Wall Street's Public Enemy: The Most Unknown Story of the Future U.S. Secretary of Commerce

Source: Forbes

On the morning of July 27th, Howard Lutnick, the senior CEO of Cantor Fitzgerald, took the stage at the 2024BTC conference held in Nashville, Tennessee. Thousands of cryptocurrency enthusiasts gathered together, and many members of the MAGA camp, including Vivek Ramaswamy, Robert F. Kennedy Jr., and Donald Trump himself, were also present.

63-year-old Rutenic, with a burly figure and sparse hair, passionately defended the CryptocurrencyUSD (Tether) pegged to the dollar in a 20-minute speech and announced the launch of a $2 billion financing business to provide leverage support for BTC investors. But before making these bold statements, he once again told a familiar story.

On the morning of September 11, 2001, he was taking his eldest son, who was starting kindergarten, to school when a plane crashed into the World Trade Center. The Cantor Fitzgerald headquarters were located on floors 101 to 105 of the building. All 658 employees in the office perished, including his younger brother Gary and his best friend Doug, as well as 28 sets of brothers and one pair of sisters. Lutnick recalled how close-knit everyone was and talked about his hiring strategy: ‘We had an unusual model. We only wanted to work with people we liked.’ This tragedy inspired his sense of mission. Lutnick pledged to distribute 25% of the company’s profits to the families of the victims within five years, ultimately paying out $180 million.

23 years later, Lutenic still sees himself as an epitome of patriotism and resilience. Many people also think so. On Tuesday local time, Trump announced the nomination of Lutenic as Secretary of Commerce through his own social media platform Truth Social. He did not specifically mention Lutenic’s business acumen or trade policy knowledge, but mainly reviewed the “911” incident, calling Lutenic “an inspiration to the whole world,” and also said that he “embodies the spirit of resilience in the face of unimaginable tragedy.”

His story is true, and of course very inspiring.

But there’s a darker side to Lutnick as well, and a look through court documents and conversations with people who’ve done business with him reveals some of it. These people claim that Lutnick and his companies have squeezed funds out of clients, investors, and colleagues through various means for years. According to one former partner, Lutnick has become ‘the most hated man on Wall Street’ for his actions. His business empire, worth billions of dollars and including two publicly traded companies and an unlisted investment bank, is rife with self-dealing and decades-long record-keeping problems, and internal strife continues to this day. ‘The whole company is about screwing people over, about squeezing them dry,’ says one former employee.

Cantor Fitzgerald operates on a partnership basis, but the ultimate decision-making power undoubtedly lies in Lutnick’s hands. With a current net worth of over 1.5 billion dollars, he has awarded himself a salary comparable to that of a king, but this has also eroded the profits of the partners.

A former partner recalled, “He did whatever he wanted to do.”

According to a federal court lawsuit filed last year, Lutnick had asked employees to convert 10% to 20% of their compensation into partnership interests, which sounds good, but when employees tried to withdraw the money, they encountered twists and turns. It is alleged that the protocol gives Lutnick unilateral decision-making power, allowing him to withhold funds from departing employees on the grounds of violating non-compete clauses, which are defined very broadly. It is estimated that 40% of employees were unable to recover the full amount after leaving. The lawsuit alleges that this is a scheme designed to deceive employees and enrich Lutnick. Another former colleague said, “He only gives you money when he wants to; if he doesn’t want to, you can forget about getting it.” Lutnick’s company has filed a motion to dismiss the lawsuit.

Lutenik refused to be interviewed on this article, according to a spokesperson. However, some people spoke up for him, saying that some may just not be strong enough to withstand his tough style, or not smart enough to understand the partnership protocol (one executive estimates the protocol to be about 700 pages). However, even those who support Lutenik are unwilling to publicly express their opinions. A former colleague said, “People are very afraid of him. I witnessed it all with my own eyes - I saw bullying, and I saw aggressive behavior.”

This aggressive momentum may be exactly what Trump values ​​when selecting the Secretary of Commerce - loyalty on top of aggressiveness, then it is even more excellent.

At the beginning of 2021, many business people were eager to distance themselves from Trump, but Lutnik remained on his side. At the time, Mr. Trump set out to build a media and technology company and dreamed of a Twitter-like social platform, but he clearly didn’t want to shell out too much of his own money. Lutnik looks like a perfect funder. With more than 40 years of experience in finance, he has extensive experience capitalizing on various Wall Street trends, including the latest special purpose acquisition (SPAC), which injects liquidity into private companies and takes them public.

Two contestants who participated in Trump’s ‘Apprentice’ program joined in to help him build this business. They held a meeting with Lutnick on Zoom, and Forbes obtained the meeting record. The Trump team wrote on it: ‘The meeting was very effective. Howard made us give up other SPACs. He will fly in to meet with the President on March 30th.’

