Lehman’s Desperate Housewives


Excerpt from “The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers.

Excerpted from The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers, by Vicky Ward, to be published this month by Wiley; © 2010 by the author.

On Wall Street, they pay you so much that they own you. You know? So it’s different. They have your soul. You gave it to them for the money.
—Mrs. Bradley Jack


The senior executives at Lehman Brothers, the storied Manhattan financial firm that was founded in 1850 and went bankrupt in 2008, were expected to have wives. And, if possible, they were supposed to be happy with them. If they were not happy, they were expected to pretend. In later years no one at the firm would ever forget what had happened to the late Chris Pettit, the longtime deputy to C.E.O. Richard “Dick” Fuld.

Pettit, good-looking, six feet two inches, a decorated Vietnam War hero, had been adored by the Lehman rank and file. Seen almost as a god, he was their real captain, instead of the more taciturn and less charismatic Fuld. But in the early 1990s, Pettit, a devout Roman Catholic, embarked on an affair with a woman at the firm.

This did not sit well with Lehmanites, especially as Pettit liked to emphasize moral values. He was the man who had banned Playboy magazine from the trading floor, and at a dinner for the senior executives in the 1980s he had said, “Now, look at this! Every single person here is with their original spouse. That is why we are successful. Because our word is our honor. We succeed in business because people can trust us.”

So when he broke his own code, it destroyed his career. His closest allies at the firm deserted him. These were Tom Tucker (head of sales), Pettit’s fair-haired best friend since kindergarten; Steve Lessing (Tucker’s affable deputy); and, perhaps most crucially, the hot-tempered fixed-income head, Joseph Gregory. Gregory, who, along with his wife, declined to comment for this article, disliked Pettit’s new mistress and once told Tucker that she was “evil.” (She in turn described Gregory to colleagues as “dumb as rocks” and “untrustworthy,” according to numerous sources.)

But it wasn’t just the men who were angered. Their wives were, too. Sandra Lessing and Heather Tucker especially were distraught at Pettit’s abandonment of his wife, Mary Anne, a pretty, auburn-haired former gymnast, who had been Pettit’s high-school sweetheart and had borne him four children. She had stuck with him through tough times when they were so poor they couldn’t afford blinds for the windows in their house. The Lessings, the Tuckers, the Gregorys, and the Pettits all lived close to one another in Huntington, on New York’s Long Island. They sometimes vacationed together, and for years the four men had carpooled to Lehman’s Lower Manhattan headquarters, stopping off before work at the gym, where they’d been nicknamed the Ponderosa boys—a reference to the popular 60s TV show Bonanza. At the office and outside of it they were sometimes known as the Huntington Mafia.

But with Pettit’s affair, the group split apart, and the men began to drive in separately. The women continued to support Mary Anne, who always believed her husband was coming back. She kept his clothes in the closet and his slippers under the bed.

Joe Gregory had already fallen out badly with Pettit at the end of 1994 over the Mexican-peso crisis. Pettit had accused Gregory of not keeping close enough watch over his division and jeopardizing the firm with a $5 billion exposure to the peso, which suddenly looked as if it might be de-valued. But by the fall of 1995, fixed income was doing better, and Gregory wanted to fire the heads of the less profitable equities and investment-banking divisions. Pettit did not agree. “Show me better candidates,” he retorted.

In late 1995, Gregory held secret meetings with senior staff, isolated Pettit, and finally engineered a coup, which would go down in Lehman lore as “the Ides of March” because it happened on March 15, 1996. Without Gregory, Tucker, and Lessing behind him, Pettit was finished. He left Lehman on November 26, 1996.

On February 15, 1997, only three months later, Pettit, who had been drinking, took a snowmobile onto a frozen lake in Maine in the black of night. He hit a stump, and his helmet was dislodged as he fell. He died en route to the hospital from trauma wounds to his head.

Dick Fuld, also known for his family-first philosophy, went to great lengths to ensure that nothing like Pettit’s affair ever happened again at the firm. His own marriage, to the former Kathleen Ann Bailey, a statuesque blonde, the youngest of eight siblings from a Catholic family on Long Island, was famously happy. He’d met Kathy when, against his will, she joined Lehman’s trading desk. “We can’t hire her—she’s too pretty,” he’d complained after her interview. “She’ll distract someone and marry them and will be no use to the firm,” he had said.

