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Bear Stearns and the Bodyguard of Lies

More than seven years after Bear Stearns’ collapse, its former senior leadership has pushed a narrative centering on the once-proud firm’s collapse having been unforeseeable.

In the telling, the metastasizing subprime crisis suddenly slipped free from fixed-income portfolios, and the only response the globe’s biggest financial institutions could muster was to cease lending, birthing a maelstrom wholly apart from any other market cycle. Cut off from vital short-term credit markets, and buffeted on all sides by self-serving rumor and the raw panic of their counterparties and clients, Bear Stearns was forced into a fire sale.

It was “a run on the bank,” a five-word phrase stopping just short of “act of God” in explaining the inexplicable and diffusing blame.

Two weeks ago the Southern Investigative Reporting Foundation obtained a just-unsealed lawsuit arguing the contrary: Bear’s financial health was in full-bore decline months before the June 2007 multibillion dollar implosion of its asset management unit’s two massively levered hedge funds.

The lawsuit and related exhibits were unsealed as a result of a Feb. 5 motion to unseal the case which was granted on March 17. (Lawyers working on behalf of Teri Buhl filed the motions; Buhl is a New York City-based independent journalist whose work appears on and Market Nexus Media’s Growth Capitalist Investor.)

In September 2009 Bruce Sherman, the founder and chief executive officer of Naples, Florida-based Private Capital Management — it once owned 5.9 percent of Bear Stearns’ shares — sued its auditor Deloitte & Touche LLP and a pair of its former senior executives, chief executive officer James Cayne and president Warren Spector. Sherman’s lawyers at Boies, Schiller & Flexner LLP allege Spector and Cayne repeatedly lied to him about the firm’s financial health, especially its valuation and risk management practices. (Sherman is a once revered value investor who sold Private Capital Management to Legg Mason in 2001 for $1.38 billion; he is suing over approximately $13 million of losses in his personal, charitable foundation and escrow accounts.)

Specifically, Sherman’s lawyers allege that because of the numerous assurances Cayne and Spector gave him throughout 2007 and 2008 that the firm was appropriately valuing its mortgage portfolio — and thus would be unlikely to have an asset write-down large enough to affect book value — he bought additional stock. As of publication, lawyers for the two executives had not returned emails seeking comment.

From the start of January to mid-March 2008, the value of Private Capital Management’s investment in Bear Stearns declined by $478.5 million.

Bear’s lawyers have insisted since January 2009 that the firm’s operational risks were fully disclosed in numerous public filings and that its management did nothing wrong. Two weeks ago they filed a motion that seeks summary judgement on all of Sherman’s claims. (See here for a defense team comment on the Sherman case; Joe Evangelisti, a J.P. Morgan spokesman, declined comment. )

Sherman’s claim cites previously unreleased emails between key Bear executives bluntly discussing its troubled balance sheet and fretting about its declining short-term funding options. (Here is a sample.)

For example, Bear’s mortgage-backed securities chief Tom Marano wrote to Paul Friedman, the repo desk head, on May 9 and May 11, 2007, discussing the firm’s balance sheet which in his view already had serious challenges. “You guys need to get a hit team on blowing the retained interest bonds out asap. This is the biggest source of balance sheet problems.”

When two Bear Stearns Asset Management hedge funds filed for bankruptcy on July 31, 2007 — incinerating $3.2 billion of Bear Stearns’ own capital — mortgage security prices collapsed, especially those that had been carved out of subprime mortgages. Trading volumes dropped across the entire MBS universe and the balance sheets of brokerages like Bear, Lehman Brothers and Merrill Lynch began to expand sharply as traders wrestled with not only their own mortgage inventories but billions of dollars worth of bonds sold by increasingly anxious customers desperate to reduce their MBS holdings.

What’s more, Bear Stearns’ management’s handling of its hedge fund disaster suggested that the firm’s risk management — particularly their computer models — valuation procedures and financial strength were suspect. The Securities and Exchange Commission’s Office of Inspector General’s September 2008 report on Bear’s collapse stated that “significant questions were raised about some of Bear’ senior managements’ lack of involvement in handling the crisis.”

There is no good time for a brokerage to signal to a marketplace — especially one where they are one of the dominant players — that they own way too much of an asset class that is rapidly declining in value and that they don’t have the financial resources to absorb the inevitable losses.

The summer of 2007, however, was the worst possible time to send that message.

