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Busted

A rogue trader's path from the pits to prison in 25 steps

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Darrell Zimmerman can't seem to distance himself from the Chicago Board of Trade. It was the institution that lured him to Chicago more than a decade ago. It was temptations within that eventually drove him away. And now it looms outside the window of his cell at the Metropolitan Correctional Center. On October 22, 1992, Zimmerman tried to corner the world's largest securities market. For 15 minutes, with only a bad check for $50,000 in his trading account, Zimmerman controlled the market in U.S. Treasury bonds by accumulating more than three billion dollars' worth of futures contracts.

By the time Zimmerman was hauled out of the pits by Board of Trade security guards, he had ruined an old-line trading firm, threatened the Board of Trade with its first default in history, raised serious doubts about its trading system, and changed forever the way business on the world's futures exchanges is done. Zimmerman spent the next three years trying to stay as far away from LaSalle Street as he could.

This summer, after a long extradition fight and several stays in Canadian jails, he's back where he started. I traded against Zimmerman in the pits of the Chicago Mercantile Exchange for five years. To me he had always been a fascinating combination of skill, guts, and whimsy, a lightning-quick trader who refused to let the markets discipline him, a guy other traders bad-mouthed and envied. Zimmerman had a gift for talking people into giving him money. He exuded the enthusiasm many salesmen spend lifetimes trying to perfect. He seemed manic and easygoing at the same time. I talked to Zimmerman at length several times after his fiasco at the Board. He talked freely and enthusiastically, feeling all along that what he'd done was fully in the spirit and practice of Chicago's markets.

"I did in the bond pit what every trader dreams about," Zimmerman says. "You spend half of every day thinking about what would happen if you could trade large enough to move a market by yourself, to play like the big firms and banks do. I had everyone in the pit coming to me. I was the market. The exchanges just don't want to admit the market can be controlled by one guy, especially by someone like me, but I proved it can. Almost."

I wrote about what had happened for Worth magazine. At the time, Zimmerman's journey back to the Board of Trade was half over. Here is the whole story of his bizarre round trip.

Step 1

Dream Big

A television ad convinced Darrell Zimmerman he wanted an investment career. He was watching the 1978 Wimbledon finals. He had once been the star of the local school team, but never reached the level of the good big-city players. Wimbledon that year put him in a funk. Nothing in his hometown of Vernon, British Columbia, could bring him anything close to the fame and cash those stars had. Then, between sets, he saw an E.F. Hutton ad, the one where a distinguished spectator at a tennis match says, "...and my broker is E.F. Hutton," and everyone, including the players, stops to listen. That, Zimmerman thought, is a job that commands respect. A family friend worked at the one brokerage house in Vernon that Zimmerman knew of. Zimmerman asked his father what he did exactly. "He's got a great job," his father said. "He sits at a phone all day in a nice office and gets people to send him money." A broker's career sounded pretty cool.

A year later, Zimmerman tried to play ski bum in Steamboat Springs, but poor snow meant bum skiing. He spent much of the season housebound in the apartment he shared with eight others. He also spent a lot of time at the window admiring the Porsche Targa Carrera parked in the driveway next door, and the 30-ish guy and the women who rode in it. By the end of the season, the guy, a local broker, sold Zimmerman on several penny stocks in gold mines he promised would strike it big. Zimmerman played the stocks for months after the Porsche left, riding ups and downs and finally breaking even. Next time, he thought, he'd trade better.

All stock traders meander in the shoulda-woulda world, thinking "What if I'd bought sooner?" "What if I'd got out earlier?" "What if I'd done the trade bigger?" For most investors that mental speculation turns up small dream clouds. For Darrell Zimmerman, that first measly trade in grade Z stocks turned up a galactic swirl of fantasy: prestige, riches, and the Porsche, but also a gassed-up Learjet with a stocked bar and babes. It is a fantasy he held onto for the next 13 years. Zimmerman remembers that the day before his big play at the Chicago Board of Trade, he stayed home to watch the Toronto Blue Jays in the World Series, thinking that he'd jet up there with his winnings and buy a piece of the team.

Step 2

Learn the Business

In 1984, Zimmerman picked up a copy of a girlie magazine--Penthouse maybe, he can't remember exactly which one--and read a story about six men in their 20s who chartered a Learjet to Las Vegas and blew ten grand on an evening's entertainment. One was a rock star, two were professional athletes, and three were commodities traders. Zimmerman nixed music and sports careers. The next day at the Vancouver library he pulled every book on commodity trading. He read only one: How to Make Money in Commodities by Dr. Bruce G. Gould.

Gould's book is one of a species of hyperbolic how-to potboilers that retrace markets and describe how an "original" or "breakthrough" strategy would have reaped millions if applied correctly. Bookstore windows in financial districts worldwide are lined with them, coming on to small-time dreamers the way pimps come on to runaway girls at big-city bus stations. "Thousands of investors [have] discovered the enormous profit opportunities in soybeans, wheat, gold, cotton, sugar, Treasury Bills, hogs and cattle," he wrote in a style that would put a circus publicist to shame. "You will probably be amazed by what you're about to learn. You may even be frightened....It is possible to make profits...running from 100 percent to 500 percent to more than 5,000 percent in a matter of weeks or months."

The book laid out a plan to turn a minimal dollar investment into hundreds of thousands. The plan is something commodity traders call reverse pyramiding. Basically, the strategy is to add futures contracts onto a winning position until it reverses. If one buys a futures contract on soybeans, for example, at the beginning of a sustained rally, by the rally's end the position may have grown into a thousand contracts. As the position grows and the market continues up, the trader's profits rise in ever greater magnitudes. The trick is to liquidate the whole position when the market turns. Gould's book explained how the technique would have fared during the run-up in precious metals in the 1970s. A smart trader, Gould explained, could have turned $3,000 into millions by pyramiding silver futures. Gould's approach made so much sense, and promised so much, that Zimmerman broke out laughing as the author tallied up the gain and was in hysterics by the time the paper position was liquidated. If Zimmerman had had a library card, he might even have checked the book out.

