Former Lehman COO Arrested for Forging Oxycontin and Ritalin Prescriptions

So today my phone has rung off the hook.

Why?

The Fairfield Patch, broke the news on Monday that Lehman Brothers’ former COO Bradley (Brad) Jack — who owns the most expensive home in Fairfield, CT, worth $34.6 million — had been arrested and was “charged with second-degree forgery and forgery of a prescription drug.”

The New York Times‘ Dealbook pointed out that if he is convicted, he faces jail time, which would make him the first Lehman senior executive to don a jump suit.

On one level this is a huge irony, since as I wrote in my 2010 book, The Devil’s Casino: Friendship, Betrayal and the High Stakes Inside Lehman Brothers (John F. Wiley & Sons) — despite massive unethical and irresponsible business practices, appalling management and board oversight, as well as highly questionable earnings results in 2008 — no one from the erstwhile Lehman Brothers is yet anywhere close to being headed to the Big House.

Bradley Jack could not be held responsible for any of the above since, as I wrote in my book, he was forced out of the firm in 2005 by the infamously Machiavellian man wanting to become the firm’s president (number two): Joe Gregory. (In my book I quote the in-house Lehman motto “You never want to be told you are doing well by Joe.” It’s code for “you are fired.” Hence his nicknames were “Uncle Joe” after Stalin and “Darth Vader”).

And if anyone wants to blame a single person for Lehman’s demise — well, in my view, after Fuld, it is Joe Gregory who promoted all the wrong people (loyalists to him, rather than competent financiers), punished dissent with backstabbing and was more interested in telling everyone about his lavish lifestyle than managing the firm.

In 2004 Gregory got rid of Jack who was his competitor for the job of president — unfilled since 1997. How did Gregory do this? I happen to know from several sources that he told Dick Fuld, the CEO that Jack was allegedly abusing prescription drugs and as I state in my book “not sufficiently focused on work”. This is of course a euphemism.

The truth is that Jack, by his own admission to me, had suffered cancer and had a scar right across his torso. I asked Jack about the drug addictionallegations at the time I was reporting the book and he denied them. But he did talk to me about Gregory’s very “unsympathetic” attitude towards his recuperation, which only made it harder for him to get better. Jack felt pressured to return to work far sooner than the doctors told him he should. But he felt he had no choice.
He felt he had to watch his back every second. He knew, he told me, that Gregory was out to “get” him — as did his then-wife Karin, who complained bitterly to me of what she saw as the conniving of Gregory’s wife, Nikki. Nikki, Karin claimed, deliberately left her out of an antiquing trip with Kathy Fuld at the Fuld’s home in Sun Valley (Nikki Gregory never commented on this but both Jacks corroborated the story — as did others).

So today’s news that Jack allegedly handed in a fake prescription for 12 Oxycontin pills and nine Ritalin pills at a CVS in Fairfield has not shocked me or the ex-Lehmanites. Some seem to be much more interested in this news than the the other story about Lehman: that the world’s largest bankruptcy is drawing to a conclusion.

But personally I feel sorry for Jack. I left him a sympathetic message along with his ex-wife Karin who provided some of the more blood-curdling material in my book about the tough Orwellian Lehman culture. It was Karin Jack who explained that Lehman wives were expected to give birth on their own, move house on their own — and in one especially grim scenario leave a very sick child’s bedside in order to get on a helicopter to visit a new mcMansion purchased by… Joe Gregory. The senior executives’ lives were subordinated — not for the business — but to pay lipservice to a vain greedy man. In my book — and in Vanity Fair — we ran a picture of Nikki Gregory’s vast shoe closet — the size of a room — and guests to the house in Huntingdon, Long Island were actually given tours. The screen version of Too Big To Fail opens with Gregory getting out of his beloved helicopter in which he commuted to work.

So there are two lessons here.

Had Brad Jack worked for a culture that supported rather than culled illness, maybe we would not be reading today’s headlines.

They are a brutal reminder of what a truly horrible place Lehman became, ruining the reputation of what had once been a place of dreams.

But more importantly they illustrate the importance of a firm’s culture. If Lehman’s culture had cultivated dissenting opinions, been more tolerant of illness in capable people, and less about men terrified of losing their corner suites — then they would not have fallen — and more broadly, of course, they would not have caused a worldwide catastrophe which doesn’t seem to be getting much better three years on. All Wall Street firms would be wise to think about this.

Vicky Ward is a Contributing Editor to Vanity Fair

The Whirligig of Time Fails to Bring Its Revenges

A year ago, while Washington was grandstanding about the about lazy, unethical, risky banking practices that put the entire country at risk — I published a book. It was called The Devil’s Casino: Friendship, Betrayal and the High Stakes Played Inside Lehman Brothers, and it chronicled, among other things, the lazy, unethical, risky banking practices that had put the entire country at risk in 2008.

At the time, the D.C. hearings and S.E.C. investigations were underway, and Washingtonians swore that they’d clean up the mess and regulate the hell out of Wall Street — and that greed would be a thing of the past.

I expressed my skepticism at the time. “The crisis will happen again,” I said. “Not tomorrow, and not in the same way — but you cannot regulate greed.” That, really, was the central theme of the book, which looked at the evolution of Wall Street through the narrow lens of Lehman Brothers, spanning fifty years.

Fast forward to today, when my book comes out in paperback. Let’s take a look at the headlines:

Alan Greenspan has just declared that Dodd-Frank reform legislation is a waste of time for the reasons listed above. The financial system is so “irredeemably opaque,” he wrote in the Financial Times, that policymakers cannot hope to sort it out. Barney Frank (D. Mass), the former chairman of the House Financial Services Committee naturally disagrees. In the Financial Times, he mumbles on about the effectiveness of stress tests. But didn’t it take most U.S. banks about thirty seconds to pass those in the wake of TALF?

Mr. Greenspan has a point.

But, forget opacity — let’s just look at the simple stuff.