In short order Bear’s executives were working very hard to keep word of its troubled balance sheet from leaking.

Timothy Greene, co-head of the fixed income finance department, sent a June 25, 2007, email to his boss Paul Friedman, “We are being very careful not to signal any hint of liquidity distress and would not want to do so as a result of a spike in the balance sheet.”

Friedman’s response: “We’re going to think how to craft the message in terms of getting rid of aged positions, paring down risk, etc. so as NOT TO spook anyone.”

A vicious circle was emerging and Bear Stearns was in the middle of it.

When the MBS market collapsed, Bear’s counterparties (who likely had their own mortgages losses to contend with) quickly began demanding higher interest-rates to enter into repurchase agreements with the firm. As repo counterparties began to be scarce, there was nothing Bear could do — unlike commercial banks it did not have a diverse stream of funding sources — but to accept what was offered. Getting the capital to support its mortgage- and asset-backed securities stuffed balance sheet became more expensive, forcing Bear’s trading profits to drop. What’s worse is those MBS and ABS were dropping in value, leading to unexpectedly large write-downs. Watching the charge-offs erase book value and with no profits to offset it, customers and lenders alike began to reduce their exposure to the firm.

Bear’s chief financial officer Sam Molinaro would become its public face, reliably pounding the table at every opportunity to assert that come what may, the firm’s financial health was fine. On a June 22, 2007, conference call, for instance, he said the firm’s “financial condition remains strong” and that it had “ample liquidity.”

Unit chiefs, often facing anxious customers worried about whether their prime brokerage account at Bear was safe or if the firm would be around to meet its counterparty obligations in a derivative contract, would come to see matters differently.

Prime brokerage chief Steven Meyer, in a July 20, 2007, email to Warren Spector and Molinaro, wrote that “the impact of the hedge funds problem on the prime brokerage business is very significant, not least because it gave brokerage clients a reason to question Bear’s judgement and risk management practices.”

Meyer’s concerns were not idle.

Vicis Capital, a $5 billion hedge fund, became the first big fund to move its prime brokerage in July 2007 to Goldman Sachs from Bear Stearns, principally over concern about the firm’s MBS exposure, according to an excerpt of Sam Molinaro’s deposition in the Sherman suit.


In August 2007 the gap between what Bear executives told the public and what they discussed privately became pronounced.

After Standard & Poor’s signaled that it was likely to cut Bear’s credit rating on Aug. 3, the firm’s executives hosted a conference call to reassure investors. Molinaro again struck a confident tone and told participants that “with respect to liquidity, our balance sheet, capital base and liquidity profile remain strong.” Treasurer Robert Upton added, “Bear Stearns’ liquidity and capital position is very solid” and that “the firm’s liquidity position, capital adequacy and funding capacity remains extremely solid not withstanding the difficult market conditions.”

Yet at 7:22 a.m. that morning Sam Molinaro sent an email to Bear’s former treasurer and then clearing chief, Michael Minikes, “We need liquidity ASAP” after Minikes told him of the looming downgrade.

In the following days emails between Bear’s executives responsible for funding its balance sheet took on an increasingly bleak tone.

On Aug. 9, an email thread between Upton, repo chief Friedman and others discussed Bear’s loss of $1.65 billion of equity repo, or repurchase agreements using stocks as collateral, as opposed to the standard government or corporate bonds. Within days it had become a torrent, and Friedman laid out the brutal details in a long email to fixed-income co-head Jeff Mayer.

To start, he told Mayer about the loss of “$14.5 billion in funding” most of which had been used to fund the MBS trading desk’s whole loan and non-agency securities portfolio.

(Whole loans were loans to a single residential or commercial borrower that had not been carved into a bond. Non-agency bonds were carved from loan pools that mortgage guarantors Fannie Mae and Freddie Mac would not insure, usually because of credit concerns; these pools were the epicenter of the credit crisis.)

Nor did Friedman see any relief on the horizon.

Friedman told Mayer that “against (the loss of $14.5 billion) we’re taking in only $2.7 billion of money from [a] new source. We have an additional $3.1 billion of funding that is either already scheduled to be pulled or at risk of leaving. Roughly $500 (million) is going back this week. Another $1.9 billion is borrowed from (commercial paper) conduits that we are having trouble rolling.”

While Bear’s repo desk scrambled to keep the firm funded in mid-August, Sherman seized on its declining share price as an opportunity to buy stock for his personal account and a charitable foundation he controlled, ultimately purchasing 67,000 shares in the month at prices between $110.14 and $103.15.