In the fall of 1984, Zimmerman answered an ad in the Vancouver Sun soliciting brokers for a commission house run by expatriate Hong Kong Chinese. The firm's office was a collection of beat-up gray metal desks with phones and a few electronic quote terminals. It stank of garlic from the brokers' Tupperware containers of noodles and rice. Zimmerman walked in while a crowd of thin Chinese men in dark suits watched their boss flip a coin. It was the I Ching sign they used to determine market direction. The brokers suckered customers into buying gold futures, but never placed the trades for them. Instead they would wait for the markets to go down, and panic their customers into selling. They kept all the money the customers "lost" for themselves. In the business, sleazy operations like this are called "bucket shops."

The firm let Zimmerman set up a desk where he could watch the quote screens. He could also make gold trades as long as he didn't interrupt the other brokers' sales calls or mah-jongg games. He agreed to pay them an $80 per contract commission, four times the common retail rate.

Before Zimmerman could get heavily into the gold markets, however, the Canadian government busted the firm after discovering that its officers had plundered $5 million from customer accounts to cover their own losses. Zimmerman and a few of the other stranded brokers set up shop in the borrowed back room of a Chinese restaurant.

He stayed with them long enough to begin trading the lumber contract listed on the Chicago Mercantile Exchange. With $400 in his account, Zimmerman tried to put Bruce G. Gould's trading plan to work. He bet on the direction lumber would take after an upcoming report on U.S. housing starts was released. He lost everything he put in. The trade, though, was made through a Chicago commodity firm working out of the world's largest commodity exchange, the Chicago Board of Trade. The CBOT, along with the CME, were the exchanges from which most of Gould's get-rich examples were drawn.

While reversing the losing trade, Zimmerman struck up a conversation with Ira Greenspon, who ran the prestigious-sounding CCJ Group. Greenspon, a fast-talking optimist, knew more about futures than anyone Zimmerman had ever spoken to. When Zimmerman said what he really dreamed of was a job in Chicago, Greenspon mentioned offhandedly that he was always looking for good people to hire.

Zimmerman had blown all his money on trades and run his credit cards past all his limits--except for the one from Eton's Department Store. He went to the travel agency in the store, charged a ticket to Chicago, and took out a $300 cash advance. "Zimmerman came into the restaurant and announced he was going to Chicago," says one of his colleagues. "He said he was going to go big and go home."

The next day, June 13, 1985, Zimmerman stuffed two dress shirts, a pair of pants, and a tennis racket into a bag. On the flight to Chicago, he wore his only sport coat and dress shoes. He carried a copy of the article on young millionaires. When he landed, he ditched his Canadian credit cards. He was in Chicago to stay.

Step 3

Move to Chicago

Zimmerman walked up Jackson Street with his bags looking for a sign of the Board of Trade. He expected something spectacular: quotes flashing on the outside of the building, people hurrying in and out with orders, a line of Rolls Royce limos outside. He passed the building several times before he noticed the address above the drab granite door.

The thing that struck him most was how that big gray armchair of a building looked so sedentary, like the sleepy banks surrounding it on LaSalle, waiting for traders to stroll in with their riches. At 5:30 in the afternoon, the lobby was deserted.

If Zimmerman had arrived a few hours earlier he would have found the frantic action he was looking for, but inside the building. Since futures were first traded here during the Civil War, Chicago's financial markets have been more famous for their hubbub than for their economic purpose. Then, as today, futures contracts existed for the simple purpose of letting farmers, grain processors, and merchants establish prices for commodities months in advance of the actual shipment. That helped insulate the producers and commercial users from the risk of price swings by letting them transfer much of their risk to speculators, who bet on prices going up or down. In the 1970s the Chicago Mercantile Exchange changed the futures markets forever by expanding beyond agricultural products to include financial contracts. Futures on foreign currencies came first, then contracts on stock indexes, bonds, and other financial instruments. By the time Zimmerman arrived, the transformation was complete: financial pits outnumbered agricultural pits, and Chicago was giving the world's other financial centers a run for their money.

Zimmerman wasn't sure he was in the right place till he saw Ira Greenspon's name on the building directory. The office of the CCJ Group was a small shabby room, a scaled-down version of the Hong Kong-run brokerage back in Vancouver: stuffy, cramped, and crammed with quote machines. It, too, smelled of garlic, from the remains of corned beef sandwiches sitting in the trash cans by the brokers' desks.

Jeff Sherman, one of Greenspon's brokers, greeted Zimmerman. Zimmerman told Sherman that Ira had promised him a job. Sherman cracked up. Zimmerman--bags in hand--was the funniest thing he'd ever seen. Ira was always promising people crap like that, Sherman told him. Sherman, dressed in the exchange's trademark shabby casualness, was as odd a sight to Zimmerman as Zimmerman was to him. He told Zimmerman the Board's dress code only required shirts with collars, so most traders wear their crummiest clothes. Sherman promised to sign Zimmerman onto the trading floor the next day and he could see for himself. In the meantime, he invited Zimmerman to crash at his place.

Jeff Sherman was 23 years old in 1985. He came from Saint Louis to work in the commodity markets and had been clerking and brokering around the CBOT for two years. He lived by himself in a rehabbed apartment near DePaul, a favorite neighborhood for traders. Zimmerman, who had never lived alone or been able to afford anything more swank than a Salvation Army couch, was wowed by Sherman's apartment. A giant-screen television and monster stereo sat in front of furniture that still smelled new. Zimmerman asked Sherman how he did it.

Sherman cracked up. What he had was nothing compared to some guys his age who had condos in posh towers on Lake Shore Drive and drove Porsche Targa Carreras. Zimmerman's dream swirl kicked up again.

"Ever hear of Chicago-style pizza?" Jeff Sherman asked Zimmerman. "It's the best." While they waited for the delivery they cracked a six-pack. The pizza, a giant two-inch-thick slab of meat and running cheese, was the most delicious thing Zimmerman had ever tasted--something no one in Vernon or Vancouver could ever have cooked up. Sherman suggested that they go see the Cubs at Wrigley Field. After the ball game the two of them and a friend of Sherman's headed to the bars.