Bernie Madoff — in jail for perpetrating the biggest Ponzi scheme ever — has declared that it was no surprise that J.P. Morgan stands accused of reaping $6.4 billion in funds from the scheme. The bank denied this, but Madoff said the bank “must have known.” In other words, when given the opportunity to make money in dubious circumstances — people take the money.

President Obama has ended his open war with Wall Street, making nice with the Chamber Of Commerce and promising that he will find ways to work with them, not against them. Why has he taken this unprecedented action? Could it be because he has realized that if employment does not rise and the economy is still faltering, he might not be re-elected in 2012?

Lloyd Blankfein, the CEO of Wall Street’s favorite punching bag, Goldman Sachs, has just received a bonus of $18 million at the same time that one of his outside directors, Raj Gupta, the former CEO of McKinsey, is testifying that he gave inside information from Goldman board meetings to Raj Ratnaram, the CEO of hedge fund Galleon.

And what about Warren Buffett, considered for most of his 80 years the only straightshooter in the world of finance, and a crucial player in saving the world economy (well, Goldman Sachs) in 2008? Turns out he might not be quite so straightforward. His image is tarnished amid accusations that he acquired the chemicals company Lubrizol when he knew that his second-in-command and heir-apparent, Jeffrey Sokol, since let go, had just bought $10 million shares of the firm.

On Friday, Wall Street Journal readers were treated to this great headline: “Subprime Bonds Are Back“. Whoopee! The very things that led Americans to treat their houses as ATMs are having a resurgence.

And on Monday, we learned that the Fed and US Treasury are engaged in a war with the FDIC over how many companies should be branded too big to fail. The Fed and US Treasury want less than ten; the FDIC wants three to four times that number. The moral of this is: Greenspan is right. It’s all too complex for anyone to sort it out.

Meanwhile has anything happened to the housing Government Sponsored Entities, Fannie Mae and Freddie Mac, which blew up the weekend before Lehman did?

Yes: according to a front page article in Friday’s New York Times. Although neither Fannie or Freddie has yet been reformed (that’s on next year’s agenda, apparently), their top six executives received over $35.4 million since their collapse in 2008. That’s an awful lot of money for doing-well, nothing.

And all those dreadful losses reported to be happening in the hedge fund industry, swirling with rumors about insider trading after the closure of David Ganek’s Level Global and three other hedge funds in the wake of FBI raids? Well, it turns out that hedge funds, while not outperforming the market, are still profitable — thanks to those lovely fees.

Greed never dies; rules are made to be bent; the rich are indeed different from the rest of us — and Shakespeare’s fool was wrong. It would seem the whirligig of time does not, alas, bring its revenges.

Vicky Ward is a contributing editor to Vanity Fair and the author the New York Times Bestseller: The Devil’s Casino, Friendship, Betrayal and the High-Stakes Games Played Inside Lehman Brothers (John F. Wiley & Sons).

 

Goldstein on Gelt and an Announcement

Here’s what we talked about on Goldstein on Gelt -which will air next Monday noon EST: Did new media and the democratization of news make it easier for women to rise in media? Is there a  bias in covering women in the media? And really the big question – which is why men are so short-term in their thinking when it comes to hiring great women – who may want to take a few years out to have kids – but who are a great long term investment?

I will be blogging from the Women in the World 2011 conference this Thursday – Saturday. Fascinating line up of guests, great panelists and moderators – and you have to love the fact that the inaugural dinner on Thursday night kicks off with Bill Clinton – and all us women!!! Standby! V

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Death Threat Warning

Dear All, For the second time in my career I am receiving death threats from people who are afraid of what I might write. For the second time I will not be cowed. People who send me emails saying “Those who have money know how to hurt you” do not scare me. These bullies should know that if anything happens to me or my family the authorities know exactly what to do and where to look. And I trust that anyone who knows what I am talking about here – will help them. V

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The Storming of St. Barth’s

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On St. Barth’s, the chic-est Caribbean island, Christmas and New Year’s are the mad season. “During Christmas the energy is incredible,” says a longtime resident, who describes the island then as a “summer camp for wealthy, well-known New Yorkers,” business tycoons, music stars, and Hollywood celebrities. “It’s like the whole island is Studio 54 at its peak.”

There are so many rental cars on the roads that the traffic crawls. All the hotels are full. So, too, are the rental villas, which go for as much as $150,000 a week during the holiday season.

The most recent wave of invaders is the “New Russian” super-rich, and the island’s biggest celebrity at the moment is billionaire investor Roman Abramovich, who last spring renovated the local soccer stadium as a gift to the island. He paid $89 million for a 70-acre estate above Gouverneur Beach, which he visits with his 29-year-old girlfriend, Dasha Zhukova, and he can be seen tooling around in his Mini Cooper without the bodyguards that usually accompany him in London.

On New Year’s Eve, parties are given all over the island and on the yachts moored in Gustavia Harbor. “The tradition is if you know the friend of the friend of the friend you’re in,” says the longtime resident. Party crashing is an accepted local pastime. Last year Abramovich’s party was the party to crash. If you managed to get in, you could mingle with the invited guests, including Gwen Stefani and Beyoncé—who both reportedly performed—Jay-Z, Orlando Bloom, Miranda Kerr, and Lindsay Lohan.

When you got bored there, according to the resident, “you could always go to the party aboard [Microsoft co-founder] Paul Allen’s boat [the 416-foot Octopus], because it’s so huge that he literally just sends shuttles [to shore], and anybody can come.”

The regular holiday crowd includes Revlon chairman Ronald Perelman and modern-art collector Peter Brant and his newly reconciled wife, Stephanie Seymour. Some wealthy visitors like the island so much they have bought homes there—for instance, art dealer Larry Gagosian, Jimmy Buffett, Steve Martin, photographer Patrick Demarchelier, David Letterman, and legendary French singer Johnny Hallyday, who sometimes performs spontaneously at parties, just as Mikhail Baryshnikov sometimes sweeps a pretty girl off her feet on the dance floor.

