Vanderbilt Accelerator Class of , University of Pennsylvania. Discovering Salsa Night in South Nashville Ecuador native finds academic challenge he sought plus a welcome touch of home Jose Espinosa. He's the proof. Daniel Byrdsong. David Noel: Relaunching His Career Accelerator provided confidence and a network for a move into digital strategy consulting David Noel. Growing outside the Classroom Reilly relishes extra opportunities to learn and make an impact Matt Reilly.
Gallo Winery. Getting a Roadmap Overlin learns to apply lessons on the job Kathleen Overlin. Switching Gears and Racing to the Front Popesco pivots from consulting to pursue his passion for cars Matthieu Popesco. Building Better Teams through Better Coaching Airport training executive hones skills for piloting staff to better performance Anthony Thomas. Getting to 30, Feet Owen helps tech engineer see the bigger picture Maulik Handiwala. Vanderbilt Accelerator Setting a Completely New Course Navy veteran gains skills and support to transition to consulting career Brad Cerasuolo.
From Johannesburg to Wall St.
At work in the house of surveillance
Moran Center for Youth Advocacy. Finding Real-World Connections beyond the Classroom Accelerator helps recent grad explore options and prepare for her next steps Kaitlyn Alsup. The London. You can read all the official acts from the Supreme Court on this page or skip straight to the juicy stuff and watch the video of the ruling where it is said that Ivey was "undoubtedly cheating. Unsurprisingly, I know. The cheater in the spotlight was Charles Oakley.
A name that used to be on everyone's mouth back in the Nineties when the grass was greener, basketball was great, and we all played with him on NBA Jam. Back in June , a former basketball player was accused of cheating during a visit at The Cosmopolitan Casino in Las Vegas. While you might be able to fool a dealer if you are smart enough but Security cameras, anyone? However, this is not entirely new or unexpected from a 'professional gambler' like Oakley.
Even before this episode, he already enjoyed a solid history of bad gambling moments , including picking up a few fights with security officers, throwing dice at Casino employees, and smashing champagne bottles to express disappointment. What a gentleman, right? After he understood the importance of card counting to win at Blackjack, he did not just travel from one Blackjack table to another to build a personal fortune - he published a book about it! Up to this day, gamblers all over the world use it to study the science or art?
And with a good reason. As if this wasn't enough already, Thorp then decided to take on the game of Roulette and study the chance to crack that game too. That's when published an university study to explain his discoveries. As a result of such dedication to beat the house, in a bit more than a decade, Thorp was already a millionaire driving a Porsche. Nowadays, he barely plays Casino games as he turned tables and uses his knowledge and skills to make it big on the markets in Wall Street. But after failing and losing one too many times, he decided to find his own way to cheat and beat the dealers.
That's how he ended up with his name written in the history gambling, on the Blackjack Hall of Fame , and on our list of Casino cheaters. To know what happened, let's travel back in time to Since wearables and personal computers did not exist yet, Taft created a wearable belt-like device connected to his glasses and to a series of switches located in one of his shoes. Initially, everything was hit-and-miss. However, he continued to work hard to perfect the device until it became an entire computer network capable to connect different players and help them to keep track of the decks of cards used in a game of Blackjack and count cards.
The second time, however, things went South. The cheaters got caught and fined. And their magic equipment got confiscated. Game over. Monique Laurent and the Subtle Art of Flirting It's a mystery why the best technology we use now wasn't invented to win at the Casino. After all, Casino cheaters have always been able to come up with brilliant and creative ideas to beat the house. If Taft's example was not enough for you, you should hear the story of Monique Laurent. Only one year after Taft created his system, Monique teamed up with her brother and her husband with one clear goal in mind: to win money on Roulette.
The best part is: this had nothing to do with luck. All they did was to create a roulette ball that had a small radio receiver inside it. Monique's brother, who worked as a croupier, would use the ball during the roulette games. Her husband would be a betting player while Monique, from a table close by, would control the ball with a radio transmitter hidden in a pack of cigarettes.
