|school for scoundrels |
School for Scoundrels: Doing Time in Prison Prep SchoolGarrett Bauer, Stock Fraudster, Learns How to Play It Safe in the Slammer
By MICHAEL ROTHFELDGarrett Bauer made tens of millions of dollars illegally trading on stock tips. Lately, he has been seeking tips of another kind—about getting along in federal prison.
Former inmates have advised him not to raise his fists if another prisoner tries to provoke a fight. He should curl his body in a ball on the floor instead. And he has been told not to run up debts or take part in spats about what to watch on television.
Advising panicky white-collar criminals on what life is like behind bars is a bull-market business, what with all the arrests on Wall Street for insider trading. Michael Rothfeld has details on Lunch Break. Photo: AP
"I'm going to be new, so you don't want to stick your two cents in," says Mr. Bauer, a slight, 44-year-old felon who in May is scheduled to be sentenced to as much as 11 years in prison for insider trading.
Advising panicky white-collar criminals on what life is like behind bars is a bull-market business, what with all the arrests on Wall Street for insider trading.
As America's lockups have become more crowded, so has the prison-prep industry, a field built for white-collar criminals with the means to pay for lessons on coping with strip searches and with getting along with a tattooed cellmate named Bubba.
Mr. Bauer admitted in federal court in New Jersey in December to taking part in a $37 million insider-trading scheme that spanned 17 years while he worked at various proprietary trading firms in Manhattan. He pleaded guilty to securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice.
Solo Syndication/Zuma PressFormer NBA referee Tim Donaghy, shown with Toronto Raptors coach Lenny Wilkens in 2002, went to prison for gambling on his own games.
The schooling for incoming inmates includes lingo. A "cheese eater" is an informant. A "blanket party" is throwing a blanket over an inmate then beating him. "Diesel therapy" is when troublemaking inmates are shackled and driven around in the back of a prison bus. Misbehave often, and you risk taking a trip to the "SHU"—the Special Housing Unit—also known as "the hole" or solitary confinement.
Some consulting companies boast flashy websites, with media clips of their founders and toll-free numbers. "I Helped 100's During My 10 Years on the Inside…1998 To 2007," says the website of Larry Levine, the burly founder of Wall Street Prison Consultants, which includes videos of him wearing sunglasses indoors. "Now I Can Help You, Too!"
Related Reading Insider Shares His Cautionary Tale
White-collar inmates-to-be are taught that currency in prison includes stamps and canned fish. There are many no-no's, including taking someone else's laundry out of a dryer, changing the TV channel or looking at another guy in the shower. Stealing is seriously frowned upon.
Patrick Boyce learned the etiquette of incarceration by hiring a convicted fraud artist-turned-prison consultant. Now Mr. Boyce, 42, has become one, too. Among the most important principles of proper prison behavior, he says: Be polite.
Don't butt into conversations, don't forget to say "excuse me" when you bump into someone, even when it isn't your fault. Don't watch TV in another man's chair. Don't reach across someone else's plate at chow time. "That could be immediately answered with a fork in your arm," says Mr. Boyce, a former stockbroker who completed 11 months in the pen in 2004 and advertises himself as a "federal mitigation specialist."
Mr. Boyce, who founded Federal Prison Alternatives after he finished a term for stock fraud, says he picked up some tips on the job from a towering, 400-pound roommate nicknamed Gator. Once, a well-heeled visitor to his room (or cube in prison-speak) was sitting on Gator's bed when Gator walked in.
"Don't ever sit on another man's bunk," Gator said sternly, according to Mr. Boyce. Mr. Boyce and his friend both apologized and followed the advice. He also quickly picked up the "courtesy flush."
A challenge for consultants is persuading white-collar clients to give up control, lose the CEO attitude and stop trying to work things to their own advantage. "They are no different than these other inmates that may have been a street-corner drug dealer," Mr. Boyce says.
Some felons who went in blind wish they had sought counsel ahead of time. Tim Donaghy, a former National Basketball Association referee imprisoned for gambling on his own games, says he learned through "trial and error"—lots of error.
Taunted as a "rat" at a Florida prison, Mr. Donaghy says he talked back, and the trash-talking inmate attacked him with a stick attached to a paint roller, injuring his knee. A humiliated Mr. Donaghy was covered in yellow paint. He calls it "a comedy scene."
Things might have been different had he done his homework. Says Mr. Donaghy: "I would have kept my mouth shut."
While behind bars, he got help from Executive Prison Consultants LLC, a firm run by a former felon. Later, Mr. Donaghy found the key to success: buying buns and coffee for inmates with names like Big Jack and St. Pete. "I was a hero," says Mr. Donaghy, 45, who now consults and blogs for a sports-betting website.