Billy Joel used to try out songs there, and Steve Martin spent several visits hiding behind shades and hats—before he realized nobody cared. That is the unique ambience of St. Barth’s. “There has never been a them-and-us” attitude, says a longtime resident.

On one level he is right. The locals have few problems with the visiting celebrities.

The divisions they face are among themselves, above all between the “Metros” and the old St. Barth’s families who own most of the island’s land and businesses and control its politics.

“Les métros are the people who come from la métropole, meaning from France,” explains David Zara, the vice president of Tradewind Aviation, which shuttles passengers between St. Barth’s and Puerto Rico in the winter. “There is a lot of tension between the Metros and the St. Barth’s [locals]—it’s all very well hidden because of the tourism, but, trust me, they hate each other.”

In general, the 10 or so old, powerful St. Barth’s families, led by Bruno Magras, the president of the 19-person Territorial Council (the local legislature), favor building and development—because they stand to profit most from it—while those who come to the island for pleasure and relaxation are for preserving its low-density housing and natural beauty. “Bruno is from the generation that feels that development must be endless,” says Maxime Desouches, an opposition member on the Territorial Council, “and that’s the way to go, because if you don’t have any development the island will fall back, and it will lose everything.”

The development/anti-development debate exploded after the July 16, 2009, meeting of the council, at which President Magras announced he had been approached by the American hotelier André Balazs, 53, the suave, handsome proprietor of L.A.’s Chateau Marmont and New York’s Mercer and Standard hotels, about building a 40-bungalow “eco-resort” behind the dunes at Saline Beach. Saline is a “green zone” (meaning you can’t build on it) and an iconic spot—one of only three mostly undeveloped beaches left on the island and the most pristine of them.

As the proposal was not formally on the agenda, no vote was taken that evening, but, according to Desouches and others, in the weeks that followed Magras let it be known that he strongly favored the project. (Magras says in an e-mail, “I was not against the idea of opening a part of that area behind the dune.”) And while Desouches says the majority of the council members were not initially enthusiastic, it was generally believed that the president could easily persuade them to vote for it. As one resident observes, “It is a local joke that if there is a voting session the first one who is going to vote yes or no is Bruno. He will put his hand up first before everybody else, and then everybody votes the same way.” Jean-Pierre Hennequet, who owns an arts and antiques gallery in Gustavia, the island’s capital, says that council meetings often approach farce: “You should see them. They arrive, they have a list of what they have to vote on, and they discover the documents when they arrive—hundreds of pages—and they have to say yes or no.”

By early October, three local environmental groups—Saint Barth Environment, Essential Saint Barth, and the Association for the Protection of Birds—had collected 1,185 signatures, from the approximately 5,000 eligible voters on the island, to block the Saline project. The petition, many residents believe, is the first significant challenge to Bruno Magras, who has ruled St. Barth’s for 15 years, first as mayor, when the island was a commune of Guadeloupe, an overseas region of France, and then as president since July 2007, shortly after the island became a more independent “overseas collectivity.”“It was the first time there was a petition, a public petition, against Bruno’s proposal with a lot of signatures,” says Hennequet.

The issue of developing Saline has galvanized the inhabitants of St. Barth’s and ballooned into the broader issue of the future of this tropical paradise: will it be paved and built over into oblivion, thereby alienating the wealthy and famous visitors who are drawn to it each winter and who fund much of the local economy?

Hélène Bernier, a key player in circulating the petition, doesn’t look like much of a challenge to anyone, certainly not to powerful politicians and wealthy developers. At the Eden Rock, the first and most famous hotel on the island, she stands out from the other lunchers—French, American, and English tourists decked out in Eres, Chanel, Vilebrequin, and similar beach uniforms, who can still, in these hard times, blithely afford $100 for a vegetable plate and a half-bottle of rosé wine.

Bernier, who is slight—perhaps five feet two—says her family has been on St. Barth’s for 10 generations, but it is a small and poor family, not a powerful one. Today she is wearing khaki shorts and a white T-shirt that has seen better days. Her brown shoulder-length hair is damp from the humidity of the lunchtime heat. She looks absurdly young. Is she in her 20s? “I am 36,” she says.

Bernier explains that many more people supported the petition than actually signed. “I went house by house and said, ‘Do you want to sign?’ And a lot of people said, ‘I don’t want a hotel on Saline, but if I put my name on the paper, I’m going to have something I need from the president, for me or my family, and he is going to say no. So I cannot help you.’ It was a surprise for me at first. I said, ‘You can say what you want. You can put your name here—it’s legal. You can do it.’ But they would still say, ‘I don’t want to, because if I ask for something for myself after I sign, they are not going to give it to me.’ ”

Bernier herself has a vested interest in seeing that Saline is not developed: over the last eight years she has built up a business, Easy Time, in which she takes tourists hiking to visit the island’s places of natural beauty and cultural heritage. One of her clients’ favorite places is the beach at Saline, but she now fears for her and their safety if she takes them there.

The owners of the land which Balazs wants to develop—and there are dozens of them, largely from the Lédée and Bryan families—are mightily angered by her for ruining their jackpot. Because of Balazs’s interest, the owners were hoping to revoke the area’s green-zone status, which would make the land much more valuable. As Desouches notes, “When you consider the obscene amount of money involved, those people who want to sell their land don’t look kindly on someone who is saying, ‘No, no, this is not a good idea.’ ” Another longtime resident observes, “The Saline landowners are very cross, and now they are putting signs behind the beach that say, private property.”