How did they get caught? The Casino owner tried to flirt with Monique, but she quickly turned him down. It wasn't long before the noticed that she was always next to the winning table and always with a pack of cigarettes between her hands. Though she never smoked. And when he decided to go to her and ask for a cigarette This suspicion was enough for the security to check her pack and figure out the whole thing.
If you're trying to scam a Casino, you might as well flirt with its owner. The machine looks at the data, finds patterns in it, and selects whether to buy or sell short. It basically ranks the stocks from best to worst. Thorp pauses, wondering if even this general description has revealed too much. The mathematician in him, however, can't help but refine the thought.
We forecast a return for the near future on each stock, and the ones that have the highest return we buy. The ones that have the lowest return we sell short. And we make sure that we sell short about the same dollar amount as we buy. Now, that doesn't necessarily mean it's market neutral, because we could be either long much riskier stocks or short much riskier stocks. But it turns out, because the portfolio is so diverse stocks on either side--it turns out it's very close to being market neutral.
The actual unlevered data on the computer is about 0. It's slightly positive , which tends to be good, because the market tends to go up. Thorp's interests vary widely, and he's a voracious consumer of all sorts of information. He can speak as easily about Girolamo Cardano's 16th-century treatise on games of chance as he can about the time his drink was drugged at a casino. He's an accomplished amateur photographer and astronomer.
And he completes one or two marathons a year. But Thorp's main passion continues to be the intellectual challenge of systems and a consuming need to find patterns and predictability where others see randomness. Drawing another analogy between gambling and investing, Thorp makes clear that a situation that others see as a wash can at times yield a return of the kind that gets you written up in magazines. You can calculate that situation, and anyone who's played any cards knows you're 'supposed' to hit.
But what if your 16 is comprised of two fours and four twos? In a deck that's ten rich, it's a definite stand. To explain why these anomalies continue to go unnoticed in an information-efficient economy, Thorp excoriates slot machines and the people who mechanically pour change into them. People play negative-expectation games," says Thorp. Thorp pauses, to make sure he hasn't overlooked a behavior that would make his final thought untrue, then smiles at the reassurance that he has remained true to his logician's heart, his statistician's brain, his probability-calculating instinct: "I've never even bought a lottery ticket.
Ken Kurson, a former staff writer for Worth, is the financial columnist for Esquire. This is the book that started everything in The Player looked down upon this Deck, and saw that it was good". Please excuse my sence of humor here, but when you read this book, you are reading about history. You will find yourself thinking you missed the boat because of the opportunity that existed when this book was written.
Although we may never find an opportunity quite as good to make money playing Blackjack, we should be thankful that there still are great opportunities, and books as good as these to help us take advantage of them. There is a newer revised edition dated , and this is the book I am writing about. The description of the mathematics behind Basic Strategy is excellent reading for anyone like myself that needs solid proof that something is sound before I invest time or money in it. The Simple Point Count is introduced in the revised edition as a refinement of the 10 Count based on what was originally a count used to play Bridge called the Goren Point Count.
The original books 10 Count is a very interesting count for two reasons. It was the first count and was based specifically on the value of the 10 cards. The number of non cards is 2.
When this ratio dropped to less than 2. When the ratio drops below 2. The other counts give a very close approximation of when to Insure, but the 10 Count does it perfectly. William Poundstone. Hill and Wang, Every investor must decide how to partition her portfolio among many possible investments.
Plausible strategies range from "diversify" to "focus. In a paper published in , John L. Kelly of Bell Labs formulated the asset-allocation problem in terms of an idealized model for which he derived some quantitative results. He used colorful racetrack terminology reminiscent of the classic Damon Runyon movie Guys and Dolls: Suppose that one goes to the racetrack with an available bankroll, B.
