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Ramy Goldstein’s Early Misadventures

New documents shed light on Goldstein’s early disputes with former investors and COMEX, the New York Commodity Exchange.

By Dirk Schütz
Translated by Sigrid Stangl


The story seems a bit stale. In 1998, I published The Fall of UBS, a book highlighting the roles of Mathis Cabiallavetta, the CEO of Union Bank of Switzerland, and Ramy Goldstein, the bank’s star equity derivatives trader. In 1997, the bank announced equity derivatives losses of 625 million Swiss francs, which contributed to a takeover by Swiss Bank Corp, its smaller rival, which wrote off another 760 million Swiss francs for the equity derivatives losses after the merger in 1998. After the book appeared, the financial world learned about a deal Cabiallavetta engineered with Long-Term Capital Management, which ultimately cost the old UBS 950 million Swiss francs. The LTCM affair quickly overshadowed the Goldstein affair. But within UBS, the Goldstein affair seems to have done more damage to Cabiallavetta’s reputation.

These days, Cabiallavetta, who stepped down as CEO of Union Bank of Switzerland last October, is working at the insurance broker Marsh & McLennan. The Swiss Banking Commission investigation into the LTCM deal exonerated him, noting that responsibility for the bank’s lapses in risk control did not not fall directly on his shoulders. Ramy Goldstein has also moved on to other work.

Goldstein’s own career record, however, is just now coming into focus. Unpublished documents that recently surfaced paint a new picture of Goldstein, whose huge profits enabled Cabiallavetta to climb the bank’s hierarchy—and whose group, in turn, was shielded by Cabiallavetta from stringent risk control. The documents indicate that Goldstein, even beallavetta to climb the bank’s hierarchy—and whose group, in turn, was shielded by Cabiallavetta from stringent risk control. The documents indicate that Goldstein, even before joining UBS, had speculated poorly and lost the money of numerous investors. Cabiallavetta didn’t know about his inglorious past. Even at the time of Goldstein’s employment, it seems, there was a lack of basic risk control procedures at the Swiss giant.

Auspicious beginnings

Goldstein, a highly decorated officer in the Israeli army, came to the United States after studying at Cambridge, and graduated from Yale with a Ph.D. in finance. In 1983, after four years with Bell Laboratories, he founded—at the age of 33—Natra Trading LP, based in New York. It specialized in complex deals involving futures and options. Dr. A.R. Goldstein, as he referred to himself in the company’s literature, was the CEO of Natra Trading Corp., the trading manager for Natra Trading LP, and was responsible for all investments. But he had a partner—Nathan Nornberg, who, after his youth in Israel, had moved to Lausanne, Switzerland, and worked at Tradition, a financial corporation. (The company name Natra is a combination of Nathan and Ramy, a shortened form of Goldstein’s first name.)

The distribution of roles was clear: Nornberg was to bring in investors from Europe, especially Switzerland, and Goldstein was to make money in New York. Nornberg praised Goldstein as a mathematical genius whose deals were always fully hedged. The firm’s papers note that Natra Trading LP offered European investors a “new concept” for “conservative” investing in the U.S. bond market. Other documents assert that the trading manager (Goldstein) “usually restricts the Partnership’s trading positions to arbitrage and spread trades, and does not usually trade net positions on the basis of market forecasts.”

In April 1983, the two partners first offered shares to private investors. The 2,500 shares, each priced at $1,000, were placed within six months, and brought in $2.5 million in capital. One of the investors was Emil Steinberg (whose name has been changed in this article), a financial consultant from Zurich, whose son had worked with Nornberg in Lausanne. He invested $200,000 in Natra. Fueled by the success of their initial offering, Goldstein and Nornberg eventually offered investors another 25,000 shares—by then priced at $1,250 each.

On June 26, 1984, Ernst Heitmann (whose name has also been changed in this article) of St. Gallen, Switzerland, invested $125,000 in Natra. Like Steinberg, he was an acquaintance of Nornberg’s. But at the time of his money transfer, there were discrepancies in his purchase of shares. Natra verified his investment on July 15—however, not for the agreed-on 100 shares at $1,250 per share, but for 123 shares at $998 each. Heitmann had bought into Natra in the midst of Goldstein’s disastrous—and unhedged—gold speculations. The firm lost $300,000 in June 1984 and $2.4 million in July, and Natra’s capital shrank from a high of $3.2 million to $500,000. In a letter to investors on July 20, Goldstein explained that the loss had resulted from “unusual and disorderly conditions in the gold market [which] created a situation in which our trading desk could not adhere to its predetermined hedging strategy.” Practically bankrupt, Natra discontinued its trading business. Goldstein earned a salary of $155,000 in 1984.

Heitmann was shocked by what had transpired and demanded a meeting with Goldstein and Nornberg. On the basis of his long-term friendship with Nornberg, he agreed not to initiate a lawsuit as long as the two partners agreed to guarantee in writing the return of his money. “We accept a moral responsibility for the capital loss you have suffered as a result of your investment in the Partnership,” wrote Goldstein and Nornberg in a letter to Heitmann on October 12, 1984. “Consequently, we undertake to deploy our best efforts over the next two years, within the context of the Partnership, in order to recover all your capital loss as well as interest at the rate of 10 percent per year.” In another letter on March 5, 1985, they wrote: “In connection with our letter to you dated October 12, 1984, please note that our obligation to you includes the event that your capital and interest cannot be met out of the net asset value of the Partnership, but can be met out of funds owned by Goldstein and Nornberg in connection with other business activities they may undertake.”

