Martin Frankel: Sex, Greed and $200 Million Fraud

While Marty's theoretical knowledge of the securities markets grew, the same could not be said about the development of his ethics and morals. He became fascinated with legendary Robert Vesco, who swindled hundreds of millions of dollars in one of the largest frauds in U.S. history.

John & Sonia Schulte with daughters

In the mid-1980's, Frankel decided to put all of his knowledge into practice. One of the brokerage houses where Marty had spent a great deal of time was John F. Schulte, Inc., a small company in the Toledo area that had an affiliation with Dominick & Dominick of New York City. John Schulte and his wife Sonia, a successful broker in her own right, were the principals of the growing brokerage firm.

Under the guise of being Sonia's client, Marty wormed his way into the Schultes' brokerage business and into their marriage as well. He spent hours every day talking to the attractive Sonia about financial strategies, various aspects of the brokerage business, and tensions within her marriage to John.

Whatever other weaknesses he might have had, Marty really talked a good game. He impressed both Sonia and John with his knowledge of the market and a system that he claimed could help him identify stocks that would be future winners. Under pressure from his wife, John hired Marty as an analyst in January of 1986.

As time went on, John began to realize that he'd made a mistake in hiring Frankel. Marty felt that he was so superior to everyone else that he shouldn't be held to the company's dress code. He angered John on a daily basis by wearing jeans and sports shirts instead of a suit and tie. Worse, John was tiring of Marty's claims of a sure-shot trading system and absence of results to back it up.

"Frankel didn't know how to trade he couldn't trade," John said. "He could tell you why the market did everything it did, but he would only do that in hindsight."

Things came to head when Ted Bitter, a friend of John's, fell under Marty's spell. Impressed by Marty's talk about the market, Bitter put his savings in Marty's hands, convinced that Marty's trading system would give him the money he needed for retirement.

For all his talk about investment strategies, Marty didn't have the courage to conduct the actual trades that would have shown whether his system actually had merit or not. What he called "trader's block" was a variation of the same neurosis that prevented him from taking tests in school. He was afraid that the aura of genius that he had manufactured and carefully cultivated would wither under the glare of measurable results.

If a commission-less broker were not sufficient reason to fire Marty, ruining Schulte's relationship with Dominick & Dominick was. Without John's knowledge, Marty had fraudulently represented himself as an authorized agent of Dominick & Dominick on leases for electronic market terminals. Frankel was fired. John believed that the worthless broker was finally out of his life for good, but he was wrong. The real damage to John's business and credibility inflicted by Marty Frankel was yet to come.