Trump and Lutnick have known each other for many years and have many things in common.

They both amassed their initial fortunes in New York in the 1980s, one on real estate and the other on Wall Street. Their ways of doing business are similar, jumping back and forth between different money-making schemes, and sometimes coming to the attention of regulators for alleged fraud, poor record-keeping, or money laundering issues. Both are hardliners and both have a penchant for luxury living. Mr. Lutnick lived in a trap apartment at “Trump Palace” with a British butler before moving into a 10,600-square-foot townhouse just across the wall from Jeffrey Epstein’s home. (A spokesperson said Lutnick “never had any association with Epstein.”) ”）

But there is also an important difference between Trump and Lutnick.

Trump is accustomed to leaving out details - in his first term, his aides learned to subtract when making reports, only listing the key points. On the contrary, Lutnick is exceptionally obsessed with details. His tentacles reach almost every corner of Wall Street - stocks, bonds, swaps, futures, derivatives, cryptocurrency, and SPAC, meticulously mining tiny profits from large-scale transactions, forging his successful career.

In the discussion of Trump’s media business, this difference has turned into a divergence. When it comes to investigating potential partners, Trump has never been the most astute. In the end, he obtained funding from a small investor, who was later accused by the United States Securities and Exchange Commission of committing fraud in trading. Lutnick, on the other hand, sought out a different investment target and found a company similar to Trump’s social platform, Rumble. This pro-MAGA platform is more like an altcoin YouTube than Twitter.

In September 2022, Lutnick went public through Cantor Fitzgerald via a SPAC and made a fortune with favorable trading structure, while inexperienced small investors suffered losses. A former partner at Cantor said, “If you can’t keep up with Howard, you can only be a piece of garbage on his path forward.”

Lutnick has now resumed cooperation with Trump, and he carefully reviewed the details again.

Trump chose him to serve as co-chair of the transition team and later nominated him as Secretary of Commerce. While the elected president focused on his social media accounts and headline-grabbing appointments, Lutnick was busy recruiting for lower-level positions responsible for the daily operations of the government.

Cantor Fitzgerald has business dealings with various federal agencies and departments, and there are obviously conflicts of interest. However, when the Trump team selected personnel for agencies such as the Commodity Futures Trading Commission (CFTC) - which fined Lutnick’s company $6 million in 2022 for poor record-keeping - Lutnick seemed to pay little attention to the complaints of the ethical supervisory authorities and continued to push forward with his own plans. A former employee said, “He only cares about himself. Trump became president for his own benefit, and Howard Lutnick does business for the same purpose. The two are birds of a feather.”

Lutnik is the son of a university professor and has an older sister and a younger brother. He grew up on Long Island and showed a talent for making money from an early age. As a child, he would buy boxes of new baseball cards and mix them up with old cards and repack them for sale. Some will be “jackpot packs” with five new cards; Some will be “waste bags” with only a new card. Other kids loved the surprise, but Lutnik’s joy came from the certainty that a repackaged card would sell for three times the cost of a new card.

Entering adolescence, life becomes difficult. Lutnick’s mother died when he was 16, and his father died when he was 18, leaving him and his sister to take care of his 15-year-old brother, Gary. Howard Lutnick continued his studies at Haverford College in Pennsylvania, and Gary, who attended boarding school, would visit him on weekends.

He graduated in 1983 with a degree in economics and then returned to New York, joining Cantor Fitzgerald led by the distinctive founder Bernie Cantor, who also became his mentor. Cantor was passionate about Arbitrage, constantly moving from one thing to another, always seeking an advantage. He eventually found a niche in the trillions of dollars government bond market and became a broker. Despite the unglamorous nature of the work itself, Cantor lived a luxurious life and even stayed at the White House as a guest of Bill Clinton.

Lutnick quickly made a deep impression. Two years after graduating from college, he had already traded for some of Cantor’s private clients. A former company executive told Forbes nearly 30 years ago, 'Bernie couldn’t stand anyone saying anything bad about this kid. If you presented evidence that Howard had crossed the line, he would say, ‘Don’t worry, he’s still young, let him learn slowly.’ In 1991, 30-year-old Lutnick took over the day-to-day management of the company.

Controversy has arisen one after another.

Lutnick brought many fren and family members into the company, including his brother Gary. According to colleagues, Gary sometimes buys bonds ahead of clients and quickly resells them to make a profit. This behavior is clearly illegal in the stock market, but may be allowed in the bond market, although it is morally controversial.

In 1994, the United States Securities and Exchange Commission fined Cantor Fitzgerald $100,000 for improper record-keeping related to ‘risk-free investments’ in government bond auctions. Three years later, the company agreed to pay $500,000 to settle a charge of aiding and abetting fraud, although it did not admit or deny the findings of the investigation.

