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Take the Hedge-Fund Money and Run

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Months later, Angelo’s operation began to show cracks. To cover the interest payments on the property he’d refinanced at Angelo’s insistence, Drenis had arranged for Angelo to pay the mortgages with money from his investments (allegedly worth $9 million or $10 million at the time). But Drenis’s disbursements from Sterling Watters were arriving days and even weeks late, he says, and only after he’d call Angelo to scream at him about it. This was supposed to be petty cash for a fund that Angelo claimed was now worth $180 million—$100,000 checks here and there—but the checks never seemed to be forthcoming without a fight. Angelo always had an excuse—“I thought you said May 1st,” he’d said in April, according to Drenis.

Then Drenis started calling investors he knew, seeing if they were having problems with Angelo. He’d made similar due-diligence calls months earlier, before making his $5 million investment, and hadn’t heard an unkind word. This time, though, Gus Karayiannis, Angelo’s old boss at the Queens restaurant, told him that Angelo’s check to him for $135,000 had recently bounced. Drenis’s heart sank: If you’re running a $180 million hedge fund, Chase doesn’t bounce your $135,000 check.

“Let’s use some strategy for a change,” a desperate Angelo wrote to a once-reliable source of new investors. “I seriously don’t know what’s going on lately, bro, but it isn’t this hard to close business.”

Outwardly, Angelo still appeared to be doing fine. He’d bought the $2 million beach house for his parents; his trips to Vegas and Atlantic City continued. But in truth, Angelo’s situation was growing dire. He’d taken out a second $250,000 mortgage on his house to try to reinvest and cover some losses. More friends were pressing him to disburse millions of dollars that he didn’t have: $302,000 to Michael Capul, $530,000 to his childhood friend Chris Pavlatos, and more than $5 million to Jim Ziosis.

Desperate for new investors, Angelo dashed off a panicky, typo-filled e-mail in April of 2003 to Capul at Chase:

Let’s use some STRATEGY to try and close some business for a change, instead of this laid back casual shit we’ve been doing that has gotten us nothing but redemptions. I seriously don’t know what’s going on lately, bro, but it isn’t this hard to close business. It use to be good that we hitched our carts to eachy others horses, but this shit is getting tired. I want a strategy in place here on how we’re goiung to go forward … if we cant then just say so and I’ll stop hassling you.

By then, the SEC now says, Angelo had stopped trading entirely. The fund had less than $150,000.

Jerry Drenis knew about none of this, but he did know about a bounced check. He thought of going to the district attorney, or the SEC, or the FBI, or the police. Then, just as quickly, he shoved those thoughts aside. He had $8 million sitting with Angelo, at least on paper; if there was the slightest chance of getting it back, he couldn’t say a word. Others made that same calculation. As May turned to June, as many as 50 of Angelo’s 80 investors had asked for their money back and were cooling their heels while Angelo dodged phone calls and buried their redemption orders in paperwork. Nobody wanted to kill the golden goose.

After weeks of getting the runaround, Drenis was starting to panic. “Just prove to me that the money exists,” he said. “Then I’ll leave you alone.”

Finally, Angelo appeared to give in. “Okay,” Drenis says Angelo told him, “I spoke to my private banker at Chase—a girl in Texas. And she’s gonna call you.”

Drenis dialed Chase immediately. After countless transfers, he found the woman Angelo was referring to. Drenis says the woman put him on and off hold for an hour, then came back on the line and said, “Yes, the money’s in the account.”

“I almost pissed in my pants, I was so excited,” says Drenis, who called his sisters and started celebrating. He’d have the wire after lunch.

A few hours passed. No money.

He called Chase again. Angelo’s private banker was in a meeting.

“Get her out of the freaking meeting!”

When the woman finally came to the phone, she sounded as if she’d been crying.

“I’m so sorry,” she said, according to Drenis. “Angelo made me lie.”

“What do you mean?”

“When I was on the phone with you, he was on the other line. He was begging me to tell you the money is there.”

Drenis says he froze. “He was begging you?”

“He was saying that you people were harassing him—and you wouldn’t leave him alone—and he just needed some time to get the money in. Now I’ve been trying to call him, but I can’t find him!” (According to a lawyer involved in the matter, the banker denies any wrongdoing.)


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