1.5 million and a job that was earning him an annual bonus of more than $800,000. But they moved on, and by May, Craig had a new job at Graham Capital, a hedge fund based in Rowayton, managing an energy portfolio that would grow to about $40 million. That December the Christmas letter told how he'd "parlayed a three-hour-commute adventure into five minutes," with a new office across the street from the kids' school, close enough to catch the occasional after-school play. "I hope this doesn't come across as bragging, but I DOMINATE in kickball," he wrote. His December was darkened, though, by hearing third-hand that federal agents were questioning some of his old colleagues on the commodities desk.
Then, at the end of January 2005, the rumors turned horribly real. After dinner Craig and Maureen were helping with homework and herding the boys toward bed when the doorbell rang. Gile went to the door. There, in the cold, dark night, were two men in suits. One of them flashed a silver badge. They were from the FBI. The agents wanted to ask him some questions. His heart sank, and he told them his lawyers had advised him not to talk. Then he went through the motions of the nighttime routines - the homework, the stories, the good-night kisses. "Generally I can sleep in any condition," he says. That night neither Craig nor Maureen got much sleep.
In the months that followed, the Giles kept hoping the investigation would go away based on reports from his lawyers, who were in touch with the prosecutor's office. He had rejected one of the options the prosecutor had presented, which was to testify against Becker. Instead, says McKay Chauvin, a college buddy and circuit court judge in Kentucky who would become Gile's main confidant through the ordeal, the events unfolding in the U.S. Attorney's Office for the Southern District of New York were building into "the perfect storm of circumstances for Craig." Neither Gile nor his lawyers ever knew for sure why a case as relatively small as theirs would be the one the prosecutors would decide to take on. But they later speculated it was because Citigroup, which had been front and center in scandals ranging from Enron to the securities-analysis debacle, wanted to demonstrate its enthusiasm for law enforcement. Citigroup's only comment to Fortune: "Mr. Gile was terminated after an internal investigation in 2004, and Citi cooperated with the authorities during their investigation of the matter." In any event, at the time, the Giles couldn't possibly imagine the course his case would take once it did get on somebody's to-do list at the federal prosecutor's office. In Manhattan it's an entirely different philosophy, argues Chauvin, from how it worked in Kentucky, where he had been an assistant U.S. attorney for five years. Think Main Street vs. Wall Street. "As a former U.S. attorney, I generally appreciate the raw power you have to ruin a person's life," says Chauvin. "If you can't say with a clear conscience that this guy ought to be in prison, then you should just say no. It's not a contest. It's not a game. "
But when it comes to Wall Street, in the absence of clear rules and a lack of close regulatory supervision, the thinking among prosecutors and judges seems to be that the aggressive pursuit of a select few will be a deterrent to thousands of other traders who might be similarly tempted. Jonathan Streeter, the assistant U.S. attorney who handled the case, said he couldn't comment. However, an attorney who formerly worked in the Southern District says there are very stringent rules in the office about how far a prosecutor can bend to show leniency to a defendant. "Once that train gets on that track," says Chauvin, "it is almost impossible to derail."
Through the months that followed, the investigation began to cast a cloud over the clambakes at Bayley Beach, the family gatherings, the Little League games. "Hey, Coach," one Little Leaguer prompted, trying to get a call from Gile, his first-base coach; Gile had forgotten to wave the kid to second. Gile looked over at his friend Blattman, who was also coaching, and shrugged. "My bad," he called. In Rowayton rumors flew. People asked each other questions. Sometimes they asked the Giles. But Gile's attorneys had told them to keep quiet, so they kept their frustrations and fears - and their side of the story - to themselves. "It was hard," says Maureen.
In spring 2005 the Giles decided to uproot the family. It was wrenching; they had built their dream house. "I had gone to the quarry to pick out the stone for the fireplace and picked out all our tile," Maureen recalls. But after living in the house only a year and a half, they could sell it for $3.2 million and buy one for less than half that in Longwood, Fla., a suburb of Orlando. Craig badly needed a change, and his parents were ready to retire from their decorating business there. Florida would provide a clean slate in a new community. They moved into a gated community called Alaqua Lakes, as different from Rowayton as golf is from sailing - New South, transient, filled with kids, and free of judgmental banker types.
The Giles jumped right in, signing the kids up for sports, playing tennis, and joining the Homeowners' Association, for which Craig was enlisted to help plan a hoedown. He quickly settled into his new job - selling shutters and blinds - and from then on rarely wore anything but cargo shorts. "My assumption was that Craig had made a little money in New York and did his thing and now was going to enjoy life," says his golf and tennis partner, David Graef. Every morning he saw his kids off at the bus stop with the subdivision's other dads, and every Tuesday night he played tennis with them. The move "gave us a little bit of fresh air," explains Maureen.
The gathering storm followed them south. In November, as Gile was out on a job measuring windows, he got a cellphone call from his attorney. The prosecutors had decided to go forward. It was "like a shot to my gut," Gile recalls. He finished the job and went home bearing yet more horrible news to the lovely Maureen. This was the point at which he decided to seek advice from Judge Chauvin, his old Vanderbilt fraternity brother. Gile told his friend that he was unhappy with his lawyers because they wanted him to agree to a plea bargain- and he couldn't understand why. After Gile explained the whole thing, Chauvin recalls, he had a visceral reaction like Gile's, but for a different reason. "It was like I'd been punched in the stomach. Not because I felt my friend had just robbed a bank, but because I knew what he was about to step into. He was feeling like 'I'm an honest guy- how bad can this be?' And I knew exactly how bad this can be."
At Citigroup, Gile had been trading in energy derivatives based on futures and options that had been originally designed for businesses to hedge exposure to price volatility and other risks. One such derivative was based on the crack spread option, named after the refinery process of "cracking" crude oil into products like gasoline, and based on the difference in price between the products. While such instruments are freely traded in places like the New York Mercantile Exchange, derivatives traders can create positions so highly leveraged, illiquid, and long-term that keeping track of their value becomes a down-the-rabbit-hole computation. The government accused Gile and Becker of taking advantage of that situation in a variety of ways to inflate the value of the department's positions in order to pump up profits - and their 2003 year-end bonuses. In Gile's case the government alleged that he made changes on Oct. 8, 2003, to the mathematical relationships in a computer model that artificially inflated the present value of some of the desk's options by more than $2 million. All told, according to the charges filed in U.S. District Court, "the commodities desk appeared to perform significantly better during 2003 than it actually performed."
The government also charged Gile with giving false derivative-price quotes to an independent broker in order to deceive Citigroup. The broker arrangement had been set up, Gile explained in an e-mail he eventually sent to friends, because Citi wanted independent verification of each position. Gile believed the broker was to get quotes from other firms as well before he vouched for accurate numbers to the bank. Eventually, Gile began to realize that wasn't happening. "I knew this probably wasn't ideal, but I figured as long as I gave him reasonable quotes, it was no big deal," he would later say.