Everyone catch the Eph in the lead story in the Wall Street Journal today on Citadel’s investment in E*Trade?

On Monday, Nov. 12, Kenneth Griffin was boarding a plane to New York when he received an urgent call from Joe Russell, a lieutenant at Mr. Griffin’s big hedge fund, Citadel Investment Group. Shares of online broker E*Trade Financial Corp. were plunging in value, and Citadel, a holder of E*Trade shares and debt, was losing money rapidly.

“We need to focus on this fast,” said Mr. Russell, Citadel’s head of credit investments, relaying word that an analyst report suggesting possible bankruptcy had sent shares of E*Trade reeling.

“Let’s go,” Mr. Griffin shot back, as he authorized a plan to begin buying up millions of shares of E*Trade.

Heroic hedge fund manager bestrides the world of finance, righting wrongs and buying distressed assets.

By late October, E*Trade had hired advisory firm BlackRock Inc. to assess the damage to its mortgage portfolio, according to a person familiar with the matter. And on Nov. 1, E*Trade’s Mr. Caplan made a key call: to J.P. Morgan Chase & Co. banker James B. Lee, also a bank vice chairman. “We need you to take a hard look at our options,” Mr. Caplan said, according to people familiar with the matter. By this time, Mr. Caplan had already retained longtime banker Jane Wheeler at Evercore Partners to work on a rescue plan.

That would be Jimmy Lee ’75, leading Eph banker of his generation. (Previous Lee posts here and here.) Who do you think these mysterious “people familiar” are and what is their motive for talking to the Wall Street Journal?

About a week later, on Nov. 9., Mr. Lee and a team of bankers flew to E*Trade’s Arlington, Va., offices to lay out the options. Two potential bidding groups were at the top of list. One was Citadel, and the other was the duo of brokerage firm TD Ameritrade Holding Corp. and private-equity fund J.C. Flowers & Co.

Also that day, E*Trade’s top executives huddled to assess their rapidly deteriorating mortgage portfolio. “We honestly can’t predict with any certainty where this is going anymore and we just shouldn’t even try to peg the bottom anymore,” a weary Mr. Caplan said to the executives. The firm then issued another profit warning and dismissed a top trading executive and members of his team.

Experienced finance people are wondering at this point about who is advising whom and how they are getting paid. Is Jimmy Lee getting paid by E*Trade? Whether or not a deal goes through? Does he need to split the fee with Jane Wheeler who is, fairly obviously, not a source for the story? Not being a banker, I am confused. Comments welcome from our Ephs in finance.

By the middle of November, the crisis was starting to wear on Mr. Caplan. The E*Trade executive, who lives on a sleepy tree-lined road in Bethesda, Md., took up temporary residence in New York on Nov. 9 and was working round the clock.

“I just really want this company to survive,” Mr. Caplan confided to J.P. Morgan’s Mr. Lee early last week. Mr. Lee, people familiar with the matter say, encouraged him to stay the course, telling Mr. Caplan, “You are doing the right thing.”

And, if you don’t do a deal, I don’t get paid! Or is that a cynical interpretation? Did JP Morgan get paid for this transaction? By Citadel?

But the best part is how a private conversation between Kaplan and Lee makes it onto the front page of the Wall Street Journal. You think Kaplan “confided” in Lee within earshot of anyone else? I’ll take the other side of that. I bet that only Kaplan and Lee know what was said, that one of them told their flunkies, those unnamed “people familiar,” to go talk to the Journal reporters. Was it Lee or Kaplan and, even more interestingly, why leak it?

Left as an exercise for the reader.

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