Traders filled the bars around DePaul. One could spot them then, as now, by their leather jackets, rebel hairdos, and cowboy swaggers. They gathered in the taverns along Armitage and Lincoln Avenue, shouting hoarsely for drinks, trading stories and blow. A favorite hangout of traders in 1985 was the Hunt Club, an oaken booze-and-burger joint owned partly by Chicago Bears star Gary Fencik. Sherman and Zimmerman joined a table of traders, pounded shots, and listened to the rap about trading "teenies" in "Beemy." Zimmerman felt like he had slipped into the bar scene in Star Wars.

The next day, Ira Greenspon sheepishly explained that business really hadn't been going all that well. As they talked a food fight broke out behind them in the CCJ office. Greenspon shouted to the brokers to cut it out and asked Zimmerman to stop back in a couple weeks to see if anything popped up.

Step 4

Take Any Job Near the Money

Two weeks later, Sherman booted Zimmerman from his apartment to make room for his girlfriend. With less than $100 in his pocket, Zimmerman checked into a flophouse. That night he returned to the Hunt Club, where he met a friend of Sherman's from the trading floor. The guy needed a clerk for a week. Clerking on the floor has always been a good entree for wannabes angling for a chance in the pits. In return for low wages and exposure to the business, clerks do everything from running orders between trading desks and the pits to running personal errands for their bosses. The next day Zimmerman was official on the CBOT floor.

Later that week at the Hunt Club, Zimmerman caught the eye of Steve Levin. Levin noticed the gold Star of David around Zimmerman's neck and asked him if he was Jewish. His firm was looking for traders. He jotted down the name of his boss and told Zimmerman to call the next day.

Most of the traders around Chicago's exchanges pay little mind to grooming. Clothes are liable to get stained with ink or sweat or saliva, even ripped or ripped off. But there are some traders, known as the "gentlemen," who strive to cut a different figure on the floor: impeccably tailored, expensively accessorized. Norman Singer was a gentleman. His hair was perfectly coiffed, his nails manicured. On his wrist sat a giant jeweled Rolex. As they walked into Singer's office, Steve Levin told Zimmerman that this was the Singer of Singer-Wenger Trading Company. By the look of Singer's huge marble-and-leather-appointed office, Zimmerman knew it meant something big.

Singer's success was due to his having kept the expanding numbers of trading pits populated with his own people. He favored athletes. "He wanted people with stamina and an in-your-face attitude," says Mitch Joseph, who started out at the firm when Zimmerman did and later became his best friend there. "Zimmerman was very good at tennis, skiing, and whatever else he tried. And he was very competitive."

Singer told Zimmerman he would need $100,000 to trade on his own, but then pledged to back him instead. All Zimmerman had to do first was perform well in the firm's mock-trading sessions.

"It was like Zimmerman was destined to trade," Joseph says.

Norm Singer liked his recruits to be green, figuring that people with trading experience would be resistant to his highly disciplined system, so Zimmerman kept quiet about his shady history on the fringes of Vancouver's futures business.

Up till then, Zimmerman had probably never struck anyone as particularly bright. That changed at the Singer-Wenger practice trading sessions, where he competed against others for fictitious trades and a job. The prices at the Board of Trade are quoted fractionally like stocks, and novices frequently bollix the fractional math. But Zimmerman could add, subtract, and multiply the fractions with unusual speed. Singer hired him to trade at the Chicago Mercantile Exchange.

Singer-Wenger assigned Zimmerman to the enormous Standard & Poor's 500 Stock Price Index futures pit at the Chicago Mercantile Exchange. The S&P contract is one of the world's most actively traded. It allows speculators and hedgers to take large positions on the stock market without actually buying common stock. Chicagoans take the rumble of the pits for granted, it's part of our local scenery. But even to seasoned locals, the value of the transactions can be mind-boggling. And tempting.

Zimmerman was one of 300 traders wedged into a steep circle of stairs. He was thrown in with brokers and speculators trading hundreds of thousands of contracts--worth billions--daily, but as a new trader at Singer-Wenger he was limited to two measly contracts at a time. "Usually the small traders in a pit are invisible," says Mitch Joseph. "But somehow Zimmerman soon had a reputation as being a little off the wall, a little bit on edge." Zimmerman mouthed off to bigger traders and picked fights over small trades. He also had problems staying within the firm's trading limits. "We'd have group meetings where Zimmerman was told the firm needed him to scale back," Joseph says. "He'd agree, but then he would double up his position. He was always getting stuck with bigger positions and lots of risk."

Zimmerman managed to do well enough for Singer-Wenger to keep him on. After a while, the firm moved him to one of the Merc's slower pits: live-cattle futures options. He was instructed to stay in the pit at all times and to update prices by continually calling them out to the pit. Like other Singer-Wenger traders, he had to carry pages and pages of computer "cheat sheets," printouts that priced all the options in a pit. The firm's idea was to enforce a kind of disciplined stupidity that would prevent traders from making their own calls on the markets. Other traders referred to them as "sheet monkeys." That was not exactly what Zimmerman had in mind when he envisioned his trading career.

Zimmerman thrived on the competition in the pits, especially in the cattle-options pit, which tended to attract less-capitalized traders, many dependent on every trade for survival. Tensions were always high, bickering and name-calling common. On slow days tirades could erupt over $10 transactions. One trader in the pit described his fantasy of a great day as "showing up and finding that all the other traders had died and I got their money."

Step 5

Get a Partner

Zimmerman met his future wife, Lisa Tatkus, a broker's clerk, in the S&P pit. Smitten by his good looks and charm, Tatkus quickly became Zimmerman's constant companion off the floor. Reflecting back on the first years of their relationship, neither Zimmerman nor Tatkus recalls discussing any significant issues with each other, and they rarely talked trading. "All Darrell ever wanted was to have fun, and he was very good at it," Tatkus says. They got married after a trip to Canada in June 1987. They hadn't exactly planned on it, but when U.S. border officials refused to let Zimmerman back into the States with no work permit, he asked Lisa to marry him. "I realize now," she said shortly after Zimmerman's final spree, "he married me so he could trade." Zimmerman now says that one of the things he regrets most is driving her to think that he used her. It's a point he tries to make to her when she visits him in jail at the MCC. In fact, she's the only person he's placed on his visitors list.