Suppose further that one knows for each horse the correct probability that it will win the next race. Suppose further that the betting odds are at least slightly inconsistent with this information. And finally, suppose that each race is merely one of a very long sequence of betting opportunities. Kelly found criteria for deciding how much one should then bet on each horse in each race.
Kelly observed that, under similar idealized assumptions, the same formulation could also be applied to investments. In the idealized model, the portfolio manager has an accurate probability distribution on the future performance of each asset in the universe of potential investments. Kelly's methodology then provides a quantitative specification of how big a position to take in each of the candidate assets.
Not surprisingly, the fraction of one's portfolio to be invested in any asset that has a negative expected rate of return will be zero. Most assets with positive expected rates of return will merit the investment of some positive fraction of the portfolio.
Among assets with similar expected rates of return, those whose returns are relatively stable will be weighted more heavily than those whose future returns have significant risks of substantial losses, even when these risky investments also have some chance of large gains. All of these qualitative features of Kelly's performance criteria concur with conventional wisdom. What distinguishes Kelly's work from that of his predecessors is his quantitative specificity and the fact that he succeeded in proving that, under his assumptions, in the very long run the bankroll of an investor who followed his criteria would eventually surpass the bankroll of anyone following any other strategy.
Kelly also derived a formula for the rate at which this bankroll would grow. This formula is related to a fundamental information-theoretic notion that Claude Shannon now widely considered to be the father of the information age had introduced in Shannon had shown that noise on a communication channel need not impose any bound on the reliability with which information can be communicated across it, because the probability of transmitting a very long file inaccurately can be made arbitrarily small by using sufficiently sophisticated coding techniques, subject to a constraint that the ratio of the length of the source file to the length of the encoded file must be less than a number called the channel capacity.
Kelly showed that the asymptotically optimum asset allocation could be determined by solving a system of equations that maximized the log of one's capital. In his horse-track jargon, Kelly also showed that the resulting optimal compound growth rate could be viewed as the capacity of a hypothetical noisy channel over which the bettor was getting the information that distinguished his odds from those of the track.
Kelly's betting system, expressed mathematically, is known as the Kelly criterion. The title of Kelly's paper, "A New Interpretation of the Information Rate," highlighted his discovery of a situation in which Shannon's celebrated capacity theorem applied even though no coding was contemplated. The paper, which appeared in the Bell System Technical Journal, initially attracted a modest audience among information theorists but went unnoticed by economists and professors of finance courses in business schools.
Perhaps it would have received more attention if it had had another title. The phrase "Fortune's Formula," which could have served as the title of Kelly's paper, was coined by the mathematician Ed Thorp as the title for a paper he wrote in about a strategy for winning at blackjack.
It is now also the title of William Poundstone's new book, which tells stories of gamblers and investors over the past years and how some of them have been influenced by the Kelly criterion. The style is somewhat like that of the business pages of a good newspaper, with no formulas or equations but occasional graphs. There are many sources, most of which are reliable. Even though there are many footnotes, the tone sometimes changes from that of a science journalist to that of a gossip columnist. There are biographical sketches not only of Kelly who died in of a heart attack at age 41 and such relevant intellectual titans as Claude Shannon and Paul Samuelson the father of modern economics , but also of many other characters.
The career of the legendary Thorp, who became a successful, innovative financial entrepreneur, is treated at considerable length. Ed Thorp analyzed the game of blackjack far more deeply than anyone had ever done before, and he devised card-counting schemes to gain an edge, especially toward the end of a deck that is not reshuffled after every deal. He wrote a bestseller, Beat the Dealer, on how to win at blackjack.
Earlier in his career, when he was a mathematics instructor at MIT, he met Claude Shannon, and he brought Claude and Betty Shannon with him as partners on one of his early weekend forays to Las Vegas. Later, he discovered and exploited a number of pricing anomalies in the securities markets and made a significant fortune. Thorp's first hedge fund, Princeton-Newport, achieved an annualized net return of Poundstone pursues a sequence of increasingly tenuous connections among moneymaking schemes and scams, some blatantly illegal and some with reputed mob connections, ranging all the way back in time to wire services that predated Alexander Graham Bell, and into the current political world of Rudy Giuliani.
