Bad Paper: Chasing Debt From Wall Street to the Underworld Read online

  Larry was, at heart, an artist. On and off, throughout his working life, he had survived on his art—making greeting cards, T-shirts, sculptures, and paintings. This was what he loved to do, but it never paid especially well; and so, when it came to making money, Larry had relied on buying and selling debt. He did this from wherever he was—in his house, in his car, or from a restaurant.

  “You don’t have to have an office to buy and sell,” he told me, as we sat down at a bar with a sidewalk patio. “You just got to have a means to view the file. If you have a means to view it and pass it on, that’s all you need. I keep all my paperwork on an SD [secure digital] card and just slip it right into my phone.” He ran his fingers across his cell phone. “I got a virtual office in my hand.”

  One of the many reasons that I was curious to talk with Larry is that he claimed to be a former partner of the notorious debt broker named Kenny. When Brandon confronted Bill at the corner store, it was Kenny whom Bill fingered as the source of the stolen Package, though he’d later retract the claim. This explanation didn’t surprise Brandon in the least. As Brandon put it, “Saying that Kenny sold you some bad paper and ripped you off is like saying, ‘Guess who robbed me in the forest? Robin Hood!’ Of course he did.” Kenny did not return my calls but Larry proved to be eager to speak. He insisted that he himself hadn’t handled the Package, but said it was entirely possible that Kenny had, because this was how business worked in their niche of the industry. Then he suggested that we meet in person, which is how we ended up on Chippewa Street.

  As we sipped our drinks, and SUVs packed with partiers began to arrive, Larry told me that he was semiretired and now lived a quiet, middle-class life in the suburbs, where he spent his days painting. This was a return to the kind of stable, secure life that he had known as a young child. Larry was born into a decidedly middle-class family; throughout the 1960s, and much of the 1970s, his father had a good job at Bethlehem Steel. Then the steel mill shut down and everything fell apart for Larry.

  Even now, more than thirty years later, Larry remembered with startling clarity the day from his childhood when his dad got laid off. “Dad came home, and he told my mom, ‘Well, the plant decided to close.’ [They] didn’t give him notice. Actually, he was given notice, but maybe it kind of slipped his mind somehow. My dad’s straight from the South, man, the Deep South—didn’t have a whole lot of schooling. When he came home, he told us, ‘You know what, we may have to sign up for social services.’ At that time it wasn’t called ‘social service,’ he just straight up said, ‘We may have to go on welfare for a while.’ I was like, ‘No way,’ because we teased the kids in school that were on welfare. And it was crushing. And I was like, ‘Man, I don’t wanna go to school, I don’t wanna go outside, I don’t wanna do anything.’”

  After this, as Larry recalls it, he and his three siblings were always taking odd jobs and fending for themselves. “We bought our own school clothes, we bought our own school supplies, paid for our own haircuts—only thing we needed our parents for was to keep the roof over our head.” Looking back, Larry says there were moments when it looked like he might beat the odds and succeed—like the time in high school when he won an essay-writing contest and, as a result, briefly landed a job at a local bank. But it didn’t work out in the end. “I had friends that were into the streets, and they were making good money, and I had gotten to a point where I lost my job and I wasn’t doing so well. So the next thing, I was selling drugs.” Larry spent six of the next fifteen years in prison on a number of charges, including attempted robbery, attempted arson, and possession of a controlled substance.

  “I’ve lived a very crazy life,” said Larry. “It’s been positive and negative, but I like where I’m at now. Very quiet, peaceful. I’m in total, one-hundred-percent control of my emotions. That’s what the problem was. I had to learn that.”

  After getting out of prison, Larry met up with Kenny—who was an old friend of his from childhood—and Kenny helped him get a job at a large collection agency where he was working. They spent several years there, until they decided to venture out on their own and open a small firm that bought and sold debt. Larry actually said he made less money as a broker than a collector, but like Aaron, he found buying and selling debt far less stressful than having to collect on it. It also gave him freedom to travel and make his art. But dealing debt also soon proved to be a source of stress because, as Larry put it, many of his deals were “not legitimate.”