The couple had a violent fight before work on October 19, 1987, also known as Black Monday, the day of the stock market crash. Lisa says she was angry at her husband because she thought his highly leveraged positions were too risky. For most of the morning, the cattle pits were calm as Zimmerman watched the quote boards on the exchange's walls flashing huge losses in the equity markets. Finally the crash spilled onto every market--the meats, the currencies, and the bonds joined the frenzy. Put orders, or bets that the markets would drop, flooded the pit, as hedgers scrambled to protect themselves against a meltdown. In the middle of the panic, Lisa walked by and gave him the finger. Between his quarrel with her and the terror sweeping the pits, Zimmerman could stay still no longer. Too much money was changing hands without him. Impulsively--partly to spite his wife, partly to show he wasn't afraid--Zimmerman sold 250 puts. This trade was more than ten times larger than what his firm allowed on a normal day, and he lost $60,000 and his job. Lisa got fired, too. Yet Zimmerman remembers feeling an odd sense of calm. He may have lost big, but didn't that prove he was a big trader?

The course of Zimmerman's career at Singer-Wenger would play itself out again and again at different firms over the next five years. He would convince someone to stake him in exchange for a share of his trading profits. He would begin by trading well--sometimes very well--and then accumulate a position that either lost money or carried so much risk that he was turned out. "We led a very uncertain life," says Lisa. "We were always moving in and out of different apartments. I just never knew what was going to happen." One of Zimmerman's backers, who asked to be spared identification "because Zimmerman's name is poison," offered a reason why traders like Zimmerman do well, then fail: "Going through the markets is like going through psychoanalysis," he said. "If you have any self-destructive tendencies, the market is going to find them and hit you with them."

Step 6

Get a More Forgiving Partner

By 1988, trading the newer futures and options instruments was considerably more difficult than it had been just three years before, when Zimmerman came to Chicago. Traders and customers were more sophisticated, inefficiencies were more easily spotted, and making money required much more risk.

The lone-wolf traders, those who traded their own money for their own accounts, became scarce. Trading now required the latest and fastest computer analyses, sophisticated risk management, and an organization that could simultaneously work related markets on different exchanges. Many of the lone wolves joined broker groups to share the expertise and expenses needed to survive. For Zimmerman, who hated the hard work of analyzing positions, trading groups made business much more difficult and less fun.

He eventually landed with Steve Klee. Klee still cannot fathom why he didn't fire Zimmerman a lot sooner than he did. He thinks it has something to do with pity, or maybe that he just liked him. "I felt so sorry for this guy, and I really wanted to help him," Klee told Board of Trade investigators. "I kept making agreements, and he'd sign these things: 'I will never do this,' 'I will never do that,' 'I will always do this.'" At one point, Klee even sent Zimmerman for a psychiatric evaluation.

In April of 1989, Zimmerman, tired of Klee's limits, decided to get out. Before he left, though, he made one last big play with Klee's money. "Zimmerman was supposed to be trading 50 [contracts at a time] but he sold 900 calls, something we just never, ever, ever do," says Klee. "He kept 300 of them a secret. I remember being left with the feeling that not only had he completely violated the trading and risk parameters that we established but that he had committed fraud of a sort." Fearing the fate of his firm hung in the balance, Klee liquidated Zimmerman's position himself and lost $50,000. Yet he still felt sorry for Zimmerman when he fired him. He invited Zimmerman and Lisa to visit his office so he could explain. "In the middle of the conversation, his wife got up out of her chair and beat the living hell out of him," Klee says. "He obviously told her a story that bore no resemblance to the facts."

Lisa wasn't the only one throwing punches in their relationship, Zimmerman acknowledges. The fact that she threw any at all would surprise anyone who knows her. A slight woman with features like a collector's doll, Lisa's image is anything but that of a bruiser.

Zimmerman's reckless trading with his various bosses' money provided a semiregular source of income--and a regular source of jokes--for the other traders in the cattle-options pit. "We loved it," says a trader who made money off of Zimmerman's fumbles. The other traders began to refer to such episodes as a "Darrell Day."

Step 7

Get a Partner Who Likes Taking Risks as Much as You Do

Zimmerman's next partnership was with a trader named Paul Leventhal. It was lucrative at first. In 1989 Zimmerman's account made $250,000. He bought two cars--including a Mercedes--and lived in a deluxe duplex in the DePaul neighborhood. But the firm responsible for guaranteeing Zimmerman's trades, called a clearing corporation, was not confident his fortunes would last.

A clearing corporation is a trader's lifeline to the pits. It performs the banking and bookkeeping necessary for traders to conduct their business. A clearing firm also guarantees the trades of all its trader clients. In return, it collects commissions on trades and interest on the money it lends traders for margin. "The biggest red flag for that risk is when a trader sells high numbers of puts and calls," says a former officer of Hammer Trading, the firm that cleared for Leventhal and Zimmerman. "And he sold way more than we allow. We told him to go, but I still have Darrell Zimmerman nightmares."

Step 8

Strike Out (On Your Own)

Hammer, which had a long-term clearing relationship with Leventhal, told him to lose Zimmerman or find another clearing firm. On his own again, Zimmerman moved to First Commercial Financial Group and opened an account with his own money. It was his inaugural outing as an independent trader. For the first year and a half, he traded well. By December 1990, First Commercial put enough faith in the relationship to lend Zimmerman $65,000, half the cost of an options membership, or seat, at the Chicago Mercantile Exchange. Zimmerman paid the other half in cash. "I always measured my success by the dollar value of my account listed on my daily statement," Zimmerman says. "When I took the money out to buy my seat, it felt like I lost it." So Zimmerman began to trade even more furiously, accumulating large options positions.