The reader can only wonder how much is fact, how much is literary license and how much is sensationalism. Marketing copy included on the book's dust jacket, characterizing Kelly as "gun-toting" and Shannon as "neurotic," falls squarely into the category of sensationalism. In later sections of the book, the patient reader will find some interesting graphs and an overview of a now long-standing academic and philosophical debate about the relevance and appropriateness of the Kelly criterion. Most people with academic training in physics, mathematics, operations research, computer science or engineering view the Kelly criterion as a useful quantitative guideline for investing, to be used along with others.
They also view most large institutional money managers and economists as too risk-averse; the latter folks view the former as too risk-prone. Some extremely risk-averse business-school professors espouse a doctrine called the efficient-market hypothesis. Whenever some money manager achieves significantly above-average returns, adherents of that hypothesis strive to explain away the accomplishment: Perhaps the manager is a lucky survivor of an unrepeatable strategy that took very big risks on a few very large bets; perhaps he or she depended heavily on inside knowledge or engaged in illegal activity.
No one who has made a legitimate fortune in the markets believes the efficient-market hypothesis. And conversely, no one who believes the efficient-market hypothesis has ever made a large fortune investing in the financial markets, unless she began with a moderately large fortune. Of the stories presented in Fortune's Formula, the case of Ed Thorp presents the greatest challenge to the efficient-market hypothesis.
Poundstone devotes only a single paragraph to the even stronger cases of Ken Griffin, D. Shaw and Jim Simons, presumably because financial wizards as successful as these have always been unwilling to discuss their formulas in public. General readers seeking a broad overview of certain aspects of the field of financial mathematics and its practitioners will find the latter portions of Poundstone's book the most informative.
Readers who enjoy a gossipy approach to business history will find the earlier portions more to their liking. Any experienced, quantitatively oriented investor will, without reading Poundstone's book, already know that she needs to estimate the likely distributions of returns of the various investments she is considering.
This is quite difficult, because for some promising investments, historical data are very limited, and for others, there are good reasons to question whether the historical patterns are likely to persist into the future. So in practice, the allocation problem that Kelly's formula addresses is only one of the two main parts of the investor's puzzle. Poundstone recognizes this implicitly, but some readers would benefit from a more explicit statement of the dichotomy. In my experience, abstract financial mathematics is the only truly significant commonality between the world of finance and the world of racetracks and casinos.
Poundstone has been lured by Kelly's colorful terminology into seriously overemphasizing the relevance and importance of whatever other relationships might exist. Portrayal of the seamy side of business is a genre that runs at least as far back as the novels of Charles Dickens. Readers who are looking for something in that vein as well as a light introduction to financial mathematics will find things to relish in Poundstone's book.
Elwyn Berlekamp, a professor of mathematics at the University of California at Berkeley, is best known for his works on games and codes. In and , he was John Kelly's research assistant. In , he coauthored Claude Shannon's last paper on information theory. In , he managed a 55 percent gain of Jim Simons's Medallion Fund. One of these lucrative thinkers was mathematician Claude Shannon, regarded by many as the founding father of the electronic communications age.
The other was probability expert John L. Kelly, Jr. When Shannon and another mathematician tested the "Kelly formula" at casino tables, racetracks, and stock exchange trading floors, its success was incontestable. For instance, Shannon's stock portfolio showed an annual growth rate of 28 percent. In Fortune's Formula, William Poundstone spins an amazing true story about getting rich quick. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein's.
The other was John L. Together they applied the science of information theory-the basis of computers and the Internet-to the problem of making as much money as possible, as fast as possible. Thorp took the "Kelly formula" to the roulette and blackjack tables of Las Vegas. It worked. They realized that there was even more money to be made in the stock market, specifically in the risky trading known as arbitrage. Thorp used the Kelly system with his phenomenonally successful hedge fund Princeton-Newport Partners.
