Folder 137

NYC 9/11 Public Portal Document f Document http://proquest.umi.com/pqdweb?TS-=...=1& Did=0000000 1 7883274&Mtd= 1 &Fmt=3 positions at Treasury bond auctions. Gary Lutnick, 32, Howard's younger brother, joined the firm in 1991. He has run the trading team of Cantor's Global Trading Strategies group, the renamed Investment Strategies Group. According to people who worked with him over the years, Gary developed a clever way of squeezing a bit extra for the franchise. A retail customer would make an offer to buy long bonds. If there was a flurry of buying in the bond, Gary would sometimes grab bonds on the screen in front of the customer and then sell the customer his newly purchased bonds at a slightly higher price-again getting between the wall and the wallpaper. He could do that because customers see the trading screen, but don't see who bought the bonds ahead of them. [Photograph] Caption: Gary Lutnick Following in his brother's footsteps. Anxious to dispel rumors that Cantor's government securities brokerage was giving Gary Lutnick better execution for his ] it gave to its other wholesale customers, the fi i i ichard Breeden, a former chairman of the SEC, to mvestigate. Breeden told FORBES that the electronic trade-matching system Cantor installed in its government securities brokerage rooms last year made the possibility of such preferential treatment remote. Bu its his inqui "fai owly focused." _ "We came in and looked at the way things run today. We did not go back and look at the last two years, five years, ten years, to All that Breeden's "fairly narrowly focused" probing proves is that nothing fishy was going on while he was looking. A halfdozen former staffers of Cantor's renamed Global Trading Strategies Group have told FORBES that over the years the firm frequently traded ahead of its retail customers. A Japanese bank gets a hosing Howard Lutnick's efforts to win respect for Cantor Fitzgerald keep hitting the wall. In early 1996 there was the case of Cantor and Tokyo-based Norinchukin Bank, Japan's Téading financial institution for agricultural cooperatives. The Japanese bank took a real hosing on some overnight orders it left with Cantor to fill. Did Gary Lutnick wield the hose? Sources tell us he did. ~ ve x \ In its trading of U.S. Treasurys, Norinchukin favored what is called a scale trade. This means you buy a Pio > Fu. Vv ¢ t 7of8 bit at a time, hoping that the market will be temporarily weak and let you lower your average cost. You can do this by putting in an overnight buy order on a descending scale. That can be dangerous on a volatile day. Apr. 5, 1996 was such a day. It was Good Friday, when the market was open only half a day, and unemployment numbers were due out that morning. As it turned out, unemployment had dropped, which was bad for bonds. The long bond slumped sharply, losing around two points. Gary Lutnick, our source says, had an order to buy nearly $1 billion worth of long bonds for Norinchukin on scale-down. Instead of filling the order as the price fell, the source says, Gary waited until the bond had dropped considerabl ught bonds and sold them to Norinchukin at the higher prices specified in the scale order. Our source says he made the house roughly $800,000 in a matter 6 our: The Norinchukin Bank won't say much about the April Sth episode, but in mid-1996 it quit trading Treasurys in limit ordersand sharply cut back its business with Cantor. Cantor Fitzgerald won't comment on the Norinchukin trading, but it did provide FORBEs with a copy of an interoffice memo on its trade execution policy for customer level/limit orders. It was dated May 9, 1996, just a month after the alleged Good Friday incident. Personnel of the then Investment Strategies Group were instructed to explain the policy to their customers. 9/18/01 1:16 PM NYC-WTC_000136333