When the gulf war hit, the commodity markets became volatile and prices exploded upward. First Commercial watched Zimmerman's position swell against him and, deciding he was putting the firm on the line, forced him to liquidate on thousands of contracts, leaving a $150,000 loss. Selling his seat just 20 days after he bought it, Zimmerman owed the firm $70,000 and was barred from trading at the Merc.

Zimmerman almost avoided this latest catastrophe. In early January, Lisa, nervous that a war would cause a repeat of the Klee situation, passed Zimmerman a note she hoped would seem to have come from a First Commercial officer, instructing him to liquidate his positions. When Zimmerman called the First Commercial office, he learned it was a fake. If Zimmerman had fallen for Lisa's trick, he would have reversed his positions for a profit.

The Zimmermans sold their Mercedes to pay bills.

Step 9

Count on Suckers

Paul Leventhal also lost big during the gulf war, but he still had enough cash to begin again in the options pits of the Board of Trade, where it cost less to trade. He asked Zimmerman to join him. Although the Board of Trade is within blocks of the Chicago Mercantile Exchange, no one bothered calling the CME to check them out. Their clearing firm paid for its inattention. Leventhal lost $400,000 when soybean options exploded on drought fears. He was finished as a trader. Unless Zimmerman found a new backer, he was too.

Getting desperate, Zimmerman convinced his father to take a $20,000 second mortgage on the house in Vernon, and lost half that in a week. First Commercial, aware that Zimmerman was trading again and still owed $70,000, put a lien on the rest. Zimmerman was shut down. He and Lisa moved to a smaller apartment tucked between a large bakery and the expressway, far from the trader hangouts. In July 1992 Zimmerman stopped payments on Lisa's Chevy Blazer, with only two installments left. At the end of the month, he reported the Blazer stolen.

"Darrell Zimmerman knew options. His problem was that he just wasn't afraid of them," says Mitch Joseph. "Three or four times, he could taste what it was like to make it big, and every time he got slammed. Finally he said, 'I have this ballsy plan. I've been in the business long enough. I'm going to go for it.'"

Step 10

Find the Perfect Partners

While he shopped for new backers, Zimmerman killed time at the International Trading Institute, a training school for firm and institutional traders. ITI's lead instructor, Charles Cottle, thought Zimmerman could make better use of his talents and offered Zimmerman a deal. He'd take him "apart piece by piece, like a car, and build him back up again" with better habits. In return, Zimmerman could earn some money teaching beginner classes. ITI pushed strategies that required hard analytical work.

The successful traders and promising prospects filing through ITI reminded Zimmerman how much he missed trading and how hard it would be to build up again. He began to fray.

The grunt work at ITI was done by aspiring traders-to-be called "lab techs." They put in six months of work without pay in exchange for the chance to take ITI's full $15,000 trading course. One day while Zimmerman was in the office, two lab techs, Mark Mason and Anthony Catalfo, asked why he wasn't trading. Both were east-coast rich kids in Chicago to turn small fortunes into big ones. Zimmerman figured that maybe he'd found his new backers.

Catalfo was the one who interested Zimmerman most. A sharply dressed, burly 29-year-old from Queens with a thick New York accent and a vegetarian who consumed large amounts of junk food, Catalfo was the son of Betty Catalfo, the wealthy founder of a $25 million New York business, the Stay Slim Delight diet chain. Zimmerman says that Anthony described his father, Vincent Catalfo, as a wealthy businessman who socialized with Donald Trump and Ed Koch. He never mentioned the source of his father's wealth: for five years in the 1980s, Vincent Catalfo benefited from a cozy relationship with a New York judge who appointed him guardian to wealthy orphans and incompetents, including one man with Down's syndrome from whom he stole $45,000.

"We made a good fit," Zimmerman says of his new partners. "I had experience and awareness of the floor, but I didn't have money. These guys were looking for experience and someone to teach them, and money was no problem for them."

Mason and Catalfo found the work at ITI demeaning and the instruction too conservative. While Mason did his job, Catalfo caused problems. In one class, Catalfo, assigned to show slides, left the projection booth to call the instructor an idiot. Like Zimmerman, Catalfo had no use for ITI's structured approach. He had his own scheme for making money on the floor. He spent most of his time at ITI testing it on the institute's computer simulator, Trade$tar. His idea was to take a large position in futures, either long or short, and load up on options in the same direction. A big enough position, he believed, would cause a market panic and make him a killing. "He got on Trade$tar the first day and said he made a million dollars," Mason recalled. "But it was all just fooling around with the machine." ITI staffers told Catalfo to quit his experiments before the paying students got the wrong impression that the institute sanctioned that kind of trading.

Every trader fantasizes about taking a wild shot and retiring. Here in Chicago the dream is called the "O'Hare Spread": the idea is to trade into an insanely large position and head for the airport. At the end of the day if the position makes money, you head to Hawaii; if it loses, you're off to South America. In real life it never works out that way. When Shelly Brown, an ITI instructor, heard Catalfo's scheme, he warned him, "They'll carry you out, either on a stretcher or in handcuffs."

Step 11

Play With the Big Boys

Zimmerman had been contemplating his own O'Hare strategy since he lost his father's money. Catalfo and Mason backed Zimmerman with $30,000, enough to get him back on the floor and trading. Zimmerman persuaded yet another firm, TransMarket Group, to clear for him and promised to limit his trading to ten contracts at a time. On his first day of trading soybean options, Zimmerman lost track of his inventory of contracts, a mistake that happened to net him $6,000 in profits. His young backers were impressed. Zimmerman suggested they move to the U.S. Treasury bond pit, where the big traders were. Scam artists, too. In 1986 a con man named Dan Dewey walked into the pit disguised in a false beard and glasses and racked up big positions in the contract. The idea was that if his trades were winners, he would attribute them to his confederate, a trader named Tom Sanders. If the trades were losers, well, no one would ever know who that man in the beard was who made the trades. Dewey, Sanders, and two others would have pocketed $308,000 if they hadn't been caught.