Throughout the fall of 2007, despite getting daily–and sometimes hourly–updates about the funding difficulties, Molinaro and colleagues proclaimed to analysts, investors and the media the strength of Bear’s capital base and its access to myriad sources of funding. During the third quarter conference call on Sept. 20, Molinaro told investors the firm was “increasing our cash liquidity pool” and had been “building excess liquidity at the parent company.”

At the Merrill Lynch Banking and Financial Services conference on Nov. 14, 2007, Molinaro said, “Our capital and liquidity position, we think, is very strong. Liquidity, in particular, is as strong as it’s ever been. We think our funding structure is very prudent, mostly secured term repo facilities.”

Molinari presented a slide that said as of Aug. 31, 2007 the totality of Bear’s subprime securities exposure was $1.558 billion.

Yet in a January 2008 reply to an SEC letter seeking clarification on Bear’s subprime risk disclosures in 2007, Molinari said it was $2.97 billion as of August 31, 2007. He wrote that the firm had $770 million worth of retained interests in subprime securitizations and $2.2 billion of investments in securities backed by subprime loans.

The Southern Investigative Reporting Foundation called Molinaro, now the chief operating officer at UBS’s investment bank, to ask about this $1.41 billion differential in subprime exposure. He did not reply to voice messages left on his cellphone and his house.

Bear’s constant stumping about its solid financial health didn’t work with the constituency that most mattered: its lenders.

By mid-December, according to Sherman’s claim, Friedman wrote to Marano in an email that even if Bear was not downgraded and managed to “raise a couple [of] billion dollars of new equity [it would] still have all the same funding and liquidity issues [it has] now.”

Three days later, Marano emailed the new CEO Alan Schwartz, to demand capital be raised immediately: “The repo desk is in a constant state of concern with respect to funding the firm. We have inadequate long term and short term financing facilities. . . . We may have inadequate funding resources to address investment in technology for risk management and reporting of positions.”

The Southern Investigative Reporting Foundation spoke to Tom Marano — now the Denver-based CEO of vacation marketer Intrawest — and he said that, “While I was pretty hard on Alan, it was necessary. We needed more capital but I didn’t get through to him.” Marano declined additional comment about the case.


An exhibit that was attached to Sherman’s claim shows that the SEC was alert to Bear Stearns’ looming problems by late 2005 but granted “confidential treatment” status to its communications with the firm, thus exempting it from being publicly uploaded.

In its review of Bear’s 2005 10-K filing, the SEC had some pointed concerns about its disclosures of subprime MBS exposure and its failure to implement a firm wide value-at- risk limit. The SEC’s 2005 examination concluded that Bear’s risk management framework was problematic, relying on “outdated models created over a decade ago” and that Bear had “limited documentation on how the models work.”

Sherman’s lawyers allege that Bear’s risk management apparatus was nothing like the best-of-breed unit it portrayed to the public. Instead, they allege that the trading department came to dominate risk management operations. According to the 2005 SEC examination, Bear used a “bottom-up,” trader driven approach where “risk taking is evaluated first and foremost at the trading desk level.” Moreover, the SEC’s analysts found that “certain business heads can establish new trading limits and approve existing limit breaches with their sole written approval without direct approval from risk management.”

His lawyers also point to a report commissioned by Bear’s board in 2007 that assessed Bear’s risk management operations. The outside consultancy, Marsh & McLennan’s Oliver Wyman unit, wrote that “Bear’s risk policy and limits were proposed by the business units and frequently overridden.”

Bear even admitted in its Jan. 31, 2008, response to the SEC the possibility of their subprime exposure potentially being fatal.

“We believe that based on the Company’s level of involvement in subprime lending and the broader impact on the global credit markets, a material adverse impact on the Company’s: financial condition, results of operations or liquidity is reasonably possible.”

They went on to promise the SEC “in future filings we will consider our level of involvement in subprime lending, and we will seek to enhance our disclosure of positions, if necessary.”

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The People of the County of New York v. Bryan Caisse

Over five days in mid-October, prosecutors with the New York County district attorney’s major economic crimes unit brought forth a stream of witnesses who told a grand jury about a money manager named Bryan Caisse.

One after another, their testimonies painted a remarkably similar story: Caisse had borrowed money to aid his hedge fund, Huxley Capital Management, as it launched. Prosecutors allege that the distinctive feature of these loans is that they weren’t repaid. Moreover, they allege that some of the loans were used for Caisse’s personal expenses.

