Born to Steal: When the Mafia Hit Wall Street by Gary R. Weiss Page A

experiences at all. The NASD and Securities and
     Exchange Commission acted as if he didn’t exist. They didn’t have any official record of Louis except as an “assistant.” And
     they didn’t have the foggiest idea how he, and the other “assistants” and brokers, made a living.

CHAPTER NINE
    At Hanover, the money was in the rips.
    Sometimes they were called chops. But call them what you want, they were where the money was. They were known informally at
     the chop houses as “commissions,” but they weren’t anything of the kind.
    Rips were the huge sums that the brokers earned from the stocks they sold. Ordinary stocks generated commissions for brokers.
     Ordinary Nasdaq stocks had “markups”—a reasonable profit for the broker and his firm. Chop stocks had rips.
    Rips performed several functions.
    They were motivators, without which brokers would not have been willing to push stocks that had all the appeal of wet tree
     bark.
    They kept the conscience quiet. They kept stirrings of the phony emotion called “guilt” from wafting out of the toilet bowls
     of their souls.
    Nobody knew how the term originated. Nobody cared.
    The rips were announced each morning. Bobby Catoggio, in his capacity as trader—the guy who brought the stocks into Hanover—would
     make the announcement. One stock, Mr. Jay’s, was selling for about $8 and its rip was $1.50, which meant that Hanover had
     the stock on its books for about $5 and split the $3 profit 50-50 with the broker.
    The difference between a rip and a markup was subtle.
    A $3 markup for the broker and the firm would not be so bad if this was a $100 stock. That’s a 3 percent markup. Reasonable.
     There are no hard and fast definitions of excess markups, but more than 5 percent is a red flag and more than 10 percent will
     almost invariably result in a visit, sooner or later, from a grim-visaged, Syms-suited NASD examiner.
    But Mr. Jay’s sold for about $8. If it cost Hanover $5, that looks a lot like a 60 percent markup, doesn’t it? Nope.
    Rips weren’t markups—if the chop houses were careful. It was all a question of timing. If a firm bought a stock at $5 and
     immediately sold it for $8, that would be a huge markup and that Syms suit would appear at the door. But if the firm waited
     a little while, and $5 was no longer the “prevailing market price”—voilÀ! It wasn’t a markup anymore. It was a “trading profit.”
     A rip. What made it even easier was that the house controlled the “prevailing market price” of the stock.
    So the brokers were paid vast sums and the regulators, who were looking for excessive markups, didn’t notice.
    True, rips weren’t foolproof, no matter how long the firms waited. Sometimes they got careless and the rips really were excessive
     markups. Since the brokers usually got the stock up to $8 (or whatever) by fibbing about it, they could be prosecuted for
     that. But the $1.50 that went to the broker—the “rip”—was at least superficially legal and, above all, was invisible to everybody,
     regulators and customers alike.
    The brokerage would add on a few cents’ commission. “The customer thinks he’s only paying three cents a share commission,
     which is very reasonable. A good commission. He’d be happy about that,” said Louis.
    “That’s how they made a ton of money at Hanover, because the brokers’ ‘buying power’ * was astronomical. The brokers could put away a million shares of stock in two days,” said Louis. A million shares times $1.50,
     or more, is nice money.
    “We would get crazy rips at Hanover. Eagle Vision was eleven with seven [a rip of $7 on an $11 stock]. It was paper—a Bulletin
     Board piece-of-shit paper stock. They were probably writing the certificates.”
    That’s what chop stocks were all about—paper. Moving paper. The brokers moved paper, stocks that were often barely worth the
     paper they were written on, if they were still written on paper—and they often