The Board of Trade's bond futures are the most actively traded contracts in the world. The pit is the most grueling in the industry. Trading firms send their quickest and toughest traders there. The bond-options pit, a few feet away from the futures pit, is nearly as hectic. Zimmerman, working both, lost $25,000 on his first trade. "We pissed away most of our money until we were down to ten grand," Zimmerman says. TransMarket vice president Ken Bosgraf warned him to scale back: "I talked to him because there was too much risk in his position. He seemed very cooperative [when I asked him to] reduce his position, [but] in fact he increased his position. I told him to find somewhere else to place his trades."

Step 12

Get Lucky

Catalfo suggested they take one more shot before Bosgraf shut them down. They sold 3,000 calls just before the release of the monthly government statistics on unemployment, gambling that the figure would send the bond market down. "The number came out and it was in our faces," Zimmerman recalls. "We lost 40 grand immediately." Catalfo panicked. Zimmerman, with nothing of his own to lose, said he didn't believe the number. He persuaded Catalfo to join him for breakfast. Throughout the meal, Catalfo muttered glumly about getting his family to cover the loss. "When we got back to the board, the market had reversed. Our loss was now a $75,000 winner," Zimmerman says. He rushed into the pit and took the profit. Catalfo thought Zimmerman was a genius.

TransMarket immediately closed Zimmerman's account, and Bosgraf informed Mason and Catalfo that Zimmerman still owed $70,000 at the Merc. Mason, afraid that his earnings would be seized to cover Zimmerman's debt, exited the partnership. For Catalfo, however, it just raised Zimmerman's stock further.

"Zimmerman had some kind of control over Tony," says Mason. "I don't know why. Anytime Zimmerman asked for anything, Tony gave it to him. He even talked Tony into renting a car for him for two months."

Step 13

Find a Sleepy Sponsor

Around this time, Zimmerman and Catalfo began plotting for "something really big." Catalfo applied for membership to the board, easily rented a seat, and opened an account for $30,000 at another clearing firm. Zimmerman also had no difficulty finding a seat or another clearing firm, Lee B. Stern & Company. Stern was a company whose traders worked the board's sleepier agricultural pits. Though Stern took surprisingly little care to check Zimmerman out, it did receive two unsolicited phone calls from Hammer officials at the Merc, both of whom warned that clearing Zimmerman could be disastrous. "Their response to us," says one of those who called, "was they could handle it. They had better risk management than we did."

The calls from Hammer were highly unusual. Bad traders move from firm to firm like bad bank notes. Since clearing firms compete with each other for business, they have little incentive to pipe up when their own risky traders find new homes. If anything, the incentive works the other way; if a high-risk trader inflicts a loss on a competitor, so much the better. An even better outcome is if the trader makes money in his new situations; then he can pay off what he owes his previous guarantors.

Step 14

Think Big

The stage was set for Zimmerman, aided by Catalfo, to make his biggest play yet. "Our game plan," says Zimmerman, "was to take as big a position as we could and freak out all the people who make their livelihoods down there." The best way to do that, Zimmerman thought, was to buy options.

Options are either puts or calls. A call is an option to buy a security at a given price by a particular date. A put, similarly, is an option to sell a security. People who buy put options are either hoping for or hedging against a market drop. Put-option sellers, on the other hand, bet that the market will not drop. As a put buyer, Zimmerman would get others to sell him options. In fact, he would get them to sell him far more puts than they actually owned, luring them into large "short put" positions and making the pit vulnerable to a massive short squeeze.

All options have a price--what an investor must pay to buy them--and a strike price, the price at which the option can be used to leverage the underlying security. Someone buying a call option on a $25 bond future, for instance, might buy an option with a strike price of $30. If, before the option expires, the underlying security rises to a point that exceeds the strike price of the option, it is said to be trading "in the money."

An option trading "in the money" trades differently from one that is not, moving more closely in tandem with the underlying security. Immediately before expiration, "in the money" options move virtually dollar for dollar with the underlying security. When this happens, an option and the security are for all practical purposes the same.

Zimmerman's plan was to make his fellow traders think bond futures were headed lower by flooding the futures market with sell orders and the put market with buy orders. Eventually, traders, panicked to get on board the trend or scrambling to cover their losses, would push down the prices of the bond futures. As the futures dropped in value, Zimmerman's put options would become geometrically more valuable. Zimmerman would then step up his put buying even more in the expectation that he could bully the price further, and push both futures prices and put prices his way: "Our plan was to load up the pit so much with short positions that the options would blow up in everyone's faces."

"Zimmerman figured out how to cause a real panic by turning the options into futures," says Joseph, "and making people go to the futures market to hedge them." In effect, Zimmerman inverted his losing trading style. His bankruptcies came when he was forced to buy in short options when the markets went nuts. This time, he would buy options from everyone and cause the markets to go nuts himself. "In many ways, the plan was brilliant," says Joseph.

Step 15

Tell People You Have a "Situation"

"I saw the play as a way to plan my retirement, so it had to work just right," Zimmerman says. "Tony and I took the summer off, mostly on the golf course, plotting what we would do. First we thought about it in terms of trading maybe 10 or 100 times bigger than before. But then we thought, what the fuck, let's do it a thousand times bigger. Well, we couldn't spend months on the floor trading 10 and 20 lots, and then all of a sudden trade thousands. No one would believe us. We had to schmooze people. So we made appearances on the floor. We said we had some big positions off the floor and that we were working with our people in New York and overseas setting up this big trading thing....Well, the big trading thing was all in our minds."

Zimmerman figured that his plan could work only if the traders thought the market movement was a general market panic. To that effect, he enlisted brokers to make trades for him from different parts of the bond pits. Most of the big, established brokers refused his business, but some smaller ones snapped it up. "All we would tell them was we 'had a situation.' People said we misled them, but 'a situation' can mean anything. They never even asked us what our situation was. They just wanted the business." The incentives for trusting Zimmerman were high. If his 'situation' proved real and Zimmerman's business became regular the brokers he spoke with could have earned an additional $250,000 a year in commissions.