The loans, based on documents shared with the Southern Investigative Reporting Foundation, appear to have been structured as so-called working capital loans whose purpose was to help the newly formed fund pay bills and launch new portfolios until it could generate enough profit to sustain itself.

Such loans are common enough in the hedge fund business and usually bear interest rates above the market rate — in one example, based on documents reviewed by the foundation, the rate promised was 8 percent — and are typically paid off over the course of a year or two. Historically they represent decent risks in that many hedge funds make it past their first two years of existence and thus can pay the loans back.

Caisse’s marketing approach, according to his lenders, was tantalizing to lenders worried about risks in Huxley’s strategy of trading bonds (and derivatives) carved from pools of residential mortgage loans. He assured them that Huxley’s credit was essentially that of the U.S. government, reasoning that a portfolio invested solely in U.S. Treasury bonds and mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac would always have streams of interest coming in.

More directly, Caisse was for many years a well-regarded figure in the mortgage bond trading community and sported an impressive track record of generating returns for investors. Handsome and outgoing, he was a highly effective salesman.

Determining how much capital allegedly was lost is not easy, but it is likely to be in the millions of dollars. The report of claimed losses vary. One person asserts having lost $15,000; another man alleges he obtained a second mortgage on his Manhattan residence to invest with Caisse. One Huxley lender told the Southern Investigative Reporting Foundation that on the day he provided grand jury testimony he met two men (also there to provide testimony) who claimed they had each invested more than $100,000.

Several weeks ago the grand jury handed down a sealed 10-count indictment against Caisse, including nine counts of larceny. It represents a truly stunning reversal of fortune for a man whose hedge fund launch was seen as being on a fast track to amassing a fortune.

When the indictment will be unsealed is not currently known and a spokesman for the New York County district attorney’s office declined comment when reached by phone.

Complicating matters is that Caisse’s whereabouts have been an open question for several months.

Interviews with lenders to the fund and a family member indicate that starting sometime in the late spring he stopped returning calls and emails.

Caisse’s younger brother Steven, an owner of a software business catering to the powersports car industry, told the Southern Investigative Reporting Foundation on Dec. 5, “I haven’t spoken to Bryan in at least nine months and I honestly have no idea where he is.”

While denying any knowledge of his brother Bryan’s legal woes — Steven Caisse described the issue as “a private family matter” — he did acknowledge that he and his family have banded together to care for his brother Bryan’s teenage daughter.

Indeed for nearly a week, numerous attempts to reach Bryan Caisse on his cellphone and email accounts failed.

On Dec. 7, however, Caisse was reached through Facebook’s instant messaging application, and in a brief phone call he denied any awareness of legal problems stemming from his hedge fund.

In a call later that evening — and in a series of instant messages — Caisse’s tone shifted considerably and he alluded to a confluence of events that had led to the collapse of the fund, and he confirmed he had left New York City, at least temporarily.

(Caisse’s initial call on Dec. 5 appears to have been made using a mobile phone’s voice over internet protocol application. A follow-up call he made that evening came from a phone number originating in Colombia.)

When one pieces together Caisse’s breathless theory, it all amounts to something of a conspiracy in which larger forces were at work against him. On first pass, these claims seem (to put it charitably) implausible. But investigation does confirm that Huxley Capital Management’s fate was highly unusual in many ways. And after some very consequential mistakes in personal judgment by Caisse, the district attorney’s office had a trail of bread crumbs laid before it leading right to his front door.


A screenwriter needing a character to illustrate a Wall Street fable could do a lot worse than using the life of Bryan Paul Caisse as a muse.

Born in the northern Massachusetts town of Athol and a 1985 graduate of the U.S. Naval Academy, Caisse served four years of active duty on a nuclear sub and, after leaving the service, found his way to New York.

Without a job and newly enrolled in New York University in pursuit of an M.B.A., Caisse, as he tells it, was half drunk and shooting pool in a dive bar in 1991 when in walked a pair of guys in suits. More than a few rounds later, the suits were defeated and buying Caisse a nightcap. Learning that he had been a weapons officer aboard a nuclear sub — and could hustle like a champ — they suggested he interview at their firm. The next morning, after interviewing while hungover and wearing a stained shirt, he was hired by a firm he said he had never heard of by the name of Bear Stearns to sell a product he hadn’t supposed existed called mortgage-backed securities.