“[I] took an ad in the local newspaper,” Bernier recalls, “in which I said on a certain day I would lead a hiking tour on Saline. The day before [a person from one of the families who own land there] called me and said, ‘If you come on Saline, we’ll be waiting for you with some rocks and we won’t let you pass. I don’t want you anymore in Saline.’ And that day I did go with my client to Saline. They were there. I saw them, but they didn’t move.”
Our Dinner with André

According to Desouches, Balazs, after talking with Magras and perhaps getting assurances from him, bought 50 percent of the land through “co-ownership”—which Balazs likens to buying shares in a corporation—at a cost of 15 million euros ($21 million), and he planned to buy the rest once he had all the building permits and authorizations. After hearing of the petition to stop his project, he made available on a Web site what look to be PowerPoint presentations about it. They are filled with photos of birds and plants and dunes, and they talk about the many environmental improvements Balazs says he will make to the property, such as “dune stability and enhancement,” “stormwater control,” “habitat restoration,” and re-vegetating with “lush native species.” Beyond some tiny rectangles on one or two of the aerial photos, a computer mock-up of eight generic cottages in a circle, and a stock photo of a bungalow from another resort, there is no indication of what the eco-resort will actually look like, although it is stated that the bungalows will not be visible from the beach, will utilize green technology, and will occupy only 2 to 5 percent of the parcel. However, this 2 to 5 percent seems to be only the total area the bungalow foundations will occupy, rather than the area throughout which they will be scattered. There is no mention of any office, restaurant, or common buildings. (Balazs explains that the 2-to-5-percent figure is a mere approximation.)

On September 25, 2009, Balazs went down to St. Barth’s with three or four of his team, including “a lawyer, a planner, and an ecologist,” to present the project at a meeting attended by 40 or so members of the local populace. The presentation was as vague and ecological as the documents: “You see nature from when you were a child, and when you were a child you see something green and that’s the way you think it was always supposed to be. But you know humans have been living … here for many centuries It’s nature with everything that’s alive—we’re nature It becomes fairly complicated and I’d be happy to talk about the details when we have more time.”

The mood was raucous and confrontational. “Not in this place,” one member of the crowd heckled, referring to Saline.

After talking a lot about how eco-resorts were the wave of the future, the Balazs team was forced to admit that they had never actually built one among their seven hotels. As Jean-Jacques Rigaud, the editor of Tropical magazine, put it, “The project was in a really very sensitive area, and he had to come with very serious guys in this field to be convincing enough, and he didn’t do that at all.”

Maxime Desouches recalls, “They were asking all kinds of questions, and obviously, when you build a hotel like that, you’re going to have employees, so I asked him right off, O.K., what’s the plan for you to employ local people versus bringing some more people who will drive [the] price of the rents up? So he couldn’t answer that. And I’m sure because he didn’t think down the road to see what was involved with his project in terms of local impact on the economy and how to get things to work.” (Balazs admits that he has not yet worked out such details as the design of the bungalows and who will build them. He explains that at this stage of its development the Saline project is “a vision, a plan, a suggestion,” and he believes all the objections that have been voiced are part of the normal dialogue and that each one of those concerns will be addressed at the appropriate time during the approvals process.)

The evening went only further downhill when Balazs took a small group to dinner after the presentation. According to a source whose good friend was there, “André talked about protecting some local species [of bird or spider], which was, in fact, not found on the island—which raised ‘mixed feelings’ around the table.”

Jean-Philippe Piter, 42, a photographer who edits the annual Pure Saint-Barth (which features large photographs of young, naked women—a component that exasperates the more conventional members of the local tourist board), believes Balazs’s resort will mean “more people, more cars, more trash to deal with.” Some other questions skeptics are asking: Would yachts anchor in the sea opposite the resort? Would there be a private beach entrance for residents? Would it lead to construction all around the bay?

Jean-Pierre Hennequet echoes others in suspecting an underhanded scheme. “Due to the very high land price and the high cost of construction, a new hotel cannot be made profitable on St. Barth’s,” he says, “unless it is in fact eco-bungalows presented as a ‘hotel,’ which are actually intended to be individually sold as private ‘villas,’ with hotel service. Many professionals suspect that this is the real project behind the eco-curtain window dressing.” (Balazs says that selling the bungalows individually is the kind of thing that would be determined when getting final approvals.)

Even before Balazs came on the scene, virtually all of St. Barth’s was up in arms over a high-end development company, Duet Luxury Hotel Fund, which in 2008 began building, right by the lagoon on Grand Cul-de-Sac, a 42-room hotel that was to be called the Nilaia Beach Resort & Spa. Duet, which owns stakes in the restaurant Automat, in London, and the restaurant-and-hotel company Groupe Alain Ducasse, in Monaco, stopped the project last year due to a slowdown in the luxury market. It now consists of half-built concrete shells sitting behind rusty wire fencing in what used to be one of the most beautiful places on the island. “Why could Balazs not take the Grand Cul-de-Sac project on and complete it instead of invading Saline?” many on the island wonder. (Balazs replies that the unfinished resort is completely antithetical to the one he wants to build.)

Even those in favor of the project think it should be anywhere but Saline. Anne Dentel, a villa-rental agent, says, “I love Balazs’s project. Really, I love it. I thought it was a great idea, a great hotel, but it’s not the right location for me…. André said, ‘Oh, I’m going to build on the little mountain, and I will not go on the beach.’ But you know how it works. One client would go down and say, ‘I would like a lounge chair, an umbrella.’ Then ‘I’d like something to drink.’ Then ‘I would like a sandwich,’ and, you know, blah, blah, blah.”

