The stage is set for Bond Traders II, another lurid story
A High Court action that starts on Monday, with a claim by one big bonds dealer that a rival illegally tried to “poach” key staff, promises to provide lurid details about the way in which this corner of the City works.
A similar action in 2002, also featuring one of next week’s participants, blew the lid off the seamy, if highly paid, world of bond trading, with accounts of visits to lap-dancing clubs, constant foul language and aggressive bullying of staff, which, it was clear, both firms would have preferred to keep out of the public eye.
Court documents seen by The Times and the City rumour mill both suggest that further revelations could emerge from this case.
Tullett Prebon, the world’s secondbiggest bonds dealer, is suing BGC Partners over claims that it tried to hire at least 55 key staff, a mass defection that, had it taken place, would have destroyed Tullett’s lucrative London business.
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It is part of a chain of litigation by Tullett, whose chairman, Terry Smith, is known in the City for his combativeness, against BGC.
Neither party will discuss the case and it is thought that they have been given advice by the courts that if they speak to the press beforehand, this may count against them in the proceedings.
Tullett is taking action against BGC and some of its former employees now working at BGC, including Tony Verrier, a former second-in-command to Mr Smith. BGC is accused of acting unlawfully in conspiring to solicit a large number of Tullett employees to breach their contracts. It is claimed that as a result Tullett suffered a large loss.
BGC counters, in a formal statement: “BGC Partners continues to expand geographically, enter new product areas and increase its broker headcount. This … means that BGC Partners is consistently sought out by some of the marketplace’s most experienced brokers, and continues to attract top talent. As such we fully contest these allegations.”
At the heart of the case is an alleged poaching raid in which BGC is accused of trying to persuade those employees to breach their contracts, which are designed to lock them in for extended periods, by changing their employer.
Mr Verrier joined BGC this year. The claim says that at least 55 desk heads and brokers were approached. In the event, only 13 agreed to defect.
In the 2002 High Court action, Cantor Fitzgerald, the firm from which BGC was spun out, sued Icap, the market leader, which was founded by Michael Spencer, who became the Conservative Party treasurer.
It was the culmination of yet another feud. Cantor lost 658 employees in the attacks on the World Trade Centre and in the aftermath, when the survival of the business was still in doubt, Icap poached three key staff.
Both sides claimed legal victory but Mr Spencer’s reputation was not enhanced by revelations of an e-mail in which he admitted he “would love to put one up their [Cantor’s] bottoms”.
In the Tullett-BGC feud, two former senior executives at Tullett in Asia are the subject of an arrest warrant in the Philippines after an earlier legal action over poaching, although neither is based there and the offence does not allow their extradition. More recently, Tullett made a complaint to the US Financial Industry Regulatory Authority over the defection of 52 brokers to BGC. One report put the damages being sought at $500 million, but this is thought to be an exaggeration.
The affair degenerated into a round of claims and counter-claims, with allegations that the staff had quit because they were not paid huge bonuses that had been promised by Tullett. For its part, the latter described the raid as “BGC’s latest global predatory effort to damage Tullett’s business”.
Claims and counter-claims as dirty laundry is aired in High Court
The tone of the court documents, seen by The Times, will only confirm the reputation of the bonds broking world for foul language and abusive behaviour.
By August last year, according to the claim, Tony Verrier had decided that he was going to work for BGC, and he informed Terry Smith, Tullett’s chairman, accordingly. On August 31, The Sunday Times reported that he was in Langkawi, Malaysia, having a holiday with his mistress. He was off sick at the time. He alleged that Tullett had placed the article with the paper, wrecking his reputation, and that so from then on his contractual obligation to his former employer was no longer. He blamed it for ruining his marriage.
One allegation is that, on January 28, Mr Verrier made a mobile phone call to encourage one of the brokers to move in which, according to the documents, he described Tullett as “a bunch of c**** … They ruined my f****** marriage.”
The Tullett documents claim that Mr Verrier’s inside knowledge of his previous employer gave BGC a “significant springboard advantage”. They say that Tullett desk heads were to be used as recruiting sergeants. The documents detail foul-mouthed dialogue at numerous meetings, often at London’s most expensive restaurants, at which millions of pounds were promised to various named senior traders.
In one meeting, he allegedly offered one individual and two of his brokers £2 million in cash and £1 million in stock provided that all three agreed to join and could persuade at least two other brokers on their desk to follow. He allegedly offered another £3 million to be spread around members of his team. At Smith’s of Smithfield, a restaurant, he offered a third £3.5 million upfront and another £1.9 million in cash to distribute among his team.
In March there was another meeting, this time at Rules, a clubby restaurant specialising in game in Covent Garden. Mr Verrier was concerned, Tullett alleges, that the brokers might change their minds and back out. Other senior BGC people were there. One broker was having second thoughts and said, “Your company’s s***, why should we do this?” Mr Verrier later privately said to the broker that he would “nail you to the f****** wall” if he tried to back out, the documents contend.
BGC, in its defence, denies conspiracy and claims that the law suit is part of a “very personal and extensive grudge” on Mr Smith’s part. It claims that Mr Smith, while in Barbados, showed a clip of the film Gladiator, in which a gladiator is killed, and said: “This is what happens to people who cross me.”
A world with money on tap
They are the Premier League players of the City. Bond traders have a reputation for aggression and high living, their testosterone-fuelled working lives are short but fantastically well remunerated — and they are the centre of endless legal rows about “tapping up”.
There are only a handful of firms in this market, which has expanded exponentially in recent years with the growth of derivatives of all sorts.
Inter-dealer brokers (IDBs) stand between banks and other institutions and provide them with a network on which to trade in bonds and other instruments anonymously. Initially trading was done by phone, with the IDB acting as intermediary; increasingly, it is done electronically.
It is a demanding job and skilled brokers are much in demand. Because of this, and because there are so few players in the market and they all know each other, it is often easier to “lift” a key player than train up your own staff. As a result, they are locked in by being kept on long contracts; two years is usual. This gives rise to legal actions when traders are urged to defect to a rival employer.
The business is known for long-running chains of legal actions and feuds, that between Tullett Prebon and BGC Partners being only the latest. It is also known, after the High Court case in 2002, for a macho, foul-mouthed culture that would not be allowed in many other areas of business life.
The legal principle, in the latest case and the earlier ones, is where the dividing line lies between an open expression of willingness to hire rival staff and interference, which amounts to breaching the contracts between them and their current employer.