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Sharpe Capital suit reveals seamy side of securities industry

By Christopher Byron, MSNBC

Oct. 3 — One of Wall Street’s darkest and ugliest secrets is the
widespread use of drugs — in particular cocaine — among
those who buy and sell stocks for a living in the high-
pressure trading rooms of America’s securities industry.
Now, a lawsuit filed Sept. 27 in a New York court by a
Nasdaq brokerage firm named Sharpe Capital Inc. has
inadvertently brought the whole, ugly subject cascading into
full public view.

The picture now emergimg in reaction to that suit reveals a
company seemingly blinded to the corrupting culture of drugs and
money enveloping the firm’s most lucrative operation: that
of trading stocks in Nasdaq-listed and unlisted securities.
The company employs 316 people and makes markets in nearly
8,000 stocks, many of them Over The Counter and “pink
sheet” securities. It has offices on Wall Street and in Boca
Raton, Fla.; Jericho, N.Y.; Carmel, Ind.; and Tinton Falls,
N.J. Sharpe generates roughly $100 million in gross
revenues, with two-thirds of the business coming from its
trading desk operations.

So deeply immersed and comfortable did Sharpe
Capital’s trading room apparently become in this world of
recreational drug use that no one at the firm seems to have
raised even a peep of protest as cocaine and prostitution
developed into a kind of secret currency that helped build the
firm’s trading desk into a major Wall Street force in the current bull market.

The source of these astonishing revelations and
charges? None other than the co-manager of Sharpe Capital’s own
trading desk operation on Wall Street throughout the entire
period in question: Judy A. Payer.
Repeated requests for comment from the company regarding
Payer’s charges proved fruitless. A request for comment
from the company’s co-owner, Larry Hoes, was directed by
Hoes himself to the firm’s outside counsel, attorney Greg
Sichenzia. Two separate phone calls to Sichenzia seeking
comment on allegations of criminal wrongdoing at Sharpe Capital were not returned.

As reporting for the story progressed, a person named
Keith Chambers, who identified himself as a vice president of
technology for Sharpe Capital, called and asked what it was
the firm was being asked to comment upon. When advised that
a former top official at the firm was alleging specific
criminal and civil wrongdoing by the company, Chambers
promised to have one of the co-owners return
the call for comment. No return calls were ever received.

Suit seeks $2.975 millions

In the suit that has brought all this to light, Sharpe
Capital is seeking to recover $2.975 million in allegedly
excessive compensation to Payer and her husband — William
F. Kirincich — who together founded and ran the firm’s 55-
person Over The Counter trading desk in the Wall Street
office from 1995 until last week.
The suit further alleges in a separate fraud claim
against Payer that she overstated various securities held
by the firm to boost her own compensation and conspired
with a well-known New York investor, John Fiero, to hire
away Sharpe’s trading desk employees and open up a
competing business.
Yet the suit itself is far less interesting — and
disturbing — than the counter-charges that Judy Payer has
now begun firing off publicly in her own defense against
Sharpe Capital and her now-estranged husband, William.

Traders without licences

Those salvos paint a picture of a fast — even chaotically —
trading desk operation, awash in drug use from the top down,
while management paid little if any attention to such basic
questions as whether the desk’s employees actually needed
to be registered with, and licensed by, the National
Association of Securities Dealers in order to conduct securities
transactions with customers of the firm.
Payer’s charges gain credibility because she was,
until last week — when the firm fired her and evicted her
from Sharpe’s premises — in a position of direct management
responsibility, along with her husband over the day-to-day
operations of Sharpe’s trading desk. In several extended
interviews for this story, Payer said she was coming
forward out of fear that if she did not now speak publicly, and
fully, about the activities inside Sharpe Capital, the firm
would try to make her a scapegoat for any revelations that
might eventually leak out.

Her charges, lurid though they are, have been
confirmed through interviews with a second Sharpe employee,
with non-employees who have done business with the firm,
and through reference to company and National Association
of Securities Dealers documents. No company officials,
including Sharpe Capital’s own lawyers, returned telephone calls
for this story or would offer any comments on Payer’s charges.