Maxime Desouches tried to follow up with Balazs after the presentation to persuade him to consider another site: “I went up and talked to him. I said, ‘Look, I’m a public servant here, and I understand what you’re trying to do.’ And he said, ‘O.K., well, let’s go have lunch.’ So I went to his rental house, and I said, ‘Look, your idea is wonderful, but not in Saline, not in a million years. It’s going to be very difficult for you to swing that.’ But it was just like trying to explain to a little kid that what he was doing is wrong, but he wants his way, and he will try to get it anyway. I explained to him we had some other avenues we could explore, and my role as a public servant was to try to see how we could match what he wanted to do with other sites. I told him we could work on the Manapany [an existing hotel], which is in bad need of being re-done, and we could open the construction on one side and try to swing something there. At first, he was saying, ‘No, no, no. If I can’t do it in Saline, I won’t do it anywhere.’ But then he said, ‘Can you show me on Google Maps where it is?’ So I pointed it out, and he looked at it. He gave me his card, his phone number, and all that, and I said, ‘Let’s discuss it.’ So, when I was in New York I left two or three messages for him, but he didn’t return my call.” (Balazs says he has had a good dialogue with Desouches and was intrigued by the prospect of renovating the Manapany, but he discovered it is not for sale.)
Turndown Service

‘Construction, construction everywhere,” complains Jean-Philippe Piter as we sit in his Daihatsu Terios—the car of choice on the island. “It’s time to stop the construction because we’re really now seeing the trouble that it causes for the environment: for trash, for electricity, for everything.” On an island that is barely eight square miles, we dart around, following a main road that loops from Plage de Colombier to Grand Cul-de-Sac and back. We pass through a small residential area, Pointe Milou, where Piter points out the foundation for a large house. “This is what I’m talking about. This is just too much,” he says, exasperated. Because of such construction, in the upcoming issue of Pure Saint-Barth, Piter will feature photographs of the island’s ugliness. “Whereas before I might have airbrushed out the ugly, growing construction, now it’s in. I want people to see the ugly gray rocks, the dumps, the burning waste,” he says. “Have you seen … And God Created Woman, with Brigitte Bardot?” he asks. “Remember when St. Tropez was a little village of fishermen? It was beautiful.”

Driving east to Grand Cul-de-Sac—the area where Duet Luxury Hotel Fund suspended its project—Piter recalls the site 15 years ago, when he first came to the island, as a lagoon where locals would come to swim and relax on Sunday afternoons. It is now surrounded by large homes, which, he says, have wrecked the delicate eco-system. “So now the lagoon is polluted. They fucked it up so much, you have no idea.” The skeleton of the 42-room hotel is as ugly as people say.

As we drive away, Piter spots some garbage, slams his hands on the steering wheel, and steers the car onto the soft shoulder of the road. He apologizes for his anger and excuses himself, saying, “Let me take a quick photo of this place.”

At Saline, which gets its name from the salt ponds behind the beach that once provided the locals with a source of income, we take the path from the makeshift parking lot to the beach. “You have to suffer a little bit to go there,” Piter warns me. From the car, we climb a hill, the path strewn with rocks and pebbles that will cut you if you are barefoot. Then we go over the dune, and a breathtaking view spreads out before us—an expanse of golden sand, half a mile long. Behind us are small hills brimming with palm trees, cacti, and birds. Piter’s passion for this place has never left him. “You now understand that they can’t touch it,” he says. “That would be the biggest mistake. Please tell Bruno when you see him that American people [and] tourists you speak with don’t want it.”

‘Lédée … Magras … Laplace … Gréaux … Gumbs … Questel … Turbé … Brin … Blanchard … Berry … Bernier … I think that’s it,” says Jean-Pierre Hennequet, who is listing the large and complicated founding families who rule St. Barth’s. If you check the St. Barth’s telephone book you’ll find 227 Gréaux, for instance, and 133 Lédées—on an island of 8,500 permanent residents. On the government organizational chart, which includes five officials and the 19-person Territorial Council, there are 6 people with the last name of Gréaux, 2 with Laplace, 2 with Magras, 1 with Turbé, and 1 with Questel.

I meet with Hennequet, long a sage confidant of many local inhabitants, at his shop. You walk in off the cobbled street and are hit by a cool darkness that is strange for sun-soaked St. Barth’s. Here, among the shadows, one sees a Fang Ngil mask from Africa, a 12th-century Cambodian sculpture of a young dancing girl, a piece of amber on an engraved silver pedestal from Bhutan. “It’s an eclectic collection,” Hennequet says airily, with the ease of a man who is familiar with the world’s exotic nooks and crannies.

“It all started here in the 17th century actually,” he says of St. Barth’s. “None of the founders came from France. They all came from St. Kitts, which was then half French, half English. The governor of St. Kitts sent about 60 people here in 1648 to colonize the island in the name of the French company of the West Indies. But there was nothing here, and it was lacking natural springs, so it was very difficult to settle here. And at some point it was also inhabited by the Carib Indians, who, when they met people different from themselves here, chopped off their heads.” So new settlers were enlisted from Normandy and Brittany, and they firmly established themselves around the 1670s. “Then they split the island among themselves more or less.”

The modern era of St. Barth’s started in 1938 when Rémy de Haenen, a former French merchant marine, came to the Caribbean and soon saw a ripe opportunity to establish a smuggling trade. Traveling at first by boat, de Haenen realized that to truly control the Caribbean he would need to do so by air, and, legend has it, he learned to fly—at an airstrip in Miami—in one hour. De Haenen was thus credited with being the first person to land an airplane on the island, having to first scatter the sheep by passing close overhead. By the 40s, de Haenen considered the island his home, and in 1953 he built Eden Rock on a piece of land near the airstrip that jutted out into the water. He made the house out of a green stone he dived for and a rare hardwood called Angelique that he imported from Guyana. The resulting house—and cottages he built around it—were uniquely hurricane-proof and served as the island’s first guesthouse for visitors, among them banker David Rockefeller.

As far as smugglers went, de Haenen was scarcely alone, but he was far and away the best. Until the 70s, the Caribbean was still largely an unregulated place where the smugglers were far more successful than the rare customs officials trying to stop them. In 1951, after being caught in Venezuela with 30,000 crates of whisky, according to his son Rémy and his grandson Tristan, de Haenen received what was the largest fine ever administered in the Caribbean: one billion francs. Over the course of his life, he was sentenced to prison three times, but none of this affected the high opinion the people on St. Barth’s had of him. By 1953, de Haenen was the consul general of the island, and, in 1962, he was elected mayor. Upon word of his victory, hundreds of islanders carried him in the streets. De Haenen protected and modernized the island, and, as one story goes, when France became curious about tax revenues and sent a collector to investigate, he organized a crowd of several hundred to wait at the airport with pitchforks, tar, and feathers. The tax collector never disembarked.

