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

  4

  BAD PAPER

  One of Aaron’s most persistent and anxiety-provoking concerns was that a dishonest collector or debt broker might swindle him. In the fall of 2009, this fear appeared to become a reality. Around the same time that Theresa and Joanna were getting phone calls from a mysterious law firm, Aaron received an e-mail from the owner of one of the agencies that he hired to do his collecting. The collectors at this agency were getting the same message from numerous debtors: We just paid off these accounts—to someone else.

  At the time, Aaron had no idea exactly how many accounts had been compromised. What he did know was that somehow, someone else had gotten access to his files and was collecting on them. Aaron was puzzled. Was this the work of a renegade collector within one of his agencies who was collecting on his own and pocketing the cash? Was it possible that someone had stolen these files or somehow managed to copy them? Whatever the explanation, Aaron needed to deal with the situation quickly.

  On several previous occasions, he had dealt with collection agencies that had tried to cheat him in one fashion or another. In one instance, he recalled placing a portfolio with a married couple that ran an agency in Florida. For several months the agency sent him good returns, and then suddenly, the payments stopped. “Oh boy,” Aaron recalled. “It comes through the grapevine that, apparently, the wife developed a crack cocaine addiction. She sold all the files out from under him—or stole all of them—and ran off with the money. And that was that.” Aaron says he had no recourse. “I could sue her. Totally worthwhile to sue a crackhead, right? What am I going to do with that? I’m gonna throw good money after bad.”

  On another occasion, Aaron says that he bought a file for $100,000 from two Buffalo-based debt brokers. The paper was supposed to be “fresh,” directly from HSBC, only it wasn’t. In fact, it was fairly worthless. He recalled going to the local district attorney—who was actually an acquaintance of his—but the case proved a hard sell. It was difficult for Aaron to explain all of the nuances of the deal and, by the time he had, he says it became apparent to him that the district attorney had plenty of cases that would be easier to prosecute. “They’re in the business of picking the low-hanging fruit,” said Aaron. “And that’s not a knock on them.” Aaron concluded that he had to fend for himself. “This is the Wild West,” he explained. “You’re buying and selling Excel files, and everybody—even the very best—gets burned.”

  After going to the district attorney on the HSBC matter, Aaron hired a lawyer at one of Buffalo’s most prestigious law firms and sued the debt brokers who had cheated him. The process dragged on for almost two years, and at one point I tagged along with Aaron when he visited his lawyer’s office to get an update on the status of the litigation. The lawyer—a young, handsome fellow who was sharply dressed in a crisp white shirt and a pink-and-yellow striped tie—relayed to us what he had discovered. As it turns out, the two brokers who sold the debt to Aaron didn’t actually own it. The lawyer had obtained a judgment against the two brokers’ companies, which seemed like good news, but it wasn’t. “At this point, it is clear that the companies are shells,” the lawyer said. The addresses were no longer even valid. “The individuals are deadbeats. So just because you get a judgment doesn’t mean you can collect it.” Aaron could press on, but the defendants were stalling and had failed to show up in court on three separate occasions.

  “They know that this is costing me money!” Aaron fumed. “It is the same tactic debtors use—call me back tomorrow. It is the same exact tactic.”

  Ultimately, the lawyer told Aaron that he shouldn’t be too hopeful or expect to recoup what he had lost.

  “At the end of the day it was a big circle jerk?” asked Aaron.

  “Yes,” replied the lawyer.

  It was this experience, and others like it, that shook Aaron’s faith in the regulators and the judicial system. And so, when he heard that someone else was trying to collect on his accounts, he picked up the phone and called his fixer, Brandon, for advice. Brandon was committed to helping Aaron because he had pledged, long ago, to keep the “sharks” at bay. What’s more, Brandon was in the process of selling some of the paper that appeared to be affected and, unless he resolved this matter, he would lose his commissions.

  As soon as he got the call from Aaron, Brandon started with his detective work. First, he needed to match the fraud to individual accounts. So he spoke with the owner of the collection agency who worked for Aaron—the one who first identified the problem—and asked him for the phone numbers of all the debtors who had recently paid this mysterious other agency. Then, one by one, Brandon began contacting these debtors. None of them could recall the name of the mystery agency, but several combed through their most recent credit-card statements and identified the company that had processed the payments they had made. Brandon called the processing company. “So I got them on the phone, told them that I was the debtor, and said, ‘What the fuck is this? I am reversing the charge! What company charged me for this?’” And, like that, Brandon had the name and phone number of the collection agency.