Blowing whistle on her husband

Among Payer’s more astonishing charges are those that
involve allegations of drug abuse by her own husband.
Payer claims, for example, that during the five-year period
when she and her husband co-managed the Sharpe trading
desk, her husband, William Kirincich, was known throughout the
Wall Street trading community as an active and substantial
user of cocaine.
Payer said she became aware of her husband’s drug
problem three years ago but that both she and the firm
permitted him to continue to co-manage the trading desk anyway,
even though his continued drug use was widely known among
the employees.
During this period, the Over The Counter trading
desk evolved from nothing at all into by far and away the
most lucrative operation at Sharpe Capital. Payer and her
husband reaped an almost unbelievable bonanza as a result,
regularly taking home close to $1 million per month in
commission income alone. Payer said this wealth supported a $500-
per-day cocaine habit for her husband, who, according to
Payer, by last month had spent more than $500,000 on his
cocaine addiction.

Cocaine for business

As recounted by Payer, Kirincich’s cocaine habit even
addicted Sharpe Capital, which quickly became dependent on the
surging revenue generated by the trading desk through
Kirincich’s coke-greased socializing with officials at other
Wall Street firms.
To that end, said Payer, her husband would regularly
obtain drugs from a New Jersey drug dealer named “Jay.” A
separate source for this story said that Jay conducted his
drug dealing activities out of an old age home in Jersey
City, N.J., where Jay’s grandmother was a resident.
According to Payer, her husband and at least one
other Sharpe trader would then use the drugs to solicit
business from the trading desks of other Wall Street firms.
These included, said Payer, the trading desks of
PaineWebber, Charles Schwab and Merrill Lynch.
In the process, Payer said, cocaine became a kind
of “payment for order flow” currency with which Sharpe’s
trading desk paid kickbacks to some of the biggest and best-
known firms on Wall Street to get their business. Rather
than laundering drug money, the trading desk at Sharpe

simply cut out the money part and begun using the drugs
themselves as the firm’s bribery currency.

Payer said her husband was known throughout Wall Street as
a procurer of not just drugs but women as well, and said
traders from other firms would phone their home in
Seabright, N.J., daily — up until as recently as the start of
last month — arranging evening get-togethers with her husband.
Payer identified the top trading desk official of
one of Wall Street’s largest and most prestigious
securities firms as a regular and frequent after-hours
socializer with her husband.
Efforts to obtain comment from the individual for this story were unsuccessful.
“My husband took them to all the strip clubs,” said
Payer. “They went to Tens, to The Gallery, to Scores. He
was so well known there that he used to get Christmas cards
from all the strippers.”

Drug use widespread?

Illicit cocaine use extended beyond her husband at Sharpe
as well, said Payer. Referring to her own employees on the
trading desk, she said — certainly with some degree of
exaggeration — “They’re all on coke.” Among the firm’s users she
identified George Santangelo, co-owner of Sharpe Capital,
with whom she said her husband had several times
acknowledged having engaged in cocaine use.
Payer said she never personally witnessed the two men doing
drugs, but that her husband spoke of it in such a matter-of-
fact way that she had no doubt the incidents had occurred.
A telephone call requesting Santangelo to respond to
Payer’s claim was not returned.
Since the start of September, William Kirincich has
been an in-patient at Sierra Tucson, a well-known and
expensive drug and substance abuse detox clinic in Arizona.
Efforts to contact and obtain a comment from
Kirincich at the clinic for this story were unsuccessful until
this story was on deadline for publication. Meanwhile,
Kirincich’s presence at the clinic was confirmed by a second
individual who met with him when he flew to New York for a
meeting last month with Sharpe Capital’s owners.
Kirincich’s in-patient status at the clinic was
further confirmed by a U.S. Trust Co. money market account
statement in the name of “Payer-Kirincich.” The statement shows
a wire transfer in the amount of $11,836.00 on Sept. 15h to
an account at BancOne, Arizona in the name of Sierra Tucson
Inc. Payer said this was money that she herself wired to
Sierra Tucson to cover treatment costs for her husband at
the clinic.
Then, on deadline for this story, a man identifying
himself as “Billy K” telephoned in apparent response to a
message left for Kirincich at the clinic. When informed
that a comment was being sought from him regarding Payer’s
claims of his “extensive use of drugs at Sharpe Capital and
on Wall Street,” the caller said, “No comment” and hung up
the phone.