When de Haenen died, in 2008, his grandson says, he was “one of the poorest men on the island.” De Haenen sold his real estate at a loss, but those old-timers who managed to hold on to their land now find they are sitting on gold mines—even a modest house off the water can go for $7 to $8 million these days.

Hennequet says, as do other Metros, that the founding families fear becoming a minority of the voters and losing their power. What is at stake? “They have so many links and agreements between the big families here,” he explains, “and they have organized it so you do the petroleum and gas import. You do other general import. You do this, you do that. And they are all pulling the strings behind the scenes.” The powerful families are jokingly called the Magrafia, after their leader, President Magras. “There are so many little secrets going on on the island that they hold themselves apart,” says Randy Gurley, the owner of the restaurant Maya’s, just outside Gustavia. “If there’s a conflict between three people, and two of them are St. Barth’s, the St. Barth’s will side with each other, even if they hate each other, just because that’s how things have to go. Bruno has capitalized on that—I mean he is very much a St. Barth’s guy.”

Magras is a lightning rod for critics of the St. Barth’s system of patronage, and the stories are many about how bluntly he uses his power. People who cross him, say his opponents, find their requests for construction permits or other needed government approvals interminably delayed or denied. Or they will be harassed by the police, as Hélène Bernier claims she has been in an open letter to the island’s elected officials. Monique Magras, who is divorcing Bruno’s youngest brother, Denis, has given her “testament” about what she knows about the Magras family to her lawyer because she is so fearful of their power on the island.

One of Magras’s biggest antagonists on the island is David Zara, whose Tradewind Aviation is a rival to St. Barth Commuter, the airline owned and operated by Magras. “Should the president of an island also be its major businessman?” asks Zara, 48. “The answer is no. You have to make a choice. Either you’re a politician who wants the good of the greater community or you’re a businessman, but you can’t be both.” (Magras disagrees and says his job as president pays him only 4,800 euros a month, he has kids, and he has to make a living like everyone else.) Zara says that since Tradewind started operating on the island, in 2005, Magras has continually harassed him, accusing him of breaking regulations, and having police detain his pilots. “Bruno is a deeply envious person who cannot stand that anybody can come and make money on his island when he thinks he should be the only one making money. It’s pure, pure, pure, deep, deep envy,” says Zara.

Last year, Zara claims, a policeman even admitted to him that he had been instructed by Magras to harass him: “I mean, this man is way out there. He accuses me of everything under the sun.”

Magras responds that Zara has operated charter flights from St. Barth’s “to destinations where he was not allowed to fly to [by aviation regulations]. We did speak to Mr. Zara many times about that.” Referring to Zara’s claim about the policeman’s harassing him on orders from Magras, Magras says he did report what he thought to be an illegal charter flight to Guadeloupe one day. A few hours later his son Bertrand told him that Zara had said he was picking up friends there. “So it is true that on arrival in Guadeloupe, the gendarme made a control there And you’ll agree that when you don’t have anything to hide, being controlled is not a problem.”

Jean-Pierre Hennequet is more measured about Magras and points out the many good things he has done for St. Barth’s. “He managed to win a very large amount of autonomy from our motherland, which benefits the unique fiscal situation of the island within France—local residents who have been here for five years pay almost no taxes. He was very conservative, fiscally speaking, so probably alone among territorial entities of France we have not a cent of debt. He has developed many facilities for sports and for young people, and he is now doing the same for elderly people, and he is presently rebuilding the network of roads in a grand manner … maybe a bit too grand for the St. Barth’s some of us like.”

But Magras is also a shrewd and wily politician, Hennequet notes: “I will give you an example. From time to time there are public debates where the public can ask any questions, and he answers. If you say, ‘But why don’t you do this?’ or ‘It would be better to do it this way,’ usually he will not accept that something good can come from somebody else. It has to be his proposal. So he will reply, ‘Yes, it’s a very good idea. Of course, I thought of it first, but we cannot do it, because there is a law which in Article 6(z) says we can’t do that.’ And everyone says, ‘Oh really? That’s fine. Very well.’ Then after the meeting you go and check the law, and either the law does not exist or the article does not exist or the sub-article says something different.” (Magras says this is “nonsense.”)

Notes another longtime resident, “Bruno wants to be seen as the beneficent king. If he says there is a deal or no deal, just accept it and move on and stop talking about that silly rumor.”
One Man Is an Island

Bruno Magras, who looks a lot like the actor Charles Bronson, wears large tinted glasses, a blue dress shirt, and tan pants on the day we meet in his office. His cell phone is in his shirt pocket. His office has a big wooden desk and a photograph (mandatory for all French subsections) of French president Nicolas Sarkozy on the wall. The morning sun blazes through the windows. We sit on armchairs on either side of a coffee table.

He begins by telling me his story. “According to the research my family has made, we were one of the first families on St. Barth’s, in 1652.” Bruno was born on the island 300 years later, in 1951. His father worked odd jobs, building roads and even cutting the stone to be used in building a vacation home for David Rockefeller, who bought land on the west side of the island in the mid- to late 50s. It was Rockefeller who introduced St. Barth’s to the outside world when, in the early 60s, he entertained such luminaries there as Henry Kissinger and Aristotle Onassis.

Until then the vast majority of the local men were working on nearby Guadeloupe and would travel back and forth by sailboat. The few families able to afford to educate their children sent them to school on Guadeloupe or Martinique. Magras was not one of them. “I didn’t go to school,” he tells me, “but I read a lot, and I studied by myself a lot to know what I know today. I don’t have any regrets about that, because I know people who went to school for 20 years and I wouldn’t cut off my head to put on theirs.”

When he was 16, Magras moved to St. Thomas, in the American Virgin Islands, where he worked as a gas-station attendant and a mechanic’s assistant before learning how to fly in hopes of becoming a pilot. He then worked as a manager at the Guadeloupe airport for 15 years.