Shannon became a successful investor, too, topping even Warren Buffet's rate of return and using his wealth to drop out of the scientific world. Fortune's Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider's edge.
The cast of character spans J. Fortune's Formula explores a new and surprising side to the Shannon legacy. Based in part on Shannon's previously unseen personal records as well as interviews with both of Shannon's wives, Thorp, and many others, it is the first full-length treatment of a subject that is changing ideas about finance. Claude Shannonbelieved it was possible for a smart investor to beat the market - and Fortune's Formula will convince you he was right.
With Claude Shannon, the father of information theory, Thorp next conquered the roulette tables. For roulette, Poundstone shows, Thorp and Shannon used a betting scheme invented by Shannon's Bell Labs colleague John Kelly, eventually applying Kelly's technique to investing, resulting in long-term records of extraordinary return with low risk.
Thorp revealed the secret in 's Beat the Market, but investors proved harder to persuade than blackjack players. Many other characters figure into Poundstone's entertaining saga: a forgotten French mathematician, two Nobel Prize-winning economists who declared war on the Kelly criterion, Rudy Giuliani, assorted mobsters, and winners and losers in all types of investing and gambling games. The subtitle is not a tease: the book explains and analyzes Kelly's system for turning small advantages into great wealth.
The system works, but requires unusual amounts of patience, discipline and courage. The book is good fun for the rest of us. Agent, Katinka Matson at Brockman. Copyright Reed Business Information. Kelly Jr. Poundstone examines the consequences-and the seamy underside. Kirkus Reviews Is there a secret mathematical equation to beat the stock-market smarties and outsmart the blackjack dealers? There sure is, says this erudite author. You can bet on it.
Poundstone Carl Sagan, , etc. Using it, you can never lose your entire bankroll, and you will have a real edge. He touts the system with scholarship and documentation. And it's all artfully packaged with diverting tales of geniuses and gangsters. There's ambitious young Rudy Giuliani and irascible old Paul Samuelson. The math geeks, con men, arbitrageurs and professors contribute their respective talents to conjectures regarding horse-racing in Hong Kong and hedge-fund management in Princeton.
We are given instruction in the arcana of information theory, card-counting, portfolio construction, fat-tail distributions and logarithmic utility. Thus, we are led, quite ingenuously, into B-school notions and economic theory with real math and actual graphs. If the academic medicine gets a bit thick, it goes down quite well with the sugar of entertaining anecdotes. It's those stories that provide a selective picture of our civilization, a sociological survey of how risk is taken.
For a good way to manage risk, Poundstone says, he's got the horse right here. Its name is Kelly. Readers will have to decide whether to simply bet their beliefs the old-fashioned way or to sign on to the discipline of Kelly's formula. Enticing elucidation beneath goodhumored history. My book Beat the Dealer explained the detailed theory and practice. I approved the use of the title. The Kelly Criterion is simple: bet or invest so as to maximize the expected growth rate of capital, which is equivalent to maximizing the expected value of the logarithm of wealth.
But the details can be mathematically subtle. Mohnish Pabrai, in his new book The Dhandho Investor, gives examples of the use of the Kelly Criterion for investment situations. Consider his investment in Stewart Enterprises pages His analysis gave a list of scenarios and payoffs over the next 24 months which I summarize in Table 1. Would I have? Not necessarily. Here are some of the many reasons why. A simplistic example illustrates the idea. Then, by symmetry, an optimal strategy is to invest in both equally. The opportunity cost principle suggests it must be higher, perhaps much higher.
They discuss Kelly and investment scenarios at length.
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Fully Kelly is characterized by drawdowns which are too large for the comfort of many investors. As fellow Wilmott columnist Nassim Nicholas Taleb has pointed out so eloquently in his new bestseller The Black Swan, humans tend not to appreciate the effect of relatively infrequent unexpected high impact events.