  By legitimate deals, Larry meant those in which the debt had a proper chain of title—much like a chain of title on a used car or a house—which indicated who the seller was and who the buyer was. Such a document served as legal proof that the owner was, in fact, the owner. When buying or selling legitimate debt, one wanted as much documentation as possible. “As a businessman, for your own personal protection, you want a money trail,” Larry explained. Typically, one created such a trail by using attorneys, or a written contract, or by wiring money from bank to bank. These, in fact, were the sorts of deals that Brandon made. Brandon may have played the part of the freewheeling, street-hustling vigilante, but he only bought and sold debt with legitimate chains of title. This was a point of pride for him. As far as Brandon was concerned, the other sorts of deals—where there was no bona fide chain of title—were the work of the “sharks” whom he despised. In these “illegitimate” transactions, the broker might be double-selling a file, or selling a stolen file, or perhaps he was simply offering a file whose origin he didn’t know and didn’t want to know. Either way, it was necessary when making these deals to be more clandestine and not leave a paper trail.

  “I’ve done deals where I met guys down here,” said Larry, pausing to gesture down the street, “right down at the steakhouse down there—done a deal right in the car.” In such cases, the buyer gave Larry cash, and he handed the buyer a thumb drive with a spreadsheet containing the names, addresses, social security numbers, credit-card balances, or loan amounts of several thousand debtors. Sometimes there was an informal one-page contract, but not always.

  Where exactly, I inquired, were these files coming from? “I’m not asking where the files are coming from,” he told me. “I’m just dealing.” For Larry, this was simply commerce. He bought and sold thumb drives with data. For a moment, it all sounded so normal; and then, in the next instant, I remembered that this data belonged to people like Joanna and Theresa. What would they say if they knew that their personal information, including their debts, was being bought and sold on street corners like illegal drugs?

  As it turns out, one of Larry’s most loyal customers was a former cocaine dealer named Jimmy. Larry told me that when he met Jimmy, they connected immediately because they had similar backgrounds. Jimmy understood the implicit rules of making illegitimate deals. “That’s another thing I respect about Jimmy,” explained Larry. “Certain things you don’t want to know, because once you know something, then you become an accessory to it or responsible—so it’s just better not to know, because most of the dealings on the level that we’re on, they’re not legitimate.”

  The problem with all of this, said Larry, was that this mode of operating had become a lawless free-for-all. “Just over the last eight years there’s been an explosion of street people coming into collections,” he said. “You got guys literally coming out of prison today and next week they got a collection agency.” According to Larry, there were hundreds of agencies being started by such “street people,” and they were “doing deals in all kinds of funky ways,” including buying debt that was double-sold and triple-sold.

  “There’s three agencies up here run by three guys that got out of prison—right up here,” he said gesturing to a nearby building. “And they’re surviving, man, so there’s no one centralized local source—legitimate source—where they can come to and purchase their portfolios.”

  “Why not?”

  “Nobody’s big enough, man. Nobody’s big enough.” What the city needed, said Larry, was o
ne centralized outlet where collectors could buy legitimate debt. “That’s why if I had a huge amount of paper, a big abundance of paper, we’d sell this city up. We’d own this city, man.”

  “To be honest with you, I haven’t really been doing a lot of buying and selling debt because there’s no more good debt around to sell that I was able to get my hands on,” he told me. “I like legitimate deals.” I asked him if he would like to work for a broker or agency that dealt exclusively in legitimate debt. “Yes!” he said. “Man, come with it. Come with some actual, factual paperwork! I want a real nondisclosure agreement that you’re gonna honor. I’m gonna enforce it! I’m gonna make you honor it, and the deal is gonna go accordingly like it should. You’ll look at a masked [encrypted] file, you’ll want it or you don’t want it, and then you’ll forward over the money and you’ll get your file. Just that simple. It’ll be a legitimate file with a chain of title, showing you where it originated from. Yes, that’s the thing!”