Step 16

Write a Bad Check

Catalfo was approved for trading on October 19, 1992, the fifth anniversary of the Crash, the Monday before the Friday when a series of bond options would expire. On Wednesday, Zimmerman gave Lee B. Stern & Company a phony check for $50,000 to get him on the floor.

Step 17

Give Your Friends a Show

That night, Zimmerman and Catalfo were at Zimmerman's apartment watching the Toronto Blue Jays in the World Series. Zimmerman saw the fact that a Canadian team was in the championship after kicking the butts of Americans all year as a good omen. "Tony said, 'Let's do it tomorrow instead of Friday,'" Zimmerman says. "Thursday was better anyway. An unemployment number was coming out, and we could play off that." Catalfo had his own reason for changing the date: his little brother and a friend, Dan Himmel, were coming to town. "We were going to take down the world financial system, and the guy wants his brother there to see it. So now in addition to everything, we have to show these guys around." Cornering the market on Thursday would also give Zimmerman a chance to make it to Toronto for the rest of the series, and bid for a piece of the Blue Jays.

Step 18

Explain Your Plan to Strangers

At 6 Thursday morning, Zimmerman and Catalfo took the guests to breakfast before the market opened. "We didn't tell them, 'Watch us, we're going to take this fucking market by the balls.' We just said we were excited the market was going down and that we were pretty heavily invested in it," says Zimmerman. To explain options, he drew a simple graph on a napkin. Later in the day, the FBI seized the napkin.

All four walked onto the floor early to get good spots, Zimmerman and Catalfo in the options pit, their guests just outside. Though it had not occurred to them, to other traders it appeared that Zimmerman and Catalfo had brought the backers they had been talking up.

Step 19

Strike It Rich

When the markets opened at 7:20, Zimmerman and Catalfo started buying every put offered in the pit, 25,000 of them. Put prices soared and the traders who sold scrambled to hedge by selling futures in the bond pit. Zimmerman, however, beat them to it. He was sending huge sell orders to nine different brokers in the pit, driving the bond prices down. At 7:30 the unemployment number came out and it was bearish. The market got another kick downward. Catalfo liquidated his position, netting $1.5 million.

Zimmerman looked at the trades in his hand and saw between $3 million and $5 million in profits. He had built the whole Bruce G. Gould pyramid in 15 minutes. "I knew by then that Tony was at least a millionaire, so no matter what happened I would have half of that," Zimmerman says. "I started to buy in a hundred here and a thousand there. It was pandemonium all over....People were coming up to me and saying 'Excuse me, sir, who are you doing these trades for?' and all this shit, people who saw me on the floor for two years and never fucking gave me the time of day. I thought then 'I'm a multimillionaire. I control the market now. How many times is that going to happen in your life?' I started selling again to bury everyone." In all, Zimmerman controlled 36,000 contracts, leveraging $3.6 billion in bonds.

Step 20

Bollix Your Math

Two things happened that slowed Zimmerman's momentum. Word that he was behind the skittish trading in the bonds reached the Stern office, and sent the firm's officials racing to the floor. They had no idea what Zimmerman's positions were, but they did know they were ludicrously beyond what his margin (still just a bad check waiting to bounce) would support. Their word was all Board of Trade officials needed to yank him from the floor. The second factor was Zimmerman himself. He lost count of his contracts and stepped out of the pit to tally them. That allowed Board of Trade security guards to reach him.

Step 21

Blow Your Cover

When the other traders realized what was happening the market reversed with a vengeance. Stern employees wrestled Zimmerman's trading cards from him and started a frantic attempt to learn his position. The scuffle blew the charade. Soon everyone in the futures and options pits smelled blood. Zimmerman's positions, they knew, would be liquidated. Lee B. Stern & Company was swallowed whole. The firm lost $8.5 million, $2 million more than its net worth. It was the biggest "Darrell Day" ever.

The feeding frenzy continued even after Zimmerman was pulled from the floor. Because Stern did virtually no business in the financial markets, no one from the firm knew how to deal with the catastrophe. It took two hours before its officers had a handle on Zimmerman's position and could round up the brokers who could liquidate it. Many floor traders believe if they had acted faster or more discreetly they could have reversed Zimmerman's trades with minor losses, perhaps even for a profit.

Instead, the Board of Trade forced Stern to cover Zimmerman's losses. Though Lee Stern, the retired founder of the firm, eventually covered the entire amount, his company lost its status as a clearing member of the Board of Trade, where it had done business for 25 years. Twenty employees lost their jobs.

In Zimmerman's mind, he engaged the Board of Trade in the risk it claims to exist for. For seven years, big firms, with high-tech systems and armies of analysts, old-boy networks and probably inside information, had done everything in the world to take his money. When he had nothing left to take, he used his wits to take theirs. "How did the Lee Sterns of the world get their clearing firms?" he asks. "They took big positions when there were grain embargoes when no one else could play the markets, or something like that. That's how all these guys got their fucking clearing firms in the 60s, 70s, and 80s, thank you very much. I'm doing it in the 90s, when it's not done because it's way more sophisticated and people are way more competitive. That's why they took me off the floor and changed the rules."

Step 22

Piss Off Your Partners

From the time he learned about trading in Bruce G. Gould's investment potboiler to his last day at the Board of Trade, Zimmerman clung to the mythology of fortunes built on guts alone. Trading, however, was never as easy as the Goulds of the world claim. No one keeps tabs on ruined traders, but veterans of the floors estimate that eight out of ten traders eventually go broke and don't return. They tell of cabdrivers who used to work the pits. For Zimmerman, however, the myth was at least as important as the money. He came to Chicago to live it, and if he failed he wanted people to talk about how he tried. Zimmerman called Mark Mason soon after the scheme failed and excitedly bragged that he was "going to make the Wall Street Journal."

The next day when Anthony Catalfo asked his clearing firm for a check for the $1.5 million, he was told that his funds had been frozen pending an investigation. When Zimmerman tried to reach him, Catalfo refused to talk. The two have not spoken since. Mark Mason called Catalfo three days later. "Tony said, 'Oh, God, it was a horror show. I got suckered." The money Catalfo made was eventually ceded to Stern to cover Zimmerman's losses.

