What Led Whistle-Blower Haim Bodek to Expose the Biggest Scam on Wall Street?
The Goldman Sachs alum, was once what Wall Street calls a "big swinging dick." But two years after going to authorities with what he claims to be one of the largest heists in Wall Street history, he was practically blackballed.
When I first met Haim Bodek, back in November 2013, he was shooting the shit at a downtown New York loft. As I entered the sprawling apartment, a group of finance bros were playing Call of Duty on a massive projector screen, the spray of bullets barely drowned out by the blasting music. The markets hadn't been closed for more than an hour, and the party was already in full force. As I waded through the crowd of white-collar millennials, someone passed me a blunt.
It felt like an unlikely spot to meet the fortysomething Bodek, but there he was, standing at the back of the room, grinning sheepishly. There was a time when the man greeting me with an eager handshake was raking in millions a year by trading options. Bodek, a Goldman Sachs alum, was once what Wall Street calls a "big swinging dick."
But two years after going to authorities with what he claims to be one of the largest heists in Wall Street history, Bodek was practically blackballed. Dubbed by the Russian media as "the Edward Snowden of finance," Bodek was wondering how he'd support his wife and kids as he awaited the SEC investigations.
That, he asserted, was the fucked-up part about Wall Street: The incentives are disproportionately aligned in favor of the "bad guys." It's one reason we don't see more industry whistle-blowers in general. If you stumble upon a scheme to make guaranteed profits, you don't kill the goose laying the golden eggs—you demand a cut, especially if you know how futile it is to fight the system.
This, of course, only made Bodek's case even more curious. I would spend the next five hours trying to figure out why a man who'd had it all was willing to risk everything to battle an opponent he could never defeat. In one night, I'd learn more about how Wall Street works than in the two years I spent employed at an investment bank.
Whenever I asked Bodek why he squealed, he appeared unsure, though he was always adamant about one thing. He was pursuing what he described as a quest for the truth. It was his inner scientist calling.
"I grew up around rocket scientists and particle physicists," Bodek explained, recounting a childhood spent running around Fermilab, the particle accelerator in Illinois. His father, Arie Bodek, is an award-winning physicist whose work was instrumental in finding the quark, one of the grandest accomplishments in contemporary science.
So junior had big shoes to fill, and by the time he hit puberty, Bodek Sr. had already told his son that he hoped he would one day win the Nobel Prize. Bodek turned his back on academia and instead followed the money, to his father's disapproval. "He thought I was wasting my talent," Bodek said.
After college, Bodek found himself at Hull Trading Company, a prestigious firm in Chicago at the forefront of electronic algorithmic trading. A haven for math geeks and physicists, Hull emphasized the scientific method and quantitative solutions, and its culture was closer to NASA's than to Wall Street's. But Hull's success couldn't elude the Street's grasp forever, and in 1999 Goldman Sachs acquired the firm for more than half a billion dollars.
"I got in through the back door," said Bodek, describing his ascendancy to the upper echelons of global finance. But if Bodek felt like he didn't fit in, it didn't appear to affect his achievement. By 2003, he was the global head of Electronic Volatility Trading at UBS. Four years later, he was running his own shop, Trading Machines, which, at its height, accounted for half a percentage of all US options trading.
That's when everything went wrong.
Wall Street is a zero-sum game. There are winners and losers, and if you're a loser, you have no one to blame but yourself.
One unassuming day in 2009, Trading Machines started hemorrhaging money. "It didn't make any sense," he said. In search of an explanation, he spent the next half a year scrutinizing his software, more than a million lines of code, and scouring endless public disclosures released by options exchanges for clues. His investigation ended in vain. Bodek was flummoxed.
Wall Street is a zero-sum game. There are winners and losers, and if you're a loser, you have no one to blame but yourself—you simply aren't good enough. Someone else is smarter, faster. Bodek's inexplicable failure consumed him with self-doubt. In the eyes of the Street, he was a loser.
No one ever made it without a bit of luck. Bodek got his break at a holiday party hosted by Direct Edge, a leading exchange that executes 1 to 2 billion trades a day. There, the company's sales director, Eugene Davidovich, told him that it wasn't some mystery software bug that was undermining his fund. He was using the wrong order type (an instruction, in computerized, high-frequency trading, to trade within specific parameters). Bodek was old-school. He was still using basic-limit orders—the same kind of order you or I might use when we call our broker. As Davidovich was speaking, Bodek took out a pen and scribbled on a bar napkin the words HIDE NOT SLIDE.