  The problem, he added, was that there were always the people who wanted “to buy the files for super cheap” on the street. “That’s really it,” he concluded. “You get what you pay for. If you don’t want to pay the thirty or forty grand that it costs for a great, legitimate file, then go ahead and pay three or five grand for a file without chain of title that’s been triple-sold or ten times sold. Go ahead and take that chance. And that’s what they’re all doing. They’re saying, ‘We’ll take the chance.’”

  Larry sighed heavily. He looked tired and slightly disgusted. “I’m just distancing myself from the big money now, and I don’t care. If I have to stay living a humble life and sell my little paintings, I’m fine. I’m not starving—there’s food in my refrigerator.”

  Larry said he held on to the hope that, someday, he might work for or even own an agency that did things by the books—as they should be done. But he wasn’t optimistic that this would happen. In his view, the “street people” flooding the industry had ruined things and given the entire city a bad name: “People look at Buffalo like a germ.” And it wasn’t just the city that bore this stigma. “Now it’s hard to get a relationship with anybody, and to keep it all real, especially being black, nobody’s gonna want to deal with you,” he told me as he finished off his beer. “And I don’t blame them—like this one time, I can’t blame them, man.”

  * * *

  Not long after I met Larry for drinks, I heard about a barber on the East Side of Buffalo who allegedly had been selling bad paper, inspiring two disgruntled customers to come back with guns and shoot up his barbershop. The East Side is filled with tiny shops that collect on debt. It doesn’t take much to launch such a business: real estate is cheap, paper is readily available if you don’t care about its pedigree, and the city has a huge labor pool of experienced collectors—many of whom are hungry for work. This particular barbershop was located in a rough area. In fact, during my relatively brief visit, the police descended on the block and arrested two women after one sliced the other with a broken-off bottle.

  There was a security camera hanging over the front door of the barbershop, and I had to be buzzed in before I could enter. The barber denied that anyone had ever attacked his store, saying only that he had been robbed repeatedly. He also denied ever buying or selling debt, though he did say, rather cryptically, “I know some companies that help clean up people’s credit.” If I really wanted to know more about the debt business, he told me, I should walk down the block and visit another barber, named Sean.

  Sean’s barbershop was a cavernous mirrored hall, adorned with bright lights and ceiling fans and packed with young men waiting to get their hair cut. Sean wore shiny silver glasses, a thick chain around his neck, and a black barber’s shirt with his shop’s logo. He was a slightly built man, both friendly and garrulous. When I mentioned that I had been interviewing the barber down the street, Sean replied, “He does illegal things with people’s credit—he does…” Then he stopped himself, as if suddenly remembering that he didn’t actually know me, and finished, “I don’t know what he’s doing.”

  Sean went on to explain that, up until recently, he had been dabbling in the financial world. “Technically I would be called a ‘position swing equities trader,’” he told me. This meant, it turned out, that he bought, sold, and collected debt—mainly payday loans. This industry was both profitable and shady, said Sean. He then recounted a story about a woman from Virginia who sold him a portfolio and threw in an additional file as a freebie. The woman didn’t actually own the freebie, Sean said, but she had access to the file.

  According to Sean, the freebie file was tainted—and thus a little harder to collect on—because the debtors had either already paid their debts or were currently being hounded by another agency that was working the same paper. “I knew it was tainted,” he told me. “So I told all my collectors, ‘Just run it.’” It was difficult to get debtors to pay a debt a second time, Sean said, but if a given debtor didn’t have the paperwork to prove that they had already paid off the debt, then they still owed it. On this particular file, he needed to create a better incentive for his employees, so he increased the collectors’ bonuses by 5 percent and the managers’ by 10 percent. That’s how you work a tainted file, he told me. But Sean was quick to say that he had generally avoided buying or working tainted paper and had done so on only two occasions.

  I interviewed other collectors in Buffalo who also described the practice of buying, selling, and collecting on the accounts of debtors who had already paid their loans—mainly payday loans again. This was all apparently part of the trade of bad paper. One veteran collector, who had spent eight years working at a number of agencies in the Buffalo area, told me she once started working a new portfolio and realized that 95 percent of the accounts had already been paid. This is how she handled the situation: “You call them and you say, ‘We’re calling you about a payday loan you had back in 2006 for fifteen hundred dollars.’ Then the person would say, ‘Oh, I paid that payday loan off. I made a settlement of eight hundred with the company.’” At this point, the collector would say that this amount did not include interest and service fees—a boldfaced lie. But it worked. “So those people think, Oh. I didn’t pay that. I just paid the general principal … So they’ll pay it again.” This same collector also told me that many of the collection agencies that bought, sold, and worked bad paper were funded, at least initially, with the proceeds from the sale of illegal drugs, mainly crack. She claimed to personally know six collection agency owners who got into the business that way. That wasn’t the only interaction between drug dealers and the business. As she recalled, “I’ve seen other big-time drug dealers come to collection agencies and extort them, saying, ‘Hey, I heard this shop is runnin’ well. Everybody’s drivin’ brand-new Escalades and Jaguars. You got money. I need ten percent.’” All of this seemed to corroborate the rather dark, chaotic, and lawless assessment of the city’s rogue agencies that Larry had given me.

  Back at Sean’s barbershop, I asked him why he had recently decided to retire from the business. He said the industry was simply too stressful and suspect. The collectors who made him money were typically the ones who were willing to intimidate debtors and break the law. And, of course, there were the tainted files. “Being a young man, who is a believer, I didn’t like making my money that way.”

  * * *

  I wanted to see Larry’s artwork—I genuinely did—and I also wanted to question him more closely about the fate of the Package, so I decided to visit him at his house in an overwhelmingly white, working-class community outside of Buffalo. When I showed up at his home, a modest ranch house on a quiet side street, Larry greeted me excitedly and escorted me into his one-car garage, which he uses as his studio. It was a cramped, dark space cluttered with an old treadmill, a bench press, a television set, and other items that looked as if they were waiting to be sold at a yard sale. And there were art supplies, lots of them, including canvases, oil paints, brushes, jars of pumice, vials of crac
kle powder, and tubs of plaster of Paris.

  Larry told me that he had chosen to live here, in the suburbs, to escape his past: “I actually wanted to go somewhere where there weren’t a lot of black people. When you embrace change, you change everything. People, places, and things.” But there were some drawbacks. “Like, if I say hello to someone, I’ll just get no reply or just a crazy look and they’ll keep walking—like, ‘Don’t speak to me, nigger, keep it going, you shouldn’t even be around here.’ That’s the feeling I get.”

  This wasn’t a big problem, Larry said, because most of the time he simply stayed inside, working on his art. He showed me one of his works in progress, which was an image of a human head, with images of a car, a stack of money, and a diamond placed above it. “The name of this painting is Taking Control of Assets, and what it’s basically showing is a responsible guy who’s thinking about what to do with his money,” Larry said. “He’s putting the money into assets that he can get his return back on later if he needs it.” I asked what inspired the painting. “All of my paintings are extensions of my fears,” he replied. “And what inspired me to do this is that I don’t want to waste money. I don’t want to squander it.” Larry looked around his cramped studio, smiled, and then exhaled heavily. “I fear making bad decisions,” he said quietly. “Like every day I’m working on me. How can I get better? How can I do this better? How can I do the right thing? Okay, if I get an impulse thought, don’t react on it. Sit down. Think it over first. See if it’s the best decision. I just fear making bad decisions.”