Even Bernie Cantor’s family eventually had disagreements with Lutnick.

Around the time Lutnik became CEO, he persuaded Cantor to change the company from a corporate to a partnership. In 1995, as Cantor’s health deteriorated, Lutnik joined forces with two other partners in an attempt to acquire a stake in the Cantor family. The deal ultimately fell through, and in January 1996 Lutnik initiated the “Incapacity Committee” agreed upon in the partnership protocol. The five-member committee voted to strip founder Cantor of control of the company, and the result was three votes in favor and two abstentions. Cantor’s wife, Iris, was one of the abstentions, and she subsequently filed a lawsuit. She gains a large sum of cash, but loses control of the company and develops a deep distrust of Lutnik, even prohibiting him from visiting Cantor’s grave.

Lutnick turned over this page and started a new life.

He celebrated his 35th birthday at the Metropolitan Club in New York over the weekend after Cantor’s death. After taking over the company, he expanded Cantor Fitzgerald from a single government bond business to areas such as bonds, derivatives, swaps, and futures. In 1996, the company’s revenue doubled compared to 1991, reaching nearly $600 million. In the same year, he also launched an electronic brokerage platform called eSpeed based on his outlook for the future, which later saved the company when the tragedy occurred.

Lutnick enjoys indulging in life.

In the mid-1990s, he lived in Trump Palace, then the tallest building in the Upper East Side of Manhattan. When he wasn’t at home, he could often be found in his office on the 105th floor of the World Trade Center. But the unimaginable happened - at 8:46 a.m. on September 11, 2001, a plane crashed into the floors between 93 and 99.

People’s compassion helped the company get through the difficult times.

After the “911” incident, the electronic platform eSpeed’s market share increased, but then quickly dwindled. The reason was the launch of a new service, where bond buyers could prioritize trading by paying fees three times higher than the standard rate. The result was customer exodus, leading eSpeed to eventually abandon this practice. Lutnick continued to employ various strategies to optimize and adjust the structure of his business empire.

In 1999, Lutnick listed eSpeed and then merged it with other brokerage businesses in 2008 to form a publicly traded company called BGC Partners. However, the market was skeptical of this operation and lowered its valuation of BGC, with one investor describing it as a ‘Howard Lutnick discount.’ Lutnick found a way to bypass the issue by separating eSpeed from BGC and selling it to Nasdaq OMX Group in 2013 for $750 million in cash and stock payments over 15 years.

It has been proven that properly isolating the wealth and reputation of the Titanic is a wise move.

As Nasdaq stock pumps, these paid stocks are becoming more and more valuable, resulting in a trading volume of over $2 billion, higher than BGC’s market cap at the time. To help manage it all, Lutnick hired a capable assistant, Anshu Jain, who served as co-CEO of Deutsche Bank from 2012 to 2015. During his tenure, the German institution provided $340 million in financing to Trump.

Lutnick also actively entered the real estate field, acquiring several companies and merging them into Newmark, which was spun off from BGC in 2018. Newmark has developed into a real estate services company with a market capitalization of billions of dollars, providing sales, loans, leasing, and property management services. One of its clients is the Trump Organization, which has hired Newmark to assist in selling its hotel in Washington, D.C. In addition to the real estate business, Newmark also obtained a subsidiary asset - the income rights of BGC’s shares on the NASDAQ. These shares pay dividends in December and generate approximately $100 million in annual income.

This kind of trading requires intelligence, even Lutnick’s enemies admit that he is very smart. ‘The brain is absolutely brilliant,’ said one opponent. ‘Very, very smart,’ another added. ‘All I can say,’ said the third, ‘is that Howard works hard and usually gets what he wants, no matter what method he uses.’

However, these methods do not satisfy everyone.

In June 2021, it was reported that Lutnick asked the compensation committee of the Numaque board of directors to pay him a bonus of $50 million, claiming that he had contributed to the Nasdaq trading, which was reached four years before Numaque went public. A lawsuit later filed by shareholders stated that the committee initially decided to postpone consideration of the bonus. The committee chair, whose husband died in the ‘911’ incident, revealed this news to Lutnick. It is said that Lutnick showed off his prowess, letting everyone know that the boss was not happy. Eventually, the board reconsidered the matter. Lutnick received a $20 million bonus in 2021, followed by $10 million each year for the next three years, totaling $50 million - exactly the amount he requested.

The board chaired by Lutnick said the lawsuit was unfounded and defended the decision to award him, arguing that large bonuses could motivate him to work actively. This may indeed have had such an effect over the past few years. The last bonus will be paid at the end of 2024. This timing couldn’t be better for Lutnick, as he is likely to leave the company and join the presidential cabinet about a month after receiving the bonus.