For Mr. Bauer, talking to the former inmates—whom he met through a Florida rabbi—offered great relief. After federal agents arrested him at his $6.6 million Manhattan condo last year, Mr. Bauer spent five nights at a maximum-security jail in New Jersey with steel toilets in a big open room and, he says, with inmates brushing up against him.
"This is what I'm going to?" Mr. Bauer recalls thinking. He says he made an unsolicited $500 contribution to the rabbi's nonprofit group and, separately, hired Joel Sickler, a criminologist at the Justice Advocacy Group P.C., a consulting firm.
He says the ex-inmates told him federal prison would be nothing like the Hudson County Correctional Facility. He will be able to send email and possibly work as a dog trainer or a tractor driver. The bureau of prisons will likely assign the newbie a top bunk.
In a small reminder of his old life, Mr. Bauer also learned that he may still be able to trade to get things he needs: In exchange for $15 in canned mackerel a week, other men will make his bed and do his laundry.
Write to Michael Rothfeld at firstname.lastname@example.org
Related Reading Insider Shares His Cautionary Tale
Insider Shares His Cautionary Tale
By MICHAEL ROTHFELDAfter Garrett Bauer pleaded guilty to insider trading last year, he did something most prison-bound people do not: He went on tour.
Mr. Bauer has given more than 120 speeches about his crimes and his punishment at business schools, religious institutions and other groups in the U.S. and overseas, in person and on Skype. He has had audiences at the New York Society of Security Analysts, the London School of Business, and at Harvard University, among many other places.
"I'm here hoping to keep you from committing the same crime as I did, insider trading," Mr. Bauer, 44 years old, told a class of accounting students at Fordham University in the Bronx recently. He began his tour last September, after a rabbi he sought advice from suggested that he talk about his crimes to deter others as a way to work through his remorse.
Michael Rothfeld/The Wall StreetGarrett Bauer, who has pleaded guilty to participating in a $37 million insider trading scheme and awaits sentencing, speaks to Fordham students about his crimes and his punishment on March 20.
The $37 million insider-trading scheme in which Mr. Bauer traded on information from a lawyer working on mergers and acquisitions lasted 17 years and was described by prosecutors as one of the longest-running ever. Beyond warning others, Mr. Bauer, who is not paid for his speeches, also hopes the effort might help him reduce the time he will spend behind bars. He could receive a sentence of up to 11 years under federal guidelines at his sentencing in May.
"Garrett had this cathartic thing about wanting to get it off his chest," said his lawyer, Michael Bachner. "If the good deeds result in some kind of benefit for Garrett that's terrific, but that's not the motivation."
Related Reading Lessons of Prison Prep School
At his Fordham talk, Mr. Bauer stressed how much he'd given up in his life for no good reason. The inside information informed a fraction of many billions of dollars in trades he'd made over the years. He didn't get a thrill from it. He didn't think much about the consequences. He didn't even really need the money.
"I was already doing well in my career," he said. "I already had millions in my bank account, which makes my crime even more senseless."
Professor Timothy Hedley, a KPMG LLP partner who teaches about accounting fraud at Fordham, used Mr. Bauer's appearance to reinforce some terminology from his lessons, such as the "fraud triangle" and the "serial fraudster."
"This man doesn't look or act like the serial fraudster, does he?" Prof. Hedley asked his class.
Some of the students, half Mr. Bauer's age, were struck by the prospect of the average-looking person in front of them going away for up to a decade. "Hearing his story and hearing how his life has really changed, that's something I'm definitely going to try to avoid," said 21-year-old Humza Elahi.
Mr. Bauer related to the class how the illicit information was funneled to him through a close friend he'd known for two decades. He acted "somewhat like a broker" for his friend, Kenneth Robinson, and the lawyer, Matthew Kluger, in that they'd tell him how many shares they wanted and he'd buy them. The tips were often vague, so much so that he'd convinced himself that he was different from the traders alongside him boasting of much more specific—though usually wrong—insider stock intelligence.
"Sometimes I even used to say, 'You're going to get arrested for listening to something like that,' " Mr. Bauer joked.
Several students asked Mr. Bauer about his feelings toward Mr. Robinson, who turned on him and cooperated with the prosecutors and the Federal Bureau of Investigation in hope obtaining a more lenient sentence. Mr. Bauer said he was angry at first, but understood that his friend had done what was best for his family.
Messrs. Robinson and Kluger both pleaded guilty and are scheduled for sentencing the same day as Mr. Bauer.
When asked why he'd committed the crimes, though, Mr. Bauer struggled for an explanation.
"You know, people cheat," he said.
"Not in here," Prof. Hedley said quickly.
Mr. Bauer said that even in hindsight, he doesn't think laws or arrests can stop people from insider trading.
"Even though you might see it on TV, it just doesn't seem real," Mr. Bauer said. "Just like it doesn't seem real to me."