As it turned out, Hide Not Slide was the name of an esoteric order type, released at the same time Bodek's company went south. But in truth, it was a cheat code, one that, if properly applied, meant guaranteed profits.
The way Bodek explained it, abusing Hide Not Slide was like scalping sold-out concert tickets. The business of ticket scalping is about being first, not so dissimilar to high-frequency trading's need for speed. And one might even argue that this is a fair system. It's not inconceivable that those willing to acquire the knowledge and put forth the investment toward being first in line might be rewarded for their trouble.
Rather than being an loser, he was a victim of asshole who'd rigged the game.
What was sinister about Hide Not Slide is that, by exploiting a legal loophole, anyone with the secret password could essentially cut the line whenever they wanted. As is often the case, the Great High-Frequency Trading Heist was grounded in conflict of interest. Bodek's purported conspiracy involved only a few prominent opportunists—privileged players who owned not only exchanges but also the trading operations they serviced. From there, stealing was trivial. All it would take was to create a special order type that no one else knew about, one that would provide certain advantages that only its architects were privy to. And that's exactly what they did.
For Bodek, the realization of Hide Not Slide's existence was a moment of vindication. Rather than being a loser, he was a victim of assholes who'd rigged the game. The problem, of course, was that no one knew that. Suddenly, Bodek's quest became clear.
The desire for vindication eventually led Bodek to Scott Patterson, a New York Times best-selling author who would land Bodek's dotted mug on the front page of the Wall Street Journal and later feature him in the book Dark Pools.
And eventually that press led him here, to our questionable rendezvous destination. This loft wasn't just some makeshift Manhattan frat house—it was the home and office of Sang Lucci, a then up-and-coming hedge fund.
"I read about Haim in Dark Pools," said co-founder Charlie Bathgate, a Duke graduate and quintessential Cali bro. Prior to being Sang Lucci's head of marketing, he worked at a skate shop.
"Charlie was like, you have to read about this guy," said Peter Zhang, another co-founder and the guy who had passed me the blunt. He's also CEO.
"I hit up Haim on Twitter," Bathgate said. These guys weren't bound by the establishment's unspoken rules, so they had little issue working with Bodek, and they made him a partner. They genuinely believed his tale, as did I—even if, at the time, we were firmly in the minority. It struck Wall Street as a conspiracy.
Sang Lucci's bankroll was peanuts compared with what Bodek was making in his prime, but the respect was mutual. "Us old-timers, we can't operate without our models and our systems," Bodek said. "This new generation of kids have intuition. It's like they're piloting on manual.
"There would be times when you'd see some weird shit on the screen," he continued. "It wasn't a lot of money, so you'd write it off as a glitch in the matrix. Now I know it was these guys with their hit-and-runs."
If Gen Y, as modern society's Lost Generation, feels hard-done by the Baby Boomers, they have no better testament than the state of finance, an industry poisoned by the events of recent history. This made an alliance between Bodek and the young guns all the more surprising.
Theirs was a pretty picture, if not a profitable one. At least it wasn't yet. As we walked to the subway, I asked Bodek about his quest for the truth. "Was it worth it?"
"I might lose my house," he said, before descending into the station.
There was a time when it seemed like the bad guys were going to get away with it, without a scratch and with their reputations fully intact, labeled not as crooks but as geniuses.
But then, in spring 2014, best-selling author Michael Lewis released his book Flash Boys. Though it didn't mention Bodek specifically, I'd be highly skeptical if it wasn't inspired in part by his work. Whatever the case, Lewis's brand and credibility were more than enough to shift public opinion in Bodek's favor.
And today, things are looking up. "The industry is being awfully nice to me these days," he beamed when I checked in with him this past autumn. He's still working with his boys at Sang Lucci, who moved into legit midtown digs earlier this year. He also has his own company, Decimus Capital Markets, where he has the colloquial title of "badass." He's the guy who advises people on how not to get screwed.
The way he talks, you might conclude that his pursuit of the truth is far from over. I'm "currently enjoying beating up the NYSE while Direct Edge goes through settlement talks on my allegations," he said, teasing that the result would be "explosive."
In truth, these are victory laps. Because Bodek was the guy who figured it all out. Bodek was right. In the end, that's all he ever wanted.