Magras had political aspirations early on. In 1976, at the age of 24, he was elected to his first office and by 1983 had risen to become deputy mayor. He temporarily abandoned politics in 1989 to concentrate on his business interests, including the island’s only cement company, a lucrative enterprise he owned with his brother Michel. (Bruno sold his stake in the company in 2003.) In 1995 he started St. Barth Commuter and was elected mayor.

When I ask him about Balazs’s Saline development he downplays what many on the island characterize as his enthusiasm for the project and the fact that he has not accepted the environmentalists’ petition, which would force the council to hold a vote on the project. “Now we have a few people here that, without knowing what was going on, made a petition,” he says. “Thirteen hundred people signed a piece of paper, without knowing anything, accusing the president that he was for developing Saline and this and that. Well, that’s politics. But it’s not my move, it’s not my word in politics. When you come to talk to me, I must receive you and listen to you, see what you think. And whether I agree with you or not, or perhaps will agree with you under some condition, we talk about it. But that’s not the way that people react; everyone has their own interpretation of what is going on. And what is going on is that André Balazs made a request to open the area to build an eco-resort, and the council did not approve opening the area.”

But Magras also says that St. Barth’s is a “free country” and that he and the Territorial Council can do little to prevent anyone from buying land or building on it, especially if he goes to court, which he says is an option for Balazs. It doesn’t take much prodding to get Magras to admit he is not exactly an environmentalist. “Of course, some people would like everything to be green and to live with the little birds, the flowers,” he says. “Some of them should go into the middle of the Amazon—you know what I mean—and live with the birds. That’s the best way. Because now they can build houses in trees.”

David Zara is convinced Magras, who is up for re-election in 2012, is just biding his time and planning for a way to push ahead with the Saline development. “Bruno’s like a scorpion,” Zara says. “He waits in the shade. He burrows himself in the sand, and then he comes back and bites. Now that he made one of the pieces of land nearby buildable, what is he going to do? He’s going to come back in a few months and say, ‘How can we deny permission to André Balazs?’ ” (“I do not pay attention to rumors,” Magras says. “Those unfounded comments are part of the ‘national sport’ of the island.”)

The petition against developing Saline was presented to the Territorial Council on October 6, 2009, but Magras didn’t put it on the agenda, as required by law, according to Maxime Desouches. The petition’s sponsors hired a lawyer and “eventually the administration judge will rule in favor of such inscription,” says Desouches, who believes the project is dead. “This will be a deal breaker between Bruno and the population,” he adds. “There’s no real need for the project, and people are more thinking now of a pause in the development of the island.”

But André Balazs says he will continue to pursue the eco-resort. “I’ve been coming to St. Barth’s most of my life, and I have always viewed the Saline project as a long-term commitment to the community,” he says. “All of our projects have been in historically sensitive areas in sophisticated communities, and addressing the concerns and interests of these communities is an integral part of these projects’ success.”

It took Balazs six years to build the Mercer; he’s only six months into Saline. Talk with him and you believe he will prevail. As Desouches says, “St. Barth’s is like a beautiful woman Men will do anything to have her.”
V

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Lady Gaga Submits Resume to Philip Treacy, Prepares to Make Coffee

Just to show she is completely serious, pop icon Lady Gaga has just submitted her resume to London milliner Philip Treacy as part of her bid to intern for him this summer.

A spokesperson at Philip Treacy said the resume was serious but also “pretty funny” — and that though there are many requests from media outlets to see what’s on it, for now, Mr. Treacy, who makes Lady Gaga’s hats is staying mum. (Gaga’s real name is Stefani Joanne Angelina Germanotta and she is 24).

Getting an internship with Treacy, 43, is no easy feat. “You need to have experience, and be very, very quick,” explains a spokesperson.

Gaga’s experience is obviously not of the conventional kind — her college major at New York University’s Tisch School was in music, not fashion — but no matter. “She really wants to learn fashion” says Treacy’s PR agent.

Is the London milliner worried that the internship could damage their friendship? That there might be a “blow-up” between two highly creative people?

Pause.

“We’ll see.”

Gaga has agreed to take an intern’s wages — namely nothing for one month — and she is said to be “very very keen to learn the craft of making hats.”

“After all, Coco Chanel started out making hats,” the Philip Treacy spokesperson reminded me.

True.

But did Coco Chanel ever make the coffee? Apparently coffee-making is definitely on Gaga’s list of duties while under Treacy’s employment. V

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Goldman Sachs Alum Receive Threatening Phone Calls From Their Alma Mater

So they are calling Goldman Sachs “Little Brother”….

By “they” I mean the Goldman alum who have acted as TV pundits, bloggers or commentators on the firm in the past three days. Over the weekend they received repeated phone calls from their alma mater telling them to desist.

“Hey you’ll play fair, won’t you?” the voice from Goldman has said, “gently,” but according to one recipient ever so “slightly menacingly” over the phone.

“I mean we did great business with your new firm, so you won’t be knocking us on TV, will you? You know we are the good guys….”

Good guys? More like Goodfellas….

One very indignant recipient of these calls phoned me Monday morning.

“They’ve been calling me all weekend, gently pressuring me, trying to control what I say about the firm on television. They haven’t stated an overt threat but it’s like “little Brother” [as opposed to the dictatorial regime of “Big Brother” in George Orwell’s 1984.]

My source isn’t giving in. “I don’t do business with them any more, so I don’t care. I’m going to say what I think.”

What he thinks is that they are as arrogant as the guys at the former Lehman Brothers and the rest of the securities houses who got hedge-fund envy and as a result ratcheted up their leverage to completely unacceptable levels.

Even so my source was taken aback by the phone barrage. He’s conferred with other alum and he’s not the only one to have received the calls from the old mother ship. They’ve all been told what to say and repeatedly to “play fair.”