Heitmann continued to write to Nornberg, whom he knew better than Goldstein, over the next six years. He had lost track of Goldstein’s whereabouts until the UBS events hit the news. With the 10 percent interest, Goldstein and Nornberg’s debt to him would now be more than $500,000. Bilanz, the Swiss financial magazine where I work, confronted Goldstein about the two letters acknowledging a moral obligation to refund the money. Goldstein answered that there was “no basis whatsoever to the allegation of a debt owed by me.” In a separate letter to Heitmann, Goldstein wrote that both letters had been “specifically drafted so as not to constitute legal debt.” Emil Steinberg had written off his $200,000 investment in Natra in 1985. Nornberg and Goldstein are dishonorable people, he says today.

More bad moves

But this is only part of Goldstein’s story before his arrival at UBS in February 1991. After Natra’s problems, Nornberg returned to Israel, where he lives today. But Goldstein, who did not want to dissolve the partnership, transferred the remaining capital of $500,000 to another company, which he called FLO-ARB Partners (for Floor-Arbitrage). His intention was to trade commodity futures and options on the New York Commodity Exchange (Comex). Goldstein’s new partner was Ronny Apfel, a young trader he had employed at Natra—who would later play a decisive role in the UBS drama as the head trader in Goldstein’s equity derivatives group. Goldstein and Apfel cleared their firm’s deals through an account at the clearing brokerage Volume Investors Corp.

Then came the next snag in Goldstein’s career: One of Volume’s customers lost $20 million in March 1985, and the Comex Clearing Association froze and then liquidated the entire assets of Volume, including those of FLO-ARB and other firms. The fiasco received a lot of attention in the New York financial press. Goldstein, always eloquent, appeared in Business Week as a victim. As a result of the liquidation, his company’s assets of $1.3 million had turned into a debt of $1.7 million, he complained. “If I got every nickel back tomorrow, I wouldn’t risk my capital at the Comex under its current rules,” he added. He pushed the blame into the exchange’s corner.

When confronted about the two letters acknowledging a moral obligation to refund the money, Goldstein answered that there was “no basis whatsoever to the allegation of a debt owed by me.”

But what followed hardly cast him in a good light. Goldstein filed a lawsuit against Comex Clearing, demanding it repay his firm the alleged balance of $1.3 million. This led to a lawsuit initiated by Comex Clearing against FLO-ARB, demanding the repayment of $1.7 million. In several letters, Goldstein held out hope to his investors. He also changed his signature—he began signing his name Ramy Goldstein instead of A.R. Goldstein. In January 1987, he and Apfel began working at CS First Boston in New York as options traders.

Two years later, in January 1987, Judge Kevin Duffy of the U.S. District Court, Southern District of New York, sent down his 23-page ruling dismissing FLO-ARB’s case. “The partners of Flo-Arb, Apfel and Goldstein, were not ‘hedging’ by their activities in the futures markets,” he wrote. “They were pure speculators seeking to make money at the expense of others in the marketplace.” Both had known that Comex would, in the event of the bankruptcy of one of Volume’s customers, freeze the assets of all Volume clients, he wrote. In addition, they had had the chance to transfer their accounts out of Volume, but hadn’t done so. Particularly harsh are the sentences referring to Goldstein’s claim that $1.3 million in assets had turned into $1.7 million in losses. FLO-ARB demanded, said the judge, that “this court should ignore the prices in the real marketplace and instead put total reliance on ‘prices’ derived from a theory espoused by Goldstein as to what he thinks the market should have been. The type of theorizing that is suggested by FLO-ARB and its partners is simply not appropriate.” The court found Goldstein and Apfel liable for the firm’s deficit of $1.7 million to Comex, plus collection costs. Goldstein and Apfel then informed Comex that they could not pay this. Because they agreed not to appeal the decision, Comex Clearing agreed not to take them to court to collect the money.

Two years later, Goldstein and Apfel were part of an 18-person team that moved from CSFB to the New York office of UBS. Their rise at UBS was phenomenal. In 1993, Goldstein became head of the global equity derivatives group in London. There was minimal risk control in his group. Then, in 1997, he and his head trader Apfel found themselves in the same situation they had been in back in 1984—they had gotten involved in high-risks deals that could no longer be hedged. In 1984, Goldstein had brought down his own company; this time he had given the largest of Swiss banks a heart attack.

The man who cost UBS a total of 1.4 billion Swiss francs had been the highest-paid employee in the bank’s 136-year history. Over the course of his six years there, he received bonuses totaling about 40 million Swiss francs. After his failures at UBS, Goldstein did not return to the United States. Today, under the name A. Ramy Goldstein, he runs a company called IV Capital Management in London. It specializes in options trading.

Dirk Schütz is the deputy editor of Bilanz, the leading Swiss business magazine.

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