Returning to the scene

Payer said that in mid-September, Kirincich left the
clinic and flew back to New York at the invitation of
Sharpe’s co-owner, Santangelo. The purpose of the meeting, said
Payer, was for her husband to meet with Santangelo and
discuss moving Payer aside in order to resume day-to-day control
of the trading desk. Payer said her husband told her that
Santangelo offered to let him continue his drug treatment
program on an outpatient basis at an unnamed New York area
clinic, at Sharpe’s expense, if he would agree to return to
work on the trading desk.
News of the offer reached traders on Sharpe’s
trading desk — undoubtedly via Payer herself — leading to one of
the last meetings she attended at Sharpe Capital. The
meeting, in mid-September in the firm’s 27th-floor conference
room, involved Payer and upwards of 20 of her traders,
along with the firm’s two owners, Hoes and Santangelo. The group
had gathered to a discuss a report the traders found
disturbing — namely, that Payer’s husband would be returning
from his Arizona detox program, by invitation of the
owners, to help manage the trading desk once again.
A number of traders expressed concern at having to
deal with Kirincich’s wild mood swings, yet neither of the
owners, nor anyone else in the room, expressed any apparent
surprise when one member in attendance, Francis (Burke)
Murphy, spoke up and declared, with apparently some degree
of hyperbole, “Look, we’ve all done coke here. I’ve done
coke with Billy in the past. But we know when to stop!”
The scene was confirmed, in detail, by a second
person who attended the meeting. Repeated requests for comment
or response from Sharpe Capital, its owners or the firm’s
lawyers brought no response.

Drug testing idea goes nowhere

Payer said she spoke to the firm’s compliance
officer, Kurt Switala, as recently as this summer, suggesting
that Sharpe should implement a drug-testing policy for
employees. But, said Payer, Switala dismissed the idea, saying
drug tests were unreliable.
Payer said she also spoke to Larry Hoes, one of the
co-owners, at around the same time, and made the same
recommendation. But, said Payer, Hoes nodded non-committally and
said he’d “take it up with Compliance.” Payer said she
never heard back on the subject from anyone.
In this environment of warped judgment and frantic
enrichment, neither Payer nor her husband — nor anyone else
at the firm — seems to have paid any attention to a basic
SEC requirement that anyone engaged in stock trading
activities for a Wall Street securities firm be registered and
licensed with the National Association of Securities Dealers.
Payer said that of the 55 employees at work on
Sharpe’s trading desk at the time she was fired, more than a
third held no valid license to perform the activities they
engaged in on the trading desk. These activities involved
accepting and executing trades for customers, taking
positions in stocks using the firm’s capital and filling in for
licensed traders when they were away from the office or on
This claim was checked against NASD broker
registration records, revealing that at least 13 individuals
listed on company telephone records as working on the
trading desk possessed no valid NASD licenses to perform their
Payer said each new hire was sent by her to the
firm’s Compliance Office to be interviewed and screened, and
that when they came back approved, she simply put them to
work. She acknowledged that even her own two trading desk
assistants lacked valid licenses to work on the desk, but that
she let them work on the desk anyway. She insisted the company
was fully aware of all this and encouraged them to go forward anyway.
Among those without a valid license: Francis (Burke)
Murphy, whom Payer said was, and is, in charge of the trading
room’s so-called “agency desk.” Payer said this desk was
responsible for generating the vast bulk of Sharpe’s
business from many of Wall Street’s leading brokerage firms, and
that her husband, and Murphy, together conducted most of the
socializing that brought in the business. NASD records show
that Murphy holds no registrations of any sort with the
association, the official licensing body for Wall Street employees.

Paying the piper

Both Payer’s — and Sharpe’s — problems seem to have come
to a head as a result of the huge speculative surge that
developed last autumn and winter in low-priced NASDAQ stocks.
The exploding volume caused enormous back office bottlenecks
to develop at the firm when, said Payer, Sharpe’s
clearing agent — Quick & Reilly, a unit of Fleet Bank — fell
more than a month behind in processing orders and
no one on the trading desk was told. Payer said the problems
surfaced in March when the Nasdaq bubble popped and
Quick & Reilly suddenly informed Sharpe that its trading desk
had to “make good” on millions of dollars worth of
so-called open orders that she said the trading desk
had thought to have been executed and completed months earlier.
Payer said that because of the reversal in Nasdaq stock prices,
these make-goods wound up costing Sharpe $8.8 million.
She said that the firm is now trying, in its lawsuit,
to hold her accountable for the loss when it was not her fault at all.
Which side is right in that dispute will obviously be
settled only when the case gets to trial. By pre-emptively
spilling the beans on Sharpe’s hidden world of drugs, women and
trading desk mismanagement, Judy Payer is obviously hoping
to take a potential issue away from her adversaries and
smear them with mud before they splatter her with it in a
courtroom instead. In the process, she has peeled back the
scab on a long-festering wound that may soon be starting to bleed more revelations than ever.