Catalfo declared bankruptcy and was tried on various fraud charges in federal court in 1994. He was sentenced to a 42-month jail term. His trial strategy focused in large part on Zimmerman, who he claimed had cooked up the scheme to get his family's money.

When Zimmerman was shut down, Lisa, who started trading on a seat the month before, was also forced from the floor. "The clearing firms told me I was barred because of guilt by association," she says bitterly. "I worked on the exchanges for ten years before I finally got a chance to trade, and when I did I just did low-risk trading. That, though, was my dream. He cut that short, too."

Since Zimmerman's spree, all the Chicago exchanges have instituted rules and penalties against trading over margin limits. One, unofficially labeled the Darrell Zimmerman Rule, entitles clearing firms to keep any profits traders make on positions that cannot be supported with margins.

Step 23

Try Again

In the months that followed Zimmerman wandered the halls of the shabbier buildings on the edges of the financial district looking for a job. Despite continuing news reports of the CBOT debacle and imminent indictments, he was able to land three jobs selling and recruiting for small firms. Once at work, though, he was often in a daze. He lost each job in a matter of weeks. He bought a pair of Rollerblades and often skated through the night, thinking about how his plan had gone wrong. He opened a trading account through a brokerage house in the suburbs, claiming that he had a net worth of over $500,000 and an annual income of $100,000. Without checking, the firm let him trade in Achieva, a cheap, volatile Canadian stock. Inevitably the stock headed south and Zimmerman stuck the broker with the loss.

Step 24

Run

At the end of June 1993 Zimmerman left a note for Lisa saying he was taking a vacation. He pawned her jewelry, including her wedding ring, broke a piggy bank on her dresser, and bought a bus ticket to Canada. The desperate acts of a criminal on the run? Maybe. Mitch Joseph has another theory: "I don't think there was ever anything really malicious in Zimmerman's trading. He just did what he always wanted: He went big, and he went home."

Step 25

Confess

Back home in Canada, Zimmerman tried to work in Vancouver's securities markets. A routine background check, however, revealed that Zimmerman had been indicted in the United States for fraud. In November 1993, officers from the Royal Canadian Mounted Police came to arrest him on an extradition order. Zimmerman proved cooperative and, though in handcuffs, characteristically chatty. The arresting Mountie asked what he had done and Zimmerman, who couldn't resist the chance to bask, confessed to everything.

For the next two and a half years he moved in and out of Canadian jails as his lawyer made a case against extradition. Though he's served among hardened criminals, he claims his jail time has been tolerable. "It's just like any other social situation," he says. "It's kind of like one big fraternity house." Again, he turned to his parents for help. His mother put her house up as security against her son's disappearance. This time he was true to his word. Last June, when he ultimately lost his extradition fight, he met the Mounties in Vancouver for a flight to Chicago. When asked how the trip was, Zimmerman said, "Well, the food was pretty good." Better, at least, than it would be at the MCC, where he spent the next two months weighing his options.

Last month, on September 18, a visibly shaken Zimmerman, dressed in an orange prison jumpsuit, pleaded guilty to two counts of wire fraud. The first charge concerned a fax Catalfo had sent from New York as part of his application for a badge at the Board of Trade. In the document, Catalfo claimed, falsely, that he was paid up on his student loans. The second charge cited the dissemination of bond futures prices over the Dow Jones news wires, data that prosecutors said was manipulated as a result of Zimmerman's scheme. On their face, the charges seem far removed from the actual events in the pit on that day four years ago. What they may demonstrate above all is that if you screw the wrong people the government will find a way to prosecute you.

Zimmerman will be sentenced in December. He faces a maximum of ten years. More likely, he'll get closer to Catalfo's three and a half years. In any case, it's unlikely Zimmerman will end up anywhere near the Board of Trade again. That's too bad for Lee B. Stern & Company. As part of Zimmerman's plea, he agreed to pay Stern $6.5 million in restitution when he can come up with it, and trading is the only way Zimmerman knows how to scare up that much money.

Zimmerman says he now regrets the trouble he caused by his trading spree, pointing out that his goal all along was simply to make money, in which case no one would have been hurt or thrown out of work. At the Metropolitan Correctional Center he whiles away his day reviewing the documents related to his case and making his way through the novels of Dostoyevsky, because, he says, he likes reading about others whose circumstances are worse than his own. His time is broken up by visits from Lisa, but he says there's no chance their relationship will ever be more than friendly. She divorced him shortly after he bolted for Canada, and worked for a while at the front desk of the Palmer House. Lisa was unhappy with the attention Zimmerman's exploits brought her, and my attempts to reach her since he's returned from Canada have failed.

Since Zimmerman was hauled off the floor of the Board of Trade, nearly every major Wall Street firm has been slapped with enormous fines for cheating customers. NASDAQ, the so-called "exchange of the future," earned a $100 million judgment against it for practices that sound a lot like stealing. Nick Leeson buried Barings Bank with a billion dollars in hidden losses. And copper traders at Sumitomo, the giant Japanese bank and trading firm, did the same to their sponsors. To Zimmerman, it all proves he wasn't so unusual after all.

It remains an open question what would have happened if guards hadn't dragged him from the bond pit that day. There's a strong possibility he might not have been coolheaded enough to take his millions and walk. After all, he did lose track of his trades. Then again, Zimmerman has always been a master bluffer. He just might have finished the day a very rich man. Then Stern would have had a new, successful bond trader on its rolls, one welcome to burn his new fortune on commissions as long as he liked. Or the clearing firm could have challenged Zimmerman's right to trade so large; but as a winner Zimmerman would probably have had no problem finding people willing to say they were his backers all along.

"The funny thing," he says, "is that no one I know said, 'Darrell, you're an asshole.' They all say, 'Why the hell couldn't you tell me you were going to do that, so I could have done at least a five lot?'"

Art accompanying story in printed newspaper (not available in this archive): photo by Darryl Estrine.

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