  “I called up the agency and introduced myself as the debtor,” he said. “The woman on the other end of the phone tells me, ‘You are being sued, you better pay!’ I said, ‘First, give me your address.’ She is like, ‘I am not giving you the address.’” Brandon called back, and this time he got a man who claimed to be the owner of the agency. Brandon told him, “You guys are stealing money.” The owner of the agency, who asked to be identified only by his nickname—Bill—insisted that the accounts were his. In the coming days, Bill received a series of threatening calls and voice mails from Brandon. “I started getting these calls from this Boston cat with this real big Boston accent,” Bill told me. He spoke “like he was a gangster,” said Bill, and threatened to “come to my office, kick over my computers, and take my server.” Bill refused to stop collecting on the accounts: “I let him know what it was [like] in this city and if he came here, [talking] like this, he might not make it out.”

  After speaking with Bill on the phone—and getting nowhere—Brandon hung up and glanced around his office in Bangor, surveying the faces of his collectors. He called out the names of four of them. They all stood up without questions. One was a young employee named Jeremy Mountain; as he recalls it, Brandon calmly explained to them what they were about to do: “We’re gonna shut down this rogue agency or burn it down to the ground.” No one hesitated. They all piled into Brandon’s small Mercedes sports car and drove more than six hundred miles to Buffalo. “On average, the guys in the car weighed about two hundred forty pounds,” Jeremy said. “I was the only person who hadn’t gone to prison.”

  Before “going to war,” as Brandon put it, he and his crew stopped by Aaron’s office in Buffalo. As it turns out, Brandon had some business to settle with Aaron as well. Under their arrangement, Aaron was supposed to notify Brandon every time that he purchased paper from one of Brandon’s sources, and then send him a 5-percent commission. Brandon suspected that Aaron had either forgotten or simply neglected to pay him for some of these deals. In the car, Brandon apprised his posse of the situation: “I told my guys, ‘I know he has been holding out.’” One of the men in the car recalled Brandon vowing to them, “We are not walking out without a check.” Brandon figured that now was the perfect time to leverage his position and demand payment.

  Aaron’s then-deputy—whom I will call Lilly to protect her privacy—recalled Brandon’s arrival vividly. “He showed up in the office in a long black coat, drinking whiskey out of the bottle, with all these guys that I would not want to meet in a dark alley,” she said. Brandon’s arrival also made a lasting impression on Aaron. “They come down here in this small Mercedes, and they come storming out of it like clowns out of a clown car—only they’re ex-cons.” With some trepidation, Aaron invited them up to his office. “One guy was this scary son of a bitch,” Aaron said, and, upon entering his office, he stopped to stare at a picture of Aaron’s w
ife. “He had these piercing eyes, and he is like, ‘Your wife is very pretty.’ And I’m thinking, He is going to murder my wife.”

  As far as Aaron was concerned, Brandon’s visit was hardly comforting. “It doesn’t give me any peace of mind,” he told me. “It just ratchets up your level of stress. All of a sudden, you’re swimming in waters you didn’t really want to swim in, never would have conceived you would be swimming in, right? I feel good that I was able to—in some instances, through Brandon’s persuasion—protect my investors’ money better than I would have been able to otherwise. But really? This is what I’m doing? It makes for an entertaining story. But would you want to do it? Would you switch places with me?”

  On this visit, Aaron quickly resolved the matter of the unpaid commissions by writing Brandon a check for $50,000. He sent him another check, for $117,000, several days later. And at Brandon’s urging, Aaron also paid each member of Brandon’s posse $500 for their time and services. After visiting Aaron’s offices, Brandon and his associates set to work, piling back into his Mercedes. Brandon placed a call to Shafeeq, the Muslim debt collector whose agency Aaron had hired and co-owned. Brandon and Shafeeq weren’t friends exactly, but they were colleagues of a sort—they had known each other for years and had a good rapport. Shafeeq had the advantage of being a local. He knew the collections scene in Buffalo—the good actors, the bad actors, and everybody in between. Shafeeq knew, for example, that Bill owned and operated a corner store near Buffalo’s downtown.

