Folder 137

NYC 9/11 Public Portal Document

Document http://proquest.um i.com/pqdweb?TS=...= I &Did=000000017883274&Mtd=1& Fmt=3

highly sophisticated coin-clipping-a clip here, a clip there, often so tiny as to be unnoticed across trillions of coins. Lutnick's critics say he has not always been scrupulous in getting between the wall and the wallpaper. Here's one episode about which FORBES has seen the relevant documents: In the late 1980s a U.S./German outfit, International Participation Corp., was running investment money for 6,000 European investors, mainly Germans. Indianapolis-based Vancorp Financial Services took on the management of $29 million of the capital. Vancorp opened an account at, among others, Cantor Fitzgerald & Co., trading mostly in Treasury bonds and over-the-counter options on Treasurys.

[Photograph] Caption: Home at the Cantors Where Lutnick climbed and climbed.

From late May to September 1989 the Cantor account lost $3.1 million and, elsewhere, futures accounts lost $1.1 million, yet Vancorp collected over $4 million in commissions and fees. When Vancorp returned the ipc funds to Germany that fall, only about $17 million of the $29 million was left.

$500,000 fine to settle CFTC charges that it had assisted in fraud.

But the German investors are still suing Cantor Fitzgerald & Co. for fraud and asking for more than $7 million in damages Pius truce times mat in punitive damages_ . ne case is scneouieu to go to trial iNoV- 18 in federal district court in Los Angeles. Extracurricular gains? Where was the alleged fraud? The suit alleges Cantor agreed to broker Vancorp's trades for $156.25 per $1 million face value of Treasury bonds but in most cases collected almost three times that. It also alleges that Cantor acted not as a broker but as a dealer, without disclosing it to the client. Cantor denies the charges. Howard Lutnick personally executed Vancorp's orders. His trading was conducted through three inventories-H, W and Lthe initials for Howard William Lutnick. \c FORBES has reviewed trading records relevant to the case. On Aug. 4, 1989 for instance, Cantor made a $150,000 profit (before commission) on a trade involving $20 million of long bonds that it purchased from Vancorp on the same day. In a trade this size the straight brokerage commission due Cantor at the c agreed-upon $156.25-permillion rate would have been just $3,125. Did Vancorp's customers get full value for their bonds?

r tU FORBEs examined hundreds of transactions in which securities were traded between Vancorp and Cantor Fitzgerald & Co.'s Investment Strategies Group, and between ISG and other entities, most typically Cantor Fitzgerald Securities' government securities brokerage. They involved some $4.75 billion worth of positions and included over 80% of Vancorp's trades with Cantor. Cantor defends its outsized gains on these transactions as simple rewardfor-risk. But in the transactions reviewed by FORBEs Lutnick lost money only about one time in ten. Cantor's take from the trades we examined was around $2.8 million. Close to half of that was rung up in four house inventories, almost all of it by H, W and L. Lutnick has admitted to a 30%-to-40% interest in the trading profits of those inventories. The other $1.5 million or so was credited as gross commissions to the salesman who covered the Vancorp account. After the salesman took his cut of that $1.5 million, Lutnick got a big chunk of what was left over. The Varicorp account yielded profits in other ways. Cantor collected over $1.2 million of net interest. There were foreign exchange consulting fees. Commissions were rung up when house inventories sold positions acquired from Vancorp. Getting between the wallpaper and the wall? Cantor seems to have

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