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The Sucker Wears a Wire

Giovanni Ribisi, right, playing a character inspired by David Glass in Boiler Room.  

Glass made money at Sterling Foster, but he was too junior in the company to get rich. When he saw friends making $100,000 in an afternoon of day-trading, he took the leap in 1998, eventually landing at Broadway Trading, one of the first professional day-trading companies on Wall Street. He worked under Jonathan Petak, a trader from a similar Jewish background who had worked at traditional brokerages before dropping out to trade on his own. Petak was so revered at Broadway Trading that his computer screen was broadcast on TVs throughout the trading floors, so newbies could watch how he worked. A quick study, Glass became his star pupil, one of the few who consistently made money.

In 2001, Glass married a woman he’d met in a bar in Manhattan. It was an auspicious match: She was a sales associate in a brokerage company and the daughter of a prominent Goldman Sachs money manager. Coincidentally, she had grown up just seven blocks from the Glass family’s two-story house on Staten Island. Her father, also an Orthodox Jew, gave Glass his blessing and helped the couple buy a $1.3 million apartment in Brooklyn Heights. When Glass started his own firm in 2002, he named it after the street that his well-to-do in-laws lived on in Willowbrook: Jasper.

While his brother was still slaving away as a salaried accountant, Glass, the college dropout, had his own business. Before long, Jasper Capital would employ roughly 250 people and trade 350 million shares a month, with Glass getting a commission for each share traded. By 2006, he told associates he was making between $2 million and $3 million a year. It looked as though David Glass had succeeded on his own terms.

The chain of events that would eventually cause the downfall of David Glass began before he had even started Jasper Capital, and involved people he has never met. It all began with Mitchel Guttenberg, a mid-level UBS executive who owed $25,000 to a hedge-fund trader named Erik Franklin. In 2001, at the Oyster Bar in Grand Central Terminal, Guttenberg allegedly offered to tip off Franklin to upcoming UBS analyst ratings as payment. It was valuable, and illegal, information: A “buy,” “sell,” or “hold” rating from UBS would move a stock in a predictable direction, so Franklin could buy before a recommendation went public and sell once the stock moved.

Franklin’s arrangement with Guttenberg apparently worked out so well that he allegedly began a similar exchange with a trader at Bear Stearns who was getting advance word about upcoming mergers and acquisitions passed down from a compliance lawyer at Morgan Stanley. The market was in free fall after the dot-com crash, and the tips moved from trader to trader, down through the Wall Street food chain, like some kind of sure-bet lifeline. Together, the flow of illegal tips generated millions of dollars.

The UBS tips traveled farther and wider than the Morgan Stanley tips, eventually generating $14 million in illegal profits, according to the government. And that was thanks in large part to a man named David Tavdy. Tavdy, a Russian immigrant living in Forest Hills, knew Guttenberg from their days at First Albany bank. The two friends allegedly decided that Tavdy would trade on Guttenberg’s tips and they would split the profits. Tavdy was day-trading through the Queens branch of Assent LLC, a company that rents trading terminals—the same company where David Glass launched Jasper Capital.

One day in 2003, Sam Childs, a compliance officer at Assent, noticed Tavdy’s unusual trading patterns: large positions on a single stock the day before it happened to be upgraded by UBS. Childs didn’t turn him in. Instead, according to an FBI recording, he merely warned Tavdy, telling him he needed to start losing a few hundred dollars so his remarkable winning streak didn’t look so suspicious. (Tavdy’s lawyer disputes this.)

Childs and Glass were friends from Broadway Trading, where they both learned the art of day-trading. Now that Glass was at Assent, Childs was helping him build his business by recruiting high-volume traders—for a fee, of course. He also allegedly told Glass about the trader with the magical ability to predict UBS ratings calls. For “cash kickbacks,” the government claims, Childs gave Glass secret access to Tavdy’s trading patterns. They never met—Glass was working out of the Manhattan branch, Tavdy in Queens—but Glass knew Tavdy’s trades intimately. If Tavdy bought 2,000 shares of Dow Chemical for $50, Glass bought at the same price; if Tavdy sold the next day at $55, Glass sold also. Tavdy seemed to always win, and never lose. Just like that, Glass had found his edge.