The person turned out to be him. She converted to Judaism, and they married on September 24, 1978, the day after he made partner. They had three children: twins, Jacqueline and Chrissie, and a son, Richie. Colleagues noted that he’d interrupt any meeting to take a call from his wife. To their amusement he called her “Fuld.” (The Fulds declined to comment for this article.)

On trips to Asia, when, after dinner, others would visit geisha houses, he always went back to his hotel. A story well known at Lehman was that he had once enraged a big client by refusing to find prostitutes for him after dinner.

Fuld kept a watchful eye on his executives’ marriages. He believed if they had stable home lives they would work better. He was openly anxious about Scott Freidheim, a young banker who became his managing director in 1996 and then was promoted to global head of strategy in 2005, because Freidheim waited until he was 43 to get married. (He finally wed Isabelle Dufour, a pretty French competitive equestrienne who holds an M.B.A. from Columbia Business School.)

Fuld hated to see signs of marital discord. During the annual Lehman summer retreats at the Fulds’ ranch, in Sun Valley, Idaho, it wasn’t uncommon for him to pull one of his employees aside and ask him questions about his home life. “Are you all having trouble?” he asked Bradley Jack, head of banking and later co–chief operating officer (C.O.O.), after overhearing an argument between Jack and his wife, Karin. “He really wanted to know,” recalls Karin, an attractive blonde, who once ran recruiting on the sales desk at Lehman and married the good-looking, athletic Jack in 1991. “He didn’t think Brad and I looked happy enough. It really worried him.”

The Fulds were, publicly at least, one of the happiest couples on the planet. Karin says she once heard Dick berate Kathy, who was 10 minutes late bringing the wives back from an expedition in Sun Valley, but this was a rare occurrence. Within his own family Dick had a rule. He told his children, “Disagree with me all you want in private. Call me an asshole at home all you want. But never air your domestic grievances in public.”

For all the senior-executive wives, says one of them, there were “unwritten rules.” If you were married to a Lehmanite, you belonged to the firm. Fuld used to acknowledge as much when executives became managing directors. In a welcoming ceremony with spouses present, he would thank them for all the “canceled dinners, weekends, and vacations” they were about to experience.

Karin Jack knew what was required of her as her spouse rose in the company. “I mean, Brad didn’t do one single thing for 20 years that wasn’t Lehman Brothers,” she recalls. “Not a postcard, nor a Christmas present, nor a phone call to his family. I did everything, unless it had a Lehman stamp on it. As a Lehman wife, you raised your kids by yourself. You had your babies by yourself in the hospital. And then you were supposed to be happy and pretty and smiling when there was an event, and you really would have liked to strangle somebody,” she explains.

Once she had to manage the move to a new house on her own. She later received a card with flowers from Teddy Roosevelt IV (a managing director at Lehman and the great-grandson of President Theodore Roosevelt) that said, “I know that all we do is steal your husband, and I’m sorry you had to move by yourself.” But that was just what was expected of all the wives. “I knew the culture,” she says, “so I knew he couldn’t come home if there was an important meeting. I was in labor with our daughter and had to lie there without him & but I wouldn’t get mad at him—he had called the entire Hong Kong office in for a meeting. We knew that it would have been used against him. If you made a personal choice that hurt Lehman, it was over for you.”

Brad Jack concurred with everything his wife said. “I remember when the Hong Kong office flew in and Karin went into labor,” he says. “I got into the car to try to get to the hospital but only made it three miles because the traffic was snarled up. I had to call her up and turn the car around and go back and deal with the guys who’d flown in to see me. She was so understanding about it. But she’s right—I couldn’t not be in the meeting.”

Karin and Brad remember when one of their children had a seizure brought on by a high fever. That day they were scheduled to look at the new house Joe Gregory, then the co-C.O.O. with Jack, was building on Long Island. “It was just the six of us—Dick, Joe, Brad, and the wives,” says Karin. “We were using Joe’s helicopter. But I said, ‘I have to take my son to the pediatrician.’ So they landed the Sikorsky near our home and waited for me, and they were not leaving without me. Can you imagine the pressure? I have this really sick child, but I know that if I don’t get on that helicopter it’s going to hurt Brad.” Brad agrees that it would have hurt him had Karin not gotten into the helicopter. “This is the price that no one ever talks about,” he says.