These large loss probabilities may substantially reduce. They include. Is a multiple of or realistic? Focus Take-Aways Overall Applicability Innovation Style Rating 10 is best To purchase individual abstracts, personal subscriptions or corporate solutions, visit our Web site at www. The respective copyrights of authors and publishers are acknowledged.
All rights reserved. No part of this abstract may be reproduced or transmitted in any form or by any means, electronic, photocopying, or otherwise, without prior written permission of getAbstract Ltd Switzerland. He wrote the popular book, Beat the Dealer, in Recommendation This is a fascinating book about the sociology of ideas and, specifi cally, about information theory. Author William Poundstone explores how Claude Shannon, the major developer of information theory, affected fi nance, investing and gambling.
These activities seem disconnected, but they all rely on managing uncertainty. Like any great idea, information theory attracted major personalities: gamblers, mobsters, academics, economists, traders and people who just wanted to make money. The story weaves through a collection of memorable people from seventeenth-century mathematicians to Ivan Boesky to present pertinent mathematical and scientifi c theories, and to explore how people used them.
At times, the connections between events seem strained, but they all come together. This book is encyclopedic, exceptionally informative, and packed with great stories and characters. Indeed, read it twice: once for its theories and practical investment advice, and the other to relish its personalities. Due to this work, he was one of the inventors credited with building the fi rst computer. Based on a paper he wrote, Shannon was also known for shaping the ways that information theory contributed to developing the entire digital age.
Shannon was born in Petoskey, Michigan, in Graduating from the University of Michigan in , he happened to see a postcard inviting applicants to work on a new MIT computer, the Differential Analyzer. The computer, the size of a two-car garage, consisted of electric motors, pulleys and shafts. When Bush wanted to solve a specifi c problem, he had to set each mechanical function to address that problem. The gear ratios corresponded to certain values. Once confi gured, the computer would work for several days to solve an equation. The end product was a graph.
While setting the machine for various calculations, Shannon saw that it was basically mechanical. He realized that a purely electrical device would be easier to operate, using electrical circuits to represent numbers. Shannon worked on a genetics Ph. Offi ce of Scientifi c Research and Development studying gunfi re trajectories. He also briefl y married and divorced, becoming increasingly reclusive. The phone consisted of a ton computer, an isolation booth and an air conditioner that kept the tubes from melting.
After the war, Shannon went to Bell Labs, where he published his information theory paper. By , he was an MIT faculty member, though he eventually quit teaching in favor of research. He had an active mind, but rarely completed one investigation before pursuing another. He seldom published, because he insisted that his work had to be perfect. From to , his research output was nine articles. From to , he published one article, on juggling he could juggle four balls.
Spinning the Wheel In the late s, a grad student named Ed Thorp participated in a party discussion about ways to make easy money. Someone suggested roulette. But even with a perfect wheel, Thorp said, the law of physics would prevail, making it scientifi cally possible to predict where the ball would land. Thorp went to Las Vegas in to test elements of his theory. Instead, he played blackjack using a system developed by mathematician Roger Baldwin and three others who worked for the U.
He determined that the system could work — with additional research. The next year, Thorp went to MIT as a math instructor. He wanted to submit his paper on this topic to a respected academic journal, but that required having a member of the National Academy of Science agree to review it and submit it. The men did not want to pick winning numbers, but to narrow the sectors where the ball would land. They learned that a slight tilt of the wheel, even half as thick as a poker chip, altered the results in their favor.
They built a small, transistor calculator with a toe-operated switch and an earphone. The idea was to take it to a casino and input real-time betting information. With this system, they estimated they could improve their odds enough to beat the house. Despite these elaborate plans, the thin earphone wires broke during the casino test and they abandoned the project. However, Shannon turned his full attention to devising a mathematical approach to gambling. He realized that serious gamblers optimize their bets based on existing odds and conditions, and that money management is key to long-term success, since all gamblers lose their winnings over time.