Bryan Caisse’s joining Bear Stearns amounted to a match made in heaven.

In the early 1990s, Bear Stearns was building out its capital markets unit and sought to emphasize its underwriting of mortgage-backed securities, volatile and complex instruments that even in 1991 had proven alternately lucrative and deadly for larger, more established firms like Salomon Brothers and Kidder Peabody.

Yet with an engineering degree and plenty of advanced training in physics, modeling and selling mortgage bonds was not taxing for Caisse. Nor did Bear Stearns have problems with Caisse’s entertainment-driven approach to building client relationships: If (most) every salesman on Wall Street was expected to entertain clients at dinners or sporting events, he would go much further, taking them to getaway weekends when they would guzzle booze, eat like kings, fish offshore or attend the biggest games, all on Bear Stearns’ dime. (The expectation was that if Caisse spent $5,000 entertaining clients, he would in short order get $25,000 or $30,000 in trading commissions from them.)

Eventually Caisse would come to understand that being a salesman at a big Wall Street firm was akin to being a good accountant: You would have something approaching job security and, in most years, a (very) good income. But the stars of Bear Stearns — who were paid well with salaries stretching into the millions of dollars — were the traders. In 1994 he got his shot at trading when Bear Stearns’ nascent asset management unit was expanding, and for three years he profitably and independently ran a mortgage book for Bear Stearns Investment Advisors.

In 1997 Caisse left Bear Stearns: He joined his former Bear Stearns boss Gary Lieberman in launching West Side Advisors, a hedge fund managing only mortgage-backed securities. At Bear Stearns, the pair had done well but earned what the rapidly growing firm allowed the two to keep; at a hedge fund the sky was the limit.

And for a decade West Side Advisors provided plenty of blue sky for Bryan Caisse.

At around $500 million in assets and posting steady returns, West Side avoided excessive leverage and the absurdly complex bond bets that occasionally turned the mortgage-backed securities markets into a charnel house for the mathematically apt.

Sticking to the fund’s proverbial knitting proved lucrative for Gary Lieberman, who would buy a piece of the New Jersey Nets and a house once owned by Harrison Ford; Bryan Caisse, too, became wealthy and while sports franchise ownership wasn’t his thing, he began to have serious fun.

Summering in East Hampton, N.Y., and traveling the world, Caisse appears to have been the world’s happiest 20-year-old (albeit one that was trapped in a 40-year-old body), maintaining a social life that deserved professional chronicling and fueled by ample amounts of cold beer, expensive tequila and strong pot. With a pair of marriages behind him, New York’s Upper West Side was his playground as he dated models, had flings with actresses, went to the best restaurants and partied with rock stars.

But in several ways, Caisse retained a closeness to his roots that has rarely been seen in successful New York hedge fund managers, remaining proudly loyal to family and old friends, staying in constant contact and entertaining them generously when they came to New York. Moreover, in 2007, he fought for and won a long custody battle for his daughter.

In 2008, with the mortgage bond market collapsing and West Side Advisors’ portfolio experiencing sharp losses, Caisse — who had spent much of 2007 on the sidelines of the fund while in the midst of his custody battle — left to set up a hedge fund with the aim of taking advantage of the massive bargains that were for there for the taking for by someone with cash and experience. The fund was called Huxley Capital Management as a tribute to Aldous Huxley’s “Brave New World” and a reference to the collapse of certainty in the wake of the credit crisis.

Statistically speaking, mortgage bond traders said at the time (and with rank envy) that there was very little chance of Bryan Caisse’s not making an absolute killing.


For something everyone said couldn’t fail, the launching of Huxley Capital Management proved to be a hard road to travel.

To start, the paperwork alone set back Caisse six figures and then there was rent, accountants, compliance and a small blizzard of lesser expenses. Taking expensive flights back and forth between New York and Dubai (where petrodollar princes sat atop virtual piles of cash that they were newly keen to put to work in the capital markets), he secured a memorandum of understanding for a $200 million investment in the then near future.

So to keep the fund going until the Dubai capital came in and he could start charging 2 percent management fees, Caisse borrowed cash from his ever expanding circle of friends. One of those lenders was Dr. Wellington “Tony” Tichenor, a Park Avenue allergist whom Caisse had met on East Hampton social scene through a mutual friend, acting coach Gary Swanson.

“Gary introduced me and he spoke highly of Bryan,” said Tichenor. “His resume checked out and his credentials were solid; I liked the guy. He was smart.” Ultimately he would loan Caisse an amount he described as “more than $50,000, but not $100,000.” (Although he was never paid back, Tichenor did arrange for a girlfriend to get a job at Huxley; Swanson did not return multiple phone calls seeking comment.)

Calamities big and small began to intervene, however.

On Dec. 11, 2008, Bernard Madoff’s infamous Ponzi scheme surfaced, sending reverberations through the money management landscape. In short order, a nearly completed investment from Carl Icahn, the result of months of discussion, was canceled. Several days later, Huxley’s management was told that the pending Dubai investment had been put on hold. (For hedge fund managers the true fallout from the Madoff scandal wasn’t over ethics but funding. It would be several years before institutional investors would support a fund that wasn’t sponsored by a unit of Goldman Sachs or J.P. Morgan.)

In the post-Madoff wreckage, small funds like Caisse’s Huxley were truly orphans.

Six months later, in June 2009, Caisse secured a working capital loan from Chicago’s Ritchie Capital Management for $2 million. Ritchie, which had just put its own series of headaches behind it, owned Royal Palm Insurance and was able to secure Huxley $50 million from Royal Palm in a managed account. (A managed account is a portfolio within a hedge fund for a single client. While managed accounts are counted in the all-important assets under management figure, the fund usually charges a 1 percent management fee and keeps 10 percent of profits, half the standard fees of what most hedge funds charge their investors.)

Using leverage, Huxley got the Royal Palm portfolio up to $500 million in value and by all accounts did an absolutely stellar job managing it for a year.

Nonetheless, the reality of life at Huxley was hardly gilt-edged: With only $480,000 in annual management fees being generated, there wasn’t nearly enough to cover the $120,000 monthly in expenses from eight employees and a midtown Manhattan address. By that autumn, key employees began to leave. On a December 2010 trip to Dubai to raise funds, Caisse was able to peddle the leveraged $500 million in assets figure during a second attempt to get funding from Dubai, reckoning that Huxley’s solid performance was sure to attract the investors who could make that a reality.

Once again Caisse returned to New York with a commitment from Dubai to invest in the fund.

The other shoe, however, was soon to drop.

Ritchie sold Royal Palm in February after a dispute with Security First Insurance was settled through a protracted arbitration. (Some observers might find in this a supreme irony; the chairman of Security First was a founder of Royal Palm). A central condition of the deal was that all of Royal Palm’s investment assets would be converted to cash.

By the end of the month, Huxley effectively had zero assets and owed Ritchie $2 million.

Soon afterward, finance officials in Dubai, not wanting to be the only investor in the fund, halted their investment.

Refusing to quit, but with a desperate need for cash, in the spring of 2011 Caisse again turned to friends and family, except this time it was old friends; their trust in Caisse was strong but their asset base was not. When he took working capital loans from these people (unlike what occurred with Dr. Tichenor and other lenders from 2008), he was taking money that represented a material part of their net worth, slated to make future mortgage payments, college tuition or their retirement.

(So called friends and family money has long been a ready source of hedge fund start-up capital, but there is an unspoken tradition that the manager usually takes money only from those best able to risk it or who can live with a longer repayment time frame.)

Still, Caisse again got the attention of institutional investors and by that June appeared well on the way to getting Huxley off its back for a third time, but a bad car accident left Caisse effectively bedridden for the balance of 2011 and ended the resurrection efforts.

In January 2012,  Caisse took a job at Performance Trust Investment Advisors in Chicago, signing a contract that was designed to provide him ample cash up front so he could pay back investors. Ultimately the deal fell through: Chief executive officer Doug Rothschild said it was because Caisse would not move to Chicago for what he said were “personal reasons.” Caisse told people that it was because another executive got skittish over the use of derivatives in the fund’s mortgage portfolio.

In February of this year, back in New York and trying to get Huxley going again, the music finally stopped playing for Bryan Caisse.

The New York County district attorney’s major economic crimes unit, with a host of complaints from lenders, opened an investigation into whether Caisse had used their funds for personal purposes. Many lenders, convinced that Caisse was not being forthcoming about repaying them, were grateful recipients of phone calls from Sean Pippen, the major economic crimes unit prosecutor leading the investigation, and happily sent him emails, documents, texts and notes of their dealings with Huxley and Caisse.


Borrowing from old friends appears to have been a profound mistake for Bryan Caisse, and one that was especially compounded by his role in a series of increasingly implausible excuses for not returning their money.

The story of one lender, whose loan represented 30 percent of his life’s savings and who had invested in Huxley in 2011 on the promise that the money would be paid off in one year, is illustrative of the circus that getting paid back would devolve into.

This lender spent excruciating weeks emailing Caisse’s assistants at Performance Trust in late 2012 to get checks that he repeatedly was assured  were in the mail.

The emails — which were examined by the Southern Investigative Reporting Foundation — document a host of concurrent personal and professional crises that befell Caisse and his assistants and that conspired to prevent them from successfully sending checks via overnight delivery.

To examine this correspondence is to plumb the depths of acute incompetence to a level rarely imagined (save by the drollest of comedy writers). It is a world where seemingly educated and experienced professionals cannot send packages overnight to a neighboring state, where the post office returns every letter mailed damaged and undelivered, where wiring instructions are routinely bungled, and where HSBC, a global money center bank, purportedly would not wire funds except to another HSBC account.

(A baffled banker from HSBC who had handled some banking matters for Huxley later appeared in front of the grand jury and said that the bank regularly transfers funds to accounts at other banks.)

Furthermore, all communication with Caisse had to be handled by email. One assistant, a woman named Kristy Smith, would not speak on the phone because, as Caisse explained to the lender, she had a strong lisp and English accent. A casual reading of several weeks of her emails, however, suggests a particularly American style of writing, as well an unusually close working relationship with Caisse, in that she accompanied him to a hospital, for example, as he got chest X-rays. Shortly after the lender demanded to know the physical address of her office so he could send her a prepaid Federal Express envelope to expedite delivery of his erstwhile checks, Smith told him she had been fired by Caisse.

A second assistant of Caisse’s, Christine Woo, then took over the task that appeared to the lender to be finding new ways to avoid giving him back his money. Like her former colleague Kristy Smith, Woo also refused to talk on the phone. Shortly after engaging with the lender, she suddenly refused to deal with these issues any further, citing the complexity of the matter.

Having a pair of personal assistants is rare for an individual portfolio manager on Wall Street and having a pair of assistants that deal with nothing but his personal affairs — even as they pertain to a prior employer — is rarer still. What is even more unusual is how both Christine Woo and Kristy Smith didn’t have Performance Trust email addresses and used only Gmail addresses to communicate with the lender.

The Southern Investigative Reporting Foundation called Performance Trust and spoke to Megan Clark in its human resources department; she said no one named Christine Woo or Kristy Smith had ever worked there. Nor were they former Huxley colleagues. Dan Castro, a former Huxley portfolio manager, said that no one with those names had worked there.

In April, Caisse sent emails to the same lender’s wife promising repayment when his new assistant “Kristy” returned from England after caring for her sick father.


Caisse has his defenders to be sure.

One of them is Ken Scott, a self-described private investor who was one of Huxley’s biggest lenders. He said that when the district attorney asked him about the loans, he replied that every penny of the working capital loans had been used for normal business expenses and argued that if it hadn’t been for some horrible luck, Huxley would have generated enough cash to pay everyone off.

Characterizing the grand jury as a witch hunt, Scott described it by referencing the infamous Lavrenti Beria quote, “Bring me the man and I’ll show you the crime.”

“No one has shown me what Bryan has done wrong, and that includes the DA,” said Scott.

Ritchie Capital Management’s general counsel noted to the grand jury that the firm’s management company made the loan, not one of its client portfolios. Fund officials acknowledge that while the loan is in arrears, they do not view the Huxley matter as a criminal issue, but rather a civil one in which the fund itself is in debt, not Caisse. They have not sued Huxley and have extended the loan’s maturity several times.


After some initial brief phone contact, described above, Bryan Caisse did not, despite multiple promises, provide a detailed explanation about these issues to the Southern Investigative Reporting Foundation, nor did he ever send an extensive series of emails he promised. The two occasions he spoke to the Southern Investigative Reporting Foundation, his phone number appeared to trace to Medellin, Columbia. On a few days he did manage to instant message for several minutes though Facebook. The day before this story posted, he appears to have deleted his Facebook account.

Caisse declined to make an on the record comment and he would not disclose his whereabouts, other than alluding to a lack of available privacy for discussing Huxley. Pressed on the matter, he would only say, “[I’m] staying with a friend.”