It goes without saying that if Goldman Sachs has done nothing wrong, it shouldn’t need to “control” the words of those who left the firm a long time ago.

Doing this not only affirms its image as deeply arrogant – remember Lloyd Blankfein recently said he was doing “God’s work” – but also deeply sinister. V

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Senior Goldman Exec Is Married to Former Head of ACA

Friday, as news of the allegations of fraud at Goldman Sachs spread, I got a call from someone who works in the insurance business.

“Check out the former head of ACA” he said referring to the now-defunct and formerly down-graded bond insurer who asked the-not-so-omniscient hedge fund manager John Paulson to choose which securities to put into the CDO, Abacus, that Goldman Sachs subsequently sold to two big clients, the German bank IKB and the Royal Bank of Scotland — without disclosing that Paulson would be shorting his own hand-picked stocks on the other side of the trade.

Now the SEC’s complaint states that ACA had no idea that Paulson was shorting the stocks he’d been asked to select, yet my deepthroat was not so convinced.

“ACA had a horrible reputation,” he told me, which led me to ask the obvious question so why would Goldman want ACA’s stamp as selection manager on the CDO they were marketing? Fabrice Tourre, the 31-year-old named as the architect of Abacus, is quoted as insisting that Goldman wanted ACA’s brand name and “credibility” on the CDO.

My source told me to check out who the head of ACA was married to. “I think you’ll find it’s a senior woman at Goldman Sachs,” he said.

Well, yep, it is.

Alan S. Rosenman took over ACA Capital as president and CEO in 2004 – because — wait for it — his predecessor Michael Satz had “personal income tax issues” — (how murky is this story going to get you must be asking?)

According to a Business Week article dated April 3 by David Henry and Matthew Goldstein, Rosenman “immediately began to push ACA into CDO insurance, an area his predecessor, Satz, had only begun to explore.”

Rosenman’s wife, or at least partner — they are listed as sharing a house together for which they paid $6.1 million in 2005 in New York — is Frances “Fran” R. Bermazohn, who is managing director and deputy general counsel at … Goldman Sachs.

Hmmmn.

I called Mr. Rosenman who gave me the illuminating statement: “I am not offering any comment at this time.”

I asked him, did he ever disclose their relationship to buyers of Abacus? Did she? And Could ACA really therefore not have known about Paulson’s activities?

“No comment.”

One thing that is certainly puzzling is that if ACA did know, then why on earth would it have issued protection on the so-called “superior senior tranche” which turned out to be of course anything but ‘super senior,” thanks to Paulson betting against it — and ACA went bust in December last year?

But, just as much as the SEC is claiming Goldman should have disclosed that John Paulson had hand-picked stocks he was choosing to short (which means, by the way, in case anyone has missed this point, that Mr. “supposed-good-guy ” Paulson just made one billion dollars off the back of the German tax payer who had to bail out the German bank IKB on the back of its collapse) so too this relationship should have been disclosed. That it is not mentioned in the SEC’s complaint strikes me as being very odd.

I was still waiting for Goldman Sachs to respond as this article went to press.

When I named my recent book on Lehman Brothers, The Devil’s Casino, I knew that Wall Street was rigged and that everyone on it was playing with loaded dice. Lehmanites told me they were no different from anyone else on the Street and just as Goldman is saying there is no fraud here with the rigged CDO (and they may be right — legally) so Lehmanites believe there was no fraud connected with Repo 105.

The conundrum is that weak accounting rules enabled both Goldman and Lehman and no doubt every other gambler out there to get away with what they did legally. (I, for one, do not believe will the SEC will win their suit against Goldman because the law protects Goldman). That their actions were arguably immoral? Well, that’s a question no one on Wall Street wants to ask of themselves.

Watch closely what happens Tuesday when former Lehman CEO Dick Fuld goes before Harry Reid’s committee to explain Repo 105. He will insist he did not break the law, just as Goldman will insist the same – and the problem is that technically they may be right.

The bigger question is: how do we stop immoral acts that are technically legal? We need to change the law — and fast, but carefully. Things that are hidden need to be brought to light, and contorted complex accounting rules about disclosure needs to become far simpler.

And people who are married and whose respective firms are doing business together need to disclose it to any third parties. V

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Lehman’s Desperate Housewives

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

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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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How Lehman’s Hidden Inner Circle Brought the Bank Down

Senator Spencer Bacchus, the top Republican on the House Financial Services Committee is quite right to write to Lehman bankruptcy examiner Anton J. Valukas and ask to review communications between the Federal Reserve and the Securities and Exchange Commission about Lehman Brothers Holdings Inc, in preparation for an April 20 hearing into the Valukas report. He wants to know what exactly the SEC found out while it was inside Lehman — or more importantly what it missed.

In his letter to Valukas. Bacchus wrote that Lehman “used accounting gimmicks to hide its debt and mask its insolvency…More disturbing, the examiner’s report also describes what appear to be significant failings on the part of officials” at the SEC and the Federal Reserve Bank of New York.

The SEC and FED, after all, were inside Lehman Brothers for the last six months of its life. How did they miss all this?

Sen. Chris Dodd, the Senate banking chair has asked former Lehman chief Dick Fuld to return to testify exactly how Lehman misled so many people. (Fuld’s lawyer has said Fuld had never heard of Repo 105, the accounting tool by which Lehman moved $50 billion of its balance sheets…)

Perhaps some explanation may lie in an email I received today from one of Lehman’s most senior employees — someone who worked there for 17 years. He wrote to me off the record so I am not at liberty to disclose his identity, but he was very senior and widely respected.

He is not the only Lehmanite to have responded to my new book, The Devil’s Casino (Wiley). Many have thanked me for exposing a culture led (and ruined) by a tiny leadership that was egregious, isolated and mendacious. Without exception, Lehman readers have told me I got it absolutely right — and — in particular they have agreed with today’s New York Post’s article which noted that the book maintains that Lehman’s president Joe Gregory was actually the chief villