Tony O'Brien was the founding partner of Capital Markets Trading Group, which, in 2001 allegedly lost $12 million as a result of fraudulent trading by an employee of Magenta Forex, a group operating closely with insurer AIG. On August 31, 2002, federal authorities indicted O'Brien on 10 counts of securities and wire fraud. Facing a maximum sentence of 50 years, O'Brien spent the next 10 months under house arrest in Ohio. After a 17-day jury trial, he was acquitted of all charges. (The rogue trader at Magenta Forex was never charged in this case, but was eventually sentenced to five years in a separate fraud case in Britain.) On Tuesday, O'Brien filed a $100 million dollar lawsuit against AIG alleging fraud and malicious prosecution. Here is the first part of his story:
I remember that night so well, when Michael Kelly, a stockbroker in Connecticut, introduced me to Raj Pate.
As one of the head traders for Magenta Forex, which I understood to be a part of AIG, Raj offered me what seemed like a lucrative trading strategy: AIG purchased currencies like the German Mark and the French Franc at a small discount to the spot price, then would sell the money back and pocket the difference.
To reassure me, he gave a list of references, including the treasurer of AIG, Ann Reed. When I called Ann and told her that I was checking on Raj's references, Ann became my new best friend. "Raj makes a lot of money for AIG," was one comment I will never forget. After speaking with Ludovic Candon, another reference who was listed as Raj's boss and headed up AIG's London office, I was ready to sign the contract and move the deal forward.
My one concern was the fact AIG insisted on an account that could only be traded by Raj, and I would not be given any say in removing funds or reviewing trades. I said to myself, 'Sure why not.' I had the largest insurance company, the top trader and the protection of the Commodity Futures Trading Commission.
The math on the deal was spectacular: if Raj only traded once per day, we would make millions of dollars a month. A few days before New Year's Day, 2001, my partners and I agreed to the terms of the management letter, and soon wired funds totaling $12 million.
As the New Year turned, and 2001 came into focus, the trading began. I was told, but never saw, the results of the strategy. This caused me pause, as I was the managing partner and I needed evidence. Furthermore, having been in the business almost 20 years, I knew certain trading statements were required. I called Ann after about two weeks, but she told me I had to take it up with Raj. I began to press Raj on a daily basis until finally our corporate counsel received a letter from Raj.
It said that I was fired as the oversight manager for the account, and was not to contact Raj or AIG again. If I did, the account would be closed and the funds returned.
Pulled from the account after only 10 days, I was assured by our company's lawyers that I would continue to be paid as if I was managing the account. 'Fair enough,' I thought, assuming I would watch from afar, allowing our lawyers to manage Raj and the trading.
In February 2001, our first payment arrived. It was $2.8 million dollars, wired into our account in one lump payment. Can you imagine the excitement of the firm? I had never made so much money in my life. Success felt good.
Raj was becoming a hero even though the statements still had failed to show up. Over the course of the next couple months we received another $2 million. Our corporate counsel was still not getting the statements from Raj, but I was the only one complaining. Most of the other partners were too happy to be worried.
That $2 million was the last payment we ever saw. Instead of money, we started to get elaborate stories.
For the next nine months, we heard several different accounts of where our money was, and met several new people who told us various untruths. One irritating delay after another, we waited for that next bank wire like a bunch of junkies getting their cash fix.
Finally, the excuses began to be centered on the need to audit our account. Our trading account stood at $24 million and we had no way to access the funds. Raj insisted we needed an audit, ordered by AIG because of the amount of money we had made.
I pressed our lawyers to contact the FBI, as I was hoping our Government would step in to assist us. The West Palm Florida FBI showed no interest in our problem. Finally, in August of 2001, I directed our corporate counsel to fly to London and conduct the audit himself.
It took no more than one hour after he arrived at Heathrow Airport for Raj to cop to his lies. He admitted his real name was Rafik Petkar, and that he was a two-time felon, standing trial at that moment in England on another case for bank fraud. He was later convicted and sentenced to five years.
That meant that except for the $4 million wired to us as profits -- later found to be our own principal returned to us as profits -- our company had lost our $12 million investment.
You would think this was the end of the story. But no, this story has a more sinister twist.
Shortly after the revelation by Rafik Petkar, we filed litigation against AIG. Our case stemmed from the fact that AIG had assisted the rogue trader in stealing our money. We were looking to get our initial investment and lost profits returned to us.
I figured that AIG would settle. But after our first deposition in Hartford, Conn., AIG hired two former federal prosecutors. They began to pass fraudulent documents to the government to make it look like I was involved in the trades.
Sure enough, shortly thereafter, FBI agents came to my door. At first, I wasn't scared. I was actually excited for a chance to tell the real story to the FBI, and to get their help in bringing Rafik Petkar to justice.
For the next three hours, I answered every question they asked and told them the entire story. At first, the layers of stress peeled back, and I felt a calm like I have never known. That is, until the FBI presented me with a subpoena. Needless to say, I was stunned.
I will never forget that morning, when the FBI raided my home.
It was the Friday before Labor Day 2003. At 6:30 a.m. the doorbell rang. I got up and I knew. I had lived that day in my mind over and over for eight months. Now it had arrived. Black cars were everywhere, bumper to bumper in my driveway.
"Mr. O'Brien, do you know who this is?"
"Yes," I say, "Agent DeKindt right?"
"Mr. O'Brien, I have a warrant for your arrest. Will you come down to the front door and let us in?"
As if I would say "No."
I turned to my girlfriend and said, "This is not what you think." I told her to get dressed and to stay in the bedroom. I went down to let in the FBI, and as I opened the door, they came streaming in, guns drawn. No less than 15 agents were there.
As I was handcuffed and shoved into the biggest black SUV I have ever seen, I could see my neighbors watching from their lawns.
"Oh this is great," I thought as I was helped into the vehicle. There is no comfortable way to sit with your hands cuffed behind your back.
While we drove to the FBI headquarters, I heard the agent in charge make a call to confirm our chief lawyer was also picked up at his home in Florida.
How strange, I thought: the two partners who had worked the hardest to protect the firm's money, who had contacted the FBI and confronted AIG with litigation -- why were we the ones arrested?