  There was another benefit to having Shafeeq in the posse as well, namely, that he ran his own security firm and was licensed to carry a firearm. Shafeeq was a stickler for details—like drawing up contracts for the clients whose homes and property he protected. As he told me, “I can go and shoot a person—an intruder, at your house—and it would be a lot easier to do something like that with the security contract in place. Whereas if I’m just showing up at your house, and I shoot somebody, now there’s a lot more, you know, paperwork.”

  Brandon recalls that when they all met up, Shafeeq was wearing a bulletproof vest and had a 9-millimeter pistol with two clips. He also had a machete. Brandon asked him what the knife was for. According to Brandon, Shafeeq’s reply was, “It’s for when I run out of bullets.” When I asked Brandon if anyone else in the Mercedes was armed, he said, “Not legally.” Brandon explained that collectors in Buffalo were a rough-and-tumble lot—“there are a lot of shady motherfuckers there”—and he wanted to be ready for the worst.

  Brandon and his crew eventually found Bill at his corner store, which he owned and operated in a run-down neighborhood, amid a bleak urban expanse of abandoned storefronts, cracked sidewalks, and empty lots overgrown with weeds. Brandon stepped out of the car and studied the storefront, looking in through the front window, trying to see exactly who was inside. It was hard to tell. Brandon gestured for three of his guys to come with him, including Jeremy and Shafeeq.

  Brandon walked into the store and saw an enormous man, roughly six and a half feet tall and 280 pounds. Brandon asked the man his name. It was Bill. The encounter was tense. Jeremy Mountain recalled seeing a gun resting on a shelf behind the checkout counter. Bill confirmed that he had a gun at the ready and recalled that, whether Brandon knew it or not, “he was the one in danger.” Brandon looked around. At the back of the store, he saw a door that appeared to lead to a back office. He gestured toward the door and explained, “I don’t want an audience.” Together the two men walked through the back door, where Brandon hoped they might find some privacy. “Turns out it was a closet,” recalled Brandon. “So it’s the two of us, just standing there, in a storage closet.”

  As he remembers it, Brandon told Bill to sit down and then drew close so the two of them were eye to eye. “If you collect one more dollar on this paper,” he said, “I will come back down here, I will take your server, I will burn your agency to the ground, I will come to your house and burn it down, and then I will come back here and burn this store down. Understand?” Bill proclaimed his innocence and indignation, insisting that he had bought the file—legitimately—from another debt broker in Buffalo, whom I will identify as Kenny.

  This news gave Brandon pause. He knew that Kenny and his associates were notorious in the industry for selling accounts that were stolen or double-sold—meaning the exact same debt had been sold off to two different buyers. Brandon himself had had “a couple of run-ins with these guys” in the past. On one of these occasions, Brandon claimed he was cheated out of money that he was owed and had driven down to Buffalo in order to confront them. He never found them, but he remembered the incident bitterly, and wondered for a second whether what Bill said might be true. For his part, Bill later suggested to me that he mentioned Kenny’s name only as a diversion and that—in fact—he had bought the paper from a rogue employee in Aaron’s office who was selling the paper covertly and, apparently, illegally.

  In any case, at the corner store, Brandon was primarily concerned with impressing upon Bill just how serious and dangerous he was. Shafeeq, who overheard much of their encounter, described it as two “big kids” trying to prove who was meanest: “It was a tough-guy show.” Bill says that he refused to be strong-armed and that he told Brandon: “It’s not gonna happen here—you’re talking to the wrong guy.” Brandon was not to be outdone. As Shafeeq recalled it, Brandon went into a tirade, lifting up his shirt and screaming at the top of his lungs, “I got stabbed right here! I got a bullet hole right here!” The tactic worked. “As soon as you see that kind of behavior,” said Shafeeq, “you’re like, okay, this dude is absolutely crazy.” According to Shafeeq, Bill eventually backed down.