The wives of Executive Committee members were expected to support the numerous philanthropic causes Lehman endorsed—for example, to make annual donations to the American Red Cross, Harlem Children’s Zone, the American Friends of London Business School, and various hospitals. Kathy Fuld collected modern art, and she particularly liked Cy Twombly, Brice Marden, and Jasper Johns. In 2002 she joined the board of the Museum of Modern Art and by 2007 was a vice-chairman. Not only were the wives of Lehman’s senior management expected to attend MoMA evenings and other charity events (along with their husbands), they “were told exactly how much they had to donate,” says one. (There is now a gallery at MoMA dedicated to Kathy and Richard S. Fuld Jr.)

Social events sponsored by the firm were always stressful, especially the summer retreats in Sun Valley. One wife remembers, “It was this weird combination of business and then competition between wives and their husbands. Hiking was mandatory for all.” Karin Jack recalls that that trip was always “an absolute nightmare to pack for.” The evenings required pretty dresses, jewelry, and Manolo Blahnik shoes, while hiking gear was needed for the days, as well as “day clothes” for the mornings spent antiquing—trips for which there was a hierarchy as to who got to ride in which car. For many years Kathy Fuld took Karin with her, as she was next most senior. The third spot rotated. The couples got to Sun Valley on the two planes owned by Lehman, together known as “Lehman Air.” Francine “Fran” Kittredge, a managing director, arranged for each person or couple to be met at the airport by a driver with an S.U.V. The waiting line of dark-glassed S.U.V.’s was almost comical to behold, according to one attendee—like a scene from a movie depicting the motorcade waiting for a landing president.

The first meal of the day began promptly at 7:30 and ended an hour later. Then Dick Fuld would sit in a hard-backed armchair beside the fireplace in his drawing room, and the men would sit in chairs and on sofas around him to discuss business. The group would break at 12:30 for lunch and golf.

Everyone was supposed to be dressed appropriately. This meant that men wore slacks and a polo shirt or a button-down, and occasionally a blazer. Steve Lessing almost always had a shirt with the logo from one of the ten or so country clubs he belonged to. Jasjit “Jesse” Bhattal, the head of Lehman Asia, renowned for his natty dress, stuck out with his silk ascots.

But as the years went by, some non-golfers joined the group, and they had no clue about the dress code and didn’t much care. This was a grave mistake—Fuld cared how people looked, both in and out of the office. He always dressed immaculately for work, in a navy-blue suit purchased from Richards department store in Greenwich, Connecticut, along with a white shirt, black lace-ups polished to a high sheen, and an Hermès tie. He had a tailor put special stitching in his suit pants and tops so he could easily see which coat went with which pants. “Sloppy dress, sloppy thinking,” went his motto.

Lehman was the last of the Wall Street firms to go casual on Fridays. In the late 1990s, Fuld reluctantly called the operating committee together for a vote on whether they wanted it, and to his dismay they all did. He lamented, “I don’t know what this means.” He reinforced the point: “You know what? This democratic bullshit has gone on for long enough.” Joe Gregory chimed in, “Oh, I don’t want this, either, Dick. We are a different generation. We don’t believe in it, but we have to do this for the younger people.” Fuld compromised by letting the firm go casual on Fridays—except for the 10th (executive) floor. As he agreed to it he said, “It is a dark day for the firm.”

In the summer of 2006, Roger Nagioff—Lehman’s London-based C.O.O. of Europe, who owns a fleet of cars, including a Ferrari Daytona—arrived in Sun Valley and won the unofficial “worst-dressed prize” for his army cargo pants and black turtleneck sweater. “I don’t play golf, I’m not ashamed of that, and obviously my clothes were far too cool for this group,” says Nagioff. One witness recalls, “Dick didn’t lay off, teasing him mercilessly all weekend.” Matters were not helped by Nagioff’s atrocious beginner’s golf.

A member of his foursome recalls the agony of the 18th hole. Nagioff’s group, despite his lack of skill, was in the lead. “Now, if he’d just stood down and taken a bye [not hit], we’d have been O.K. Unfortunately, he had a go and hit the ball. It went way off the golf course, straight into the junk,” recalls someone on Nagioff’s team, which lost. Nagioff recalls he didn’t have a choice but to hit: “If I remember rightly the worst player had to take the best of four shots, so I had to try. I won’t pretend it wasn’t disastrous.” (Nagioff might have done well to have followed the example of Jesse Bhattal. Bhattal, also a beginner at golf when he joined Lehman, understood that one had to take the game seriously to rise at the firm. Within a few years he managed to acquire an eight handicap.)

Rob Shafir, the co-head of global equities, was similarly clueless about the importance Fuld attached to attire. In 2004, Shafir arrived at the Mark hotel, on Madison Avenue in New York, for a so-called off-site. He was five minutes late (Fuld was a stickler for punctuality), and as he looked around the room he realized he was the only person dressed business casual (oxford shirt, chinos, and no tie). “What?” he asked as he caught everyone’s horrified stares. “It’s an off-site … ” Fuld looked at him. “Rob: off-site, yes. Out of mind, no.”

Not even Fuld was powerful enough to ban divorce. In April 1999, Teresa Gregory filed for divorce from Joe, who had been at the firm since he was 16 and was now running the global-equities division. Teresa was athletic and fun, but, according to one of Gregory’s colleagues, “she didn’t fit in at the Lehman dinners.” Karin Jack recalls one evening at the Fulds’ apartment in New York City when Teresa was left standing on her own. “She needed help, guidance, and Joe didn’t give her any,” Jack recalls. (Calls to Teresa were not returned.) She later learned from Brad Jack that in the car en route to the dinner Gregory had asked him, “How old is Karin?” And then he added, wistfully, “She’s so beautiful.”

By 2000, Joe had remarried, to a dark-haired, Greek-born beauty named Niki Golod, who was recently divorced. Gregory and Golod had met through their sons, who were best friends at school. “Isn’t it great that now they’ll be stepbrothers?,” Gregory would tell colleagues. Recalls someone who worked closely with Gregory, “We all thought it a bit odd that he’d go around saying that. But he didn’t seem to see anything unusual in it.”

Niki, a three-time breast-cancer survivor, first diagnosed when she was 36, was a vocal supporter of breast-cancer-awareness groups. After she married Joe, the other Lehman wives often attended charity dinners for breast-cancer research, where Niki would speak impressively. In addition, Lehman executives were told to give like crazy to the cause. “For the senior-level guys it was about 50 grand each—for the executive committee, 100,” says a senior executive.

Niki Gregory loved the clothes and the jewels that her husband lavished on her. She was known to take trips to Los Angeles just to shop. She gave the Lehman wives tours of her vast shoe closets in their Huntington home. One person taken on the tour described a closet as being “twice the size of the Jimmy Choo store in New York.” It was filled with shoes designed by Christian Louboutin, Manolo Blahnik, and Chanel, and included every style imaginable: pumps, stilettos, boots of every height, ballet flats, strappy evening heels & “Many of them had never been worn,” speculates one awed visitor.

The Gregorys were viewed by colleagues as people who needed to show off their wealth. No one else flashed cash quite like Joe, and he couldn’t help but tell the other senior executives that his personal annual spending budget was $15 million. Joe also had both a seaplane and a helicopter ready for his daily commute. “I never did understand why he bought a vast house in the Hamptons [to use] for just two weeks each year,” one colleague notes dryly. Another employee says, “Joe always stayed in Huntington rather than moving somewhere more affluent because he wanted to be a big fish in a small pond. He wanted to be the richest man in town.”

Like her husband, Niki outsourced chores to a personal staff of about 30, which included members of Joe’s family. “I don’t think she ever set a table in her life for a dinner party,” says one wife. “It wouldn’t occur to her to do that.”

As the firm’s dramas played out in the Lehman offices, they also played out among the wives. Many were as competitive as their husbands, and they ruthlessly criticized or exploited any perceived weaknesses of their rivals. Niki Gregory was considered as skillful a political operator as her husband—and just as ambitious. Some of the wives were a little intimidated by her; others were just cautious.

Once, in Sun Valley, Karin Jack noticed that Niki was ignoring Martha McDade, the wife of Herbert “Bart” McDade, who was then running fixed income. (He would later, in the firm’s eleventh hour and far too late, become the president.) Martha was a civil engineer, who had founded her own environmentally focused engineering company as well as a charity to help improve the lives of amputees. “She was a smart woman who was always herself. Just a fabulous person,” recalls Karin Jack. On that Sun Valley trip, Martha asked some of the wives, “Why will Niki Gregory not look at or talk to me?” Karin immediately interpreted the snub as a sign that Bart McDade was likely to be demoted or fired.

She was right. In early summer 2005, not long after the incident, McDade was moved from his position as head of fixed income to replace Rob Shafir as head of equities. (Some saw the move as a demotion, but McDade was so successful in his new job that it simply increased his power base within the firm.) “The women couldn’t hide their disdain for someone they knew was on the way out. It was like the herd leaving someone with a broken leg behind,” one former wife says.

Karin Jack recalls hating the rigorous annual hike up Bald Mountain, in Sun Valley. (Sometimes Dick Fuld humorously got behind her and pushed her up for the last few minutes.) One year she arrived with a fake cast in order to pretend she had broken her leg. She was flummoxed when Niki Gregory arrived with a real cast on her leg and said she planned to climb regardless. “So I brought that stupid cast out there, thinking I could get out of the hike, and then Niki shows up in one. I wanted to just die,” Karin says. (Karin Jack was not the only one to dread the climb. Jeremy Isaacs, the C.E.O. of Lehman Europe and Asia, remembers he “found it extremely unpleasant” the first year he tried it. But he was grateful ultimately for the warning it gave him. “I hired a boxer to get back into shape. It was the catalyst for making me get fit.”)

When Brad Jack and Joe Gregory were appointed co–C.O.O.’s, in 2002, they grew increasingly wary of each other. Karin sensed trouble when she noticed, at a 2003 fund-raiser given by Joe and Niki on Long Island, that the Goldfarbs (David Goldfarb, Lehman’s C.F.O., and his wife, Sharon) were seated with the Fulds and the Gregorys, and she and her husband were at a table next to them.

Her suspicions worsened on a trip to London to celebrate the wedding anniversary of Jeremy Isaacs. Over that weekend Gregory made all sorts of jokes about “co-co puffs” and told Jack about his “commitment” to “never making decisions that were without Brad, and dividing up the responsibilities in a way that both people felt like they were involved,” says someone who was there. Yet, at the same time, Karin felt that Niki was completely ignoring her and Brad.

The very next Monday, when they all got back to New York, Karin recalls, Gregory immediately started “cornering Jack”—it was clear “Joe wanted the job by himself,” something her husband concurs with. “I was so terrified of what Joe would get up to behind my back that, when I got cancer in 1998 and had my stomach stapled, I came back after just a few weeks, much sooner than I was supposed to,” Brad says. “I was worried that something bad would happen to my job in my absence.”

As time progressed, Karin noticed other little snubs. She and Brad had planned to take a trip to California with the Fulds, but it kept being postponed until eventually it was just dinner at the Jacks’ home “with Dick continually looking at his watch.”

In Sun Valley in 2003, Karin came down to breakfast one morning to find that all the other wives had gone on a hike. When the women returned, Kathy took Karin antiquing alone. Kathy apologized. “She said, ‘I’m sorry that that happened. I was told that you had already exercised and that you didn’t want to go on the walk.’” Karin believed that there was only one person who could possibly have told Kathy she didn’t want to go: Niki Gregory. Later, Karin said to Brad, “I don’t know what’s up, but I can tell you that what happened to me is a metaphor for what’s going to happen to you.”

She was right.

Not long after, in May 2004, Brad Jack was demoted to “Office of the Chairman.” He left Lehman in June 2005, with a severance package of $80 million. Karin and Brad separated and divorced in 2008. He later reflected, “The truth is the job—as in the very long hours, the pressure—just drove us apart.” The two remain great friends and speak every day.

Joe Gregory was promoted in 2004 to the position of president.

And Fuld discontinued the tradition of the wives’ coming to Sun Valley. He’d thought their presence had become too distracting. So the younger, newer wives—like Nancy Dorn, a clever, beautiful blonde who married George W. Bush’s second cousin George Walker (appointed head of investment management in 2006), and Scott Freidheim’s wife, Isabelle—never got to go.

There was another, hurtful price of being a Lehman wife. You had to make friends with the other wives only to lose those friendships once your spouse was ousted.

After her husband left Lehman, Karin Jack was extremely hurt never to hear from Kathy Fuld again. The two had often gone shopping or antiquing together. Kathy, in turn, would voice surprise that once Dick was booted from Lehman she was no longer befriended by the wives of other Wall Street C.E.O.’s. She burst into tears at a dinner with Peter A. Cohen, now the C.E.O. of the Cowen Group, a securities-and-investment-management firm. “I thought all those people were my friends,” she told Cohen, who said he felt very sorry for her.

After Lehman filed for bankruptcy, Kathy stayed on the MoMA board but was no longer in contention for the chairmanship. She just wasn’t rich enough anymore. Over the past year and a half, the Fulds sold some of Kathy’s art collection for $13.5 million and their 16-room Park Avenue apartment for $25.87 million. She learned something that other Lehman wives had learned before her: “When your husband leaves Lehman, you become a ghost.” But in Kathy’s case, Lehman had become a ghost along with her. V

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