If a gambler bets the same amount each time, the wins and losses will vary greatly. The system scaled bets as percentages of risk capital, so a gambler always had cash in reserve. The underlying idea was that the longer gamblers could remain in the game, the longer they had the opportunity to benefi t from the law of large numbers.
Information Theory Back at Bell Labs, scientists were improving telephone and telegraph lines so they could carry more conversations or messages per line, thus conserving expensive cable. To visualize this problem, imagine a water pipe that can carry only so many gallons per minute. With a cable, the challenge is increasing capacity or bandwidth. That is why telegraph operators dropped unneeded words, letters and punctuation. Bell scientists worked to preserve the clear meaning of compressed messages, but Shannon had a different approach. Fortune magazine hailed the idea in the s, then Marshall McLuhan, musician John Cage, and artists Robert Rauschenberg and Andy Warhol all explored its applications.
In the mids, Arthur C. Clarke visited Bell Labs to see if the company wanted to use some of its new technology in a fi lm he was preparing. Gamblers made it popular, but casinos hated it and worked to foil card counters. He read all he could about the markets and became interested in warrants, which are specialized instruments somewhat like options. Investors buy and sell warrants, which gain or lose value depending on the price of the underlying stock. In , Thorp was working at the University of California at Irvine, where he teamed up with economist Dean Kassouf who also followed warrants.
That year, Kassouf and Thorp wrote a book about their warrant trading system. A former Philadelphia stockbroker, James Regan, asked Thorp to join a hedge fund as a mathematical theoretician. Regan planned to create the fund, raise the money and manage the partnership, called Convertible Hedge Associates after the convertible bonds it would trade. By , it returned In , it was renamed Princeton-Newport Partners.
When investigators delved into Drexel for irregularities related to its junk bond business, they discovered that Princeton-Newport had engaged in a stock-parking scheme. This involved disguised stock sales and purchases intended to create artifi cial short- and long-term tax losses. They found incriminating audiotapes about the stock-parking scheme.
Rudolph Giuliani, then U. Attorney in New York, threatened the Princeton-Newport fund with federal RICO violations, and with securities violations against some of its employees. Under that threat, the fund ceased operations in December In , a jury found the Princeton-Newport defendants guilty of 63 offenses, including racketeering.
Later, when he was asked what happened, Thorp said the fund had been too aggressive in its tax management practices. He also cited personal differences with Regan. Many consider the Thorp-Regan fund the most successful investment partnership in history. The story starts with a corrupt telegraph operator. At the urging of one of its largest stockholders, Western Union took a moral stand against the evils of gambling.
It adopted a policy of refusing to transmit messages reporting horse race results. Payne quit his job and started his own Payne Telegraph Service of Cincinnati. The new service's sole purpose was to report racetrack results to bookies. Payne stationed an employee at the local racetrack. The instant a horse crossed the finish line, the employee used a hand mirror to flash the winner, in code, to another employee in a nearby tall building. This employee telegraphed the results to pool halls all over Cincinnation leased wires.
In our age of omnipresent live sports coverage, the value of Payne's service may not be apparent. Without the telegraphed results, it could take minutes for news of winning horses to reach bookies. All sorts of shifty practices exploited this delay. A customer who learned the winner before the bookmakers did could place bets on a horse that had already won. Payne's service ensured that the bookies had the advantage. When a customer tried to place a bet on a horse that had already won, the bookie would know it and refuse the bet.
When a bettor unknowingly tried to place a bet on a horse that had already lost It is the American dream to invent a useful new product or service that makes a fortune. Within a few years, the Payne wire service was reporting results for tracks from Saratoga to the Midwest. Local crackdowns on gambling only boosted business. In a particularly violent Chicago gangster named Mont Tennes acquired the Illinois franchise for Payne's wire service. Tennes discreetly named his own operation the General News Bureau. There were more than seven hundred bookie joints in Chicago alone, and Tennes demanded that Illinois bookies pay him half their daily receipts.