  As Brandon saw it, the key now was resolution and so he laid down his terms. Brandon explained to Bill that this entire matter could be resolved quietly without involving the authorities. He issued two demands. The first was that he wanted a spreadsheet documenting the details of every stolen account on which a debtor had made a payment. The second and more important demand: Stop collecting on all of these accounts and any others that might belong to Aaron. In the end, Bill made good on his promise to stop collecting on Aaron’s accounts. Bill says he was happy to do this because he paid only $10,000 for the accounts and had already collected many times that. What’s more, Brandon didn’t demand that he return what he had made. “It was a win-win,” explained Bill proudly.

  The whole episode, however, remained something of a mystery and a mess. In the coming weeks, Bill sent Brandon a series of e-mails in which he continued to maintain that he had purchased the accounts and not stolen them. “We won’t be working anything we received or purchased from those guys until this thing gets sorted out,” he wrote. What mattered most to Aaron and Brandon was identifying each and every account that Bill’s agency had actually collected on. This proved easier said than done. Bill ultimately sent Brandon five separate spreadsheets holding roughly 7,000 accounts, some of which he suspected belonged to Aaron. Of these, more than 2,400 were from the Package. Theresa’s and Joanna’s names and accounts were on these spreadsheets. This strongly suggests it was Bill’s collectors who called the two women, threatened them, and extorted their payments. When I spoke with Bill, he searched through his records, and said he could find no evidence that either Theresa or Joanna had paid him—though he admitted that one of his collectors might have covertly processed their payments and pocketed the money. If they didn’t pay Bill’s agency, the only other possibility is that some other agency managed to get access to these accounts and collect on them in the same time period.

  Aaron resolved to make the best of a bad situation. Whenever he could confirm that a debtor had paid Bill, he closed the account and permanently retired the debt; besides that, there wasn’t much more for him to do. For his part, Brandon felt good that the matter was all resolved. In fact, as a thank-you for Bill’s prompt and polite cooperation, Brandon says he sent Bill a small present—a trademark Brandon Wilson tiding of goodwill: a file containing one thousand out-of-stat a
ccounts. Brandon speculated that Bill might even become a customer someday but he never heard from him again.

  PART TWO

  PAPER HUNTERS

  5

  AARON’S PROBLEM

  Recapturing the Package was a victory for Aaron. By taking the law into his own hands, he had avoided the cost and frustration of litigation and minimized his investors’ losses. And the Package had been an investment worth protecting. The paper was so good, in fact, that Aaron and Brandon locked up their “forward-flow arrangement” with Hudson & Keyse: the firm continued to sell similar packages to Aaron, each month, until the fall of 2010, when it finally filed for bankruptcy.

  If only Aaron could have spent all of his investors’ money on paper like this, there’s no telling how much he might have made. But it wasn’t as simple as that. Aaron had launched the fund in the summer of 2008, and the investors had insisted that he put their money into action. The point of the investment was to make money, and they didn’t want it sitting around in a savings account. This meant that Aaron had to buy his paper in bulk, spending the $14 million in the fund right away. Aaron’s preferred strategy was for Brandon to identify older, undervalued paper so that Aaron could buy it, work it, and sell it. This was the key to taking advantage of the inefficient market. But these kinds of deals typically weren’t available in bulk. Buying the Package, for example, had been a great investment; but it wasn’t feasible to replicate this practice on a massive scale. Even Brandon couldn’t find that many deals. Not all at once, anyhow.

  And so Aaron made a very large and very different purchase, spending roughly $9 million on a portfolio of debt that he bought from Bank of America. He made this deal around the same time that he purchased the Package in late 2008. It was a pivotal deal for Aaron and he proceeded carefully. The bank sent him a sample, almost like a teaser, to give him a sense of the paper that he was about to buy. The paper was “firsts”—no one had worked it other than the bank. And, at 3.5 cents on the dollar, it appeared to be priced well. Aaron analyzed the file, studying the balances, the age of the debt, the regions where the debtors lived, and every other conceivable criterion. Brandon did the same. Brandon was the first to admit that this was outside his realm of expertise. Since he liked to buy older paper, he was less confident buying directly from the bank. Even so, he ultimately concluded that the file looked good. Aaron then negotiated a contract with the bank, demanding that the rest of the paper have the same characteristics as the teaser. He stipulated twenty criteria in the contract—everything from balance size to zip codes. In the end, he felt good about the deal. After all, he was buying this paper from his former employer, Bank of America, one of the nation’s leading banks.