How ‘Tipper X’ went from banker to informant in one of Wall Street’s biggest insider trading stings

Tom Hardin should’ve known better.

As “Tipper X,” a wired informant in the insider trading investigation the FBI called Operation Perfect Hedge, Hardin had specifically been told to “shut it down” if a target changed the plans for a meet.

“Bad things can happen,” FBI agent David Makol told his cooperating witness.

But after first inviting Hardin to Connecticut to go out to dinner, the hedge-fund manager he called “Mr. Greenwich” (for his tendency to tell everyone he lived in that tony burg) instead opted at the last minute to take Hardin for a swim at his family’s mansion.

Hardin initially thought Mr. Greenwich’s phone invitation had an “ominous” tone, but he also thought he was getting good enough at drawing information out of suspects that he should plow ahead.

At least until he saw what looked like a freshly-dug and corpse-sized hole in the back yard of the home.

“My grave, my mind whispered,” Hardin writes in his new book, “Wired on Wall Street: The Rise and Fall of Tipper X, One of the FBI’s Most Prolific Informants” (Wiley).

The FBI’s Operation Perfect Hedge was targeting traders who were likely winning in the stock market due only to illegally obtained information — and Tipper X’s aim was to get them to incriminate themselves.

That was the cost of Hardin already having been caught engaging in those very same illegal acts.

A middle-class Southerner, Hardin had not gone to Penn’s Wharton School of Business with the intention of ending up a government snitch. But he became one in 2008, after two FBI agents with badges drawn confronted him on a Midtown street.

They informed him they were aware of four illegal trades he’d made with insider information, and they had the receipts to convict. His only choice was to cooperate — serving as “bait” in the FBI’s investigation of similar unlawful acts allegedly tied to some of Wall Street’s biggest fish, including Steve Cohen (founder of SAC Capital Advisors and, later, owner of the New York Mets) and Galleon Group‘s Raj Rajaratnam.

“You have an opportunity to help us build these cases,” he was told. “And that would help you.”

Hardin said he never intended to cut ethical or legal corners in his finance career, but the system almost encouraged it. At his first job in investment banking in Los Angeles, the young analyst was asked to make numbers sing: Not to lie, necessarily, but to “frame” and “polish” them to “make it look cleaner, tighter, more investable.”

The work didn’t break any laws, but it also didn’t adhere to any code of ethics.

“Eventually it didn’t feel like lying,” Hardin writes. “It felt like survival.”

In ’99 he moved to Connecticut to work at Blaine Asset Management, which, he writes, offered “broker biscuits” — abnormally high commissions that encouraged brokers to give the company early access to hot IPOs. Those “biscuits” weren’t illegal, but ensuring such preferential treatment was suspect enough the Securities and Exchange Commission started investigating.

Hardin began to expand his contact network and attend various conferences, rubbing shoulders with the biggest names in finance. But it became obvious it wasn’t hard work or smarts that helped a person succeed. It was getting a head start on the market, legally or otherwise.

“Their edge wasn’t obvious brilliance,” Hardin writes of big-fish traders. “It was access. Relationships. Hints and winks. The real currency wasn’t ideas. It was information. Early information. Quietly passed and loudly rewarded.”

At Blaine he met Roomy Khan, a Silicon Valley mover-and-shaker who didn’t pull any punches about how the real money in the stock market was made. She provided Hardin with early information that software development company Kronos Incorporated was about to be purchased for $15/share more than its current price, so he bought the stock for his fund — and made money.

In return, Hardin writes, Khan asked him to deliver an envelope with $10,000 cash to the source who provided that lucrative information. Hardin wasn’t enthusiastic, equating it with a “drug drop.”

“So, this is how the sausage is made?” he asked Khan.

“No s–t, Tom,” she answered. “Cash payoffs.”

Hardin used illegal insider information in three more stock purchases, including Google and Hilton Hotels. The FBI became aware of those misdeeds in part because Roomy Khan had already been caught and was cooperating. At lunch with Hardin at Rockefeller Center’s Sea Grill, she wore a listening device that recorded him incriminating himself.

The stock purchases he made via insider trading would net his employers $1.2 million; Hardin himself drew less than $50,000. He hadn’t known the exact amount until the SEC later sent him a bill for those financial faux pas.

“So the cost of my professional suicide was $46,000,” Hardin said.

And so he ended up carrying a listening device for the FBI 48 times over the next two years, trying to get bureau targets to fess up to insider trading.

Hardin had started slowly and nervously as an FBI informant, chattering too much and not allowing the perps to talk themselves into trouble. But he became so adept and confident that he eventually found himself floating in that backyard pool of Mr. Greenwich’s family mansion.

The worst seemed to be happening when Mr. Greenwich told Hardin his lawyer had a question.

“This is it. He knows,” Hardin writes. “My stomach dropped.”

But when Mr. Greenwich asked if Hardin had been approached by the SEC, the informant nearly laughed.

“Not the SEC, no,” Hardin replied — an ironic answer as the SEC was just a “speed bump” to Wall Street bandits, while the FBI “the hammer.”

Mr. Greenwich admitted he’d been worried Hardin was wearing a wire — which explained the changed plans to take a swim. Now that he was convinced otherwise, the two headed to the restaurant.

As for the empty hole in the back yard? Merely landscaping. Mr. Greenwich wasn’t going to whack him after all.

Over dinner, Mr. Greenwich shared with Hardin a “long-winded, confident, complete breakdown” of how he stayed ahead of the market, including the networks he trusted and insider contacts he had. It was incriminating evidence writ large, which the FBI could’ve used to lock Mr. Greenwich up — if only Hardin’s listening device, obscured in his jeans pocket, had picked up any of it.

That failure led to the end of his informant career, but meant that, when convicted of felony insider trading in 2015, Hardin was only sentenced to time served — just a couple hours on the day he pled guilty — and ordered to pay $46,000 back to the SEC.

In all, he is credited with work leading to the convictions of 20 of the 81 perpetrators ensnared in Operation Perfect Hedge.

Operation Perfect Hedge’s primary target had been Raj Rajaratnam, whose Galleon Group profited from insider trading to the tune of $50-75 million. His prison sentence of 11 years was, at the time, the most severe punishment ever meted out for insider trading. He was released in 2015, after his own “substantial” cooperation with authorities.

Investigators found Steve Cohen’s SAC Capital Advisors engaged in “pervasive” insider trading on an “unprecedented scale,” leading to a record $1.8 billion fine and the firm being banned from handling investor money for two years (instead, it simply managed Cohen’s personal fortune).

While Cohen was not criminally charged, eight of his employees were convicted or pled guilty to charges of insider trading. SAC Capital Advisors was dissolved but came back two years later, rebranded as Point 72 Asset Management, a hedge fund that today handles billions of investor dollars.

Banks like HSBC and Credit Suisse just had to pay fines for, respectively, laundering El Chapo’s drug money and providing whole-scale tax evasion advice to America’s wealthiest. But to Tom Hardin it seemed those severe crimes were being punished more leniently than his.

“I broke the law. I own that,” he writes. “But they broke the system. And the system let them.”