Those profits were the envy of other Chicago gangsters. In July through September of , six bombs exploded at Tennes's home or places of business. Tennes survived every one of the blasts. The reporter who informed Tennes of the sixth bomb asked whether he had any idea who was behind it. That would be poor for business.
Tennes eventually decided he didn't need Payne and squeezed him out of business. This prosperity drew the attention of federal judge Kenesaw Mountain Landis.
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Clarence Darrow represented Tennes. He advised his client to take the Fifth Amendment. Judge Landis ultimately ruled that a federal judge had no jurisdiction over local antigambling statutes. In Tennes decided it was time to retire. He issued shares of stock in General News Bureau and sold them all. Tennes died peacefully in He bequeathed part of his fortune to Camp Honor, a character-building summer camp for wayward boys. Annenberg was unapologetic about the social benefits of quick and accurate race results.
Annenberg hired a crony named James Ragan to run the wire service. By that time, there were scores of competitors. Annenberg and Ragan expanded by buying up the smaller wire services or running them out or business. Annenberg knew that Wexler was tapping into General News's lines to get race results.
It was cheaper than paying his own employees to report from each racetrack. So one day Annenberg delayed the race results on the portion of line that Wexler was tapping, Annenberg had the timely results phoned to a bunch of his own men, who placed big bets on the winning horses with Wexler's subscribers. Wexler's bookies, getting the delayed results, did not know that the horses had already won. By day's end, they had suffered crippling losses.
7 Casino Cheaters - People That Tricked the System
Annenberg's men went to each of Wexler's subscribers and explained what had happened. They refunded the day's losses, advising the bookies that it would be wise to switch to General News Bureau. With such tactics, Annenberg's service-also known as "the Trust" or "the Wire"- expanded coast-to-coast, to Canada, Mexico, and Cuba. In Annenberg ditched his partners much as Tennes had done. Annenberg established a new, rival wire service called Nationwide News Service. Bookies were told to switch carriers or else. Within a few years, over 6, local telephone companies were competing for the U.
The government stepped in with an antitrust suit. In the first coast-to-coast telephone line went into operation. Few of those widows and orphans realized how closely the phone company's business was connected to bookmaking.
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General News Bureau did not own the wires connecting every racetrack and bookie joint. Both telegraph and voice lines were used. As the system grew more sophisticated, voice lines provided live track commentary. An in-house legal opinion from read: "These applicants [the racing wire services] must know that a majority of their customers are bound to be owners of poolrooms and bookmakers. They cannot willfully blind themselves to these facts and, in fact, set up their ignorance of what everybody knows in order to cooperate with lawbreakers.
The clause gave the phone company the right to cancel service should authorities judge the lessee's business illegal. Annenberg's takeover of the wire service business infuriated the other stockholders of General News Bureau, who now owned shares in a company with practically no customers. One stockholder, Chicago mobster John Lynch, took Annenberg to court. Annenberg attorney Weymouth Kirkland argued that, because the wire service was patently illegal, the court had no jurisdiction. He cited a precedent in which an English judge had refused to divide the loot of two disputing highwaymen.
The court accepted Kirkland's bold defense. Lynch appealed to Al Capone's mob. He felt he might got a sympathetic ear as Capone then in prison for tax evasion had already made unsuccessful overtures to Annenberg about acquiring the wire service. Capone's enforcer, Frank Nitti, told James Ragan that if he'd ally himself with the Capone mob, Annenberg would be dead in twenty-four hours. Ragan said no. Annenberg skipped town for Miami. Negotiations between Annenberg and Capone's people dragged on for a couple of years.
Then, in , Annenberg was up on tax evasion charges. In order to prove he was a reformed man, he did the unthinkable. He walked away from the wire service. The vacuum created did not last long. The wire service was quickly reconstituted under the name of Continental Press Service. James Ragan remained at the helm. Again the Chicago mob approached Ragan about taking over.