Last Updated: June 7, 2008: 3:14 PM EDT
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Trader, father, veteran, convict

As famous CEOs marched off to jail, so did lots of guys like Craig Gile. The Citigroup trader had a wonderful life - until the Feds decided to make an example of him. Was it fair?

By Betsy Morris, senior editor

The inmate: At the Federal prison camp in Jesup, Ga., washed windows and later taught finance.
Waiting for dad: The Gile boys (from left) Carter, Ian and Garrett, with their mom in the livingroom of their home in suburban Orlando.

(Fortune Magazine) -- To friends, the idea that Craig Gile would end up in prison just didn't make sense. He was the guy on the tennis court who went out of his way to correct line calls.

For most of his 44 years, Charles Craig Gile led a charmed life. Honor student, captain of the basketball team, degrees from Vanderbilt and Wharton, medals for service as a naval aviator in Desert Storm, a Citigroup commodities trader with a cedar-shingle house on the Connecticut shore and a Christmas-card-perfect family - a lovely wife and three rambunctious boys.

Since last August, though, he has been Inmate No. 59449-054, dressed in a dark-green prison uniform in a place he had never on his worst day imagined he'd spend time: the federal prison camp in Jesup, Ga. "This notion of a Club Fed is terribly inaccurate," he said recently. "That place doesn't exist. No golf. No tennis. No lobster. No nice meals - unless you consider the bologna soup we had a couple of weeks ago a nice meal. I live in an open-air cinderblock building. Sleep in a triple-decker bunk bed. There are six toilets. Seven showers for 78 men."

It has been a far cry from the life he was used to - barbecues and tennis, homework and Little League. In prison, breakfast is at six. Room inspection at 7:45. On Wall Street he traded complex energy derivatives. At Jesup his first job was washing windows. He moved up to teaching math, science, and finance classes to other prisoners, getting paid $9.80 a month. Dinner is at 3 P.M. The day is punctuated by roll calls to make sure nobody has escaped. Each month a prisoner is allotted 300 minutes to phone home. For Gile it has been nine months of shame and sadness, severe back pain, and homesickness. "It's been a horrible experience," he said in one of two interviews with Fortune in prison. "This will forever leave a mark on me and my family."

In May 2007, Craig Gile was sentenced to a year and a day in prison after pleading guilty in U.S. District Court in Manhattan to one count of conspiracy to falsify bank records and commit wire fraud at Citigroup, where he was head of American sales and trading on the commodities desk. Federal prosecutors accused Gile and his boss, David Becker, of overstating the value and understating the risk of their trading positions in complex energy-based derivatives in late 2003 and early 2004 in order to boost their year-end bonuses. They had allegedly inflated their department's profits by a total of $20 million, with the help of a broker in Englewood, N.J., who was supposed to be independently verifying their calculations to Citi.

Is Gile guilty? That's how he pleaded to avoid the risk of a much longer sentence. He told the judge he was "truly sorry." But his real sorrow was that he had to give up what he desperately wanted: the chance to clear his name. He had little hope that a jury would understand or accept his rationale for the valuation of complex derivatives, let alone that he could convince it that his efforts to fix the problem were a sign of his good intentions rather than a cover-up. His lawyers warned him he could end up spending as much as five years in prison, not to mention $1 million on a trial, if he were to lose. So after months of anguish, he took a plea deal, and on the last day of school in Longwood, Fla., where he had moved his family, he fired up the grill on his backyard patio for an end-of-school barbecue and sat down his three sons (ages 13, 11, and 9) to explain why their dad would be going to prison.

Following orders

He was following his boss's orders, he told them. He was probably too trusting. He didn't know exactly what the rules were. He used examples the boys could relate to, recalls his wife, Maureen - "Like if somebody throws a ball, and it cracks a neighbor's window, and everybody runs away. And she reports all the names to the police, then you're in trouble too, even if you didn't throw the ball." His name is pronounced like "guile," but any similarity seems to end there. Recently, sitting at a folding table in the cinderblock training center at the Jesup prison, it is clear that Gile is a mix of sadness, regret, some denial, and sheer wonder at how things could've gone so wrong so fast. "I think there are hundreds, if not thousands, of traders who work on Wall Street every day valuing their portfolios, and they view it as being an internal bookkeeping function, and they don't realize that they are at risk of ending up here."

At sentencing, the judge said he was sorry too, but felt he had to make a point. U.S. District Judge Robert W. Sweet ordered Gile to repay the bank $185,819 as restitution for the inflated bonus. And a prison sentence was necessary, the judge said, to act as a deterrent. "I regret it. I wish it were otherwise.... But I think you have been a participant in a culture about which one cannot be tolerant."

Actually, it's more complicated than that, which is why Craig Gile is more a parable than a criminal. His is the story of a good guy navigating an especially tricky era of American business. You could call it the wink-and-a-nod era. Bosses want results but not too many details. At what point does a stretch goal become a step over the line? When does adept managing become managed earnings? Seeing the distinction is made all the more difficult by extreme innovation and hyper-competition. This is especially true on Wall Street, where it's commonplace to trade exotic derivatives that are so illiquid they might only have one customer. As a result, it's also common for traders to book the highly subjective value of their own complicated and volatile derivative trades, despite the obvious inherent conflict of interest.

Wherever the line is, it was thoroughly trampled as every major financial institution, including Citigroup, (C, Fortune 500) rushed to get in on the derivatives-trading boom. The generals at those firms made clear that they wanted a big piece of the action, and the foot soldiers on the trading desks reacted accordingly. When Becker also pleaded guilty, his lawyer told the court his motivation was not to get a bigger bonus but to make his budget and please his superiors. "The type of conduct that got Craig Gile ensnared in the criminal justice system is conduct that I believe is in many ways routine on Wall Street," says Roland Riopelle, Gile's lawyer, who handles many white-collar cases. The kind of derivatives that Gile was "attempting to value on the books of his employer are extremely hard to value and I believe are often overvalued by those who deal in them. I think this is a common practice."

As Gile was settling into his new job on the Citigroup commodities desk in 2003, two countercurrents were in full swing. One was a post-Enron crackdown on white-collar fraud that would eventually ensnare not just Kenneth Lay and Jeffrey Skilling but hundreds of other executives (yes, hundreds), ranging from VPs to CEOs. The other was the derivatives-trading boom that would come to grief a few years later, when securities tied to subprime mortgages came crashing down. While banks have written off tens of billions of dollars and the Federal Reserve has been forced to inject billions to prop up the credit market, the captains of this industry, who led disastrous charges into derivatives, have so far suffered only damaged reputations - while collecting fat severance packages. Gile, who took a step into a million-dollar gray area, went to prison. "There are numerous banks and investment banks that have taken billions and billions of dollars of write-offs, and to my knowledge nobody has been charged with anything - never mind anybody going to jail," says Gile's friend Eric Blattman, a former hedge fund manager and now a private investor. "When you look at the whole scope of things, what Craig's accused of is like the fly on the back of the elephant."

For anybody who knew him, the idea that Craig Gile would end up in prison just didn't make sense. If it could happen to him, it could happen to anybody. He was the guy on the tennis court who went out of his way to correct line calls- even when they went against him, says a tennis partner. "I can see this or that guy getting caught with his hand in the cookie jar," says John Maloney, a friend and neighbor who started the youth basketball league with Gile in Rowayton, Conn. "But Craig's just not that guy." There was nothing in his past that would suggest a career trajectory like this. He was the kind of eager-to-please kid who left a trail of awards, report cards, and newspaper clippings that his mother, Jean, now sifts through somewhat painfully. There's Craig on the Biddy Basketball team in Norwalk, on the Orange Park All Stars, on the dean's list at Vanderbilt. "Everybody should have a kid like this," says his father, Spike. Craig loosened up a little bit at Vanderbilt, which he attended on an ROTC scholarship, joining a fraternity and playing the kazoo in the popular All Toy Band. But as his friends went off to jobs or grad school, he left for Navy flight school in Pensacola, Fla., and ended up a navigator bombardier on an A-6 Intruder, flying 23 combat missions in Operation Desert Storm. In a letter asking the court for leniency, a fellow pilot described how Gile chided him when he didn't want to take off again to refuel a stranded jet after having just landed on the aircraft carrier in a harrowing thunderstorm. "Craig chastised me and reminded me that our friends were counting on us 'to get them some gas or they're going to be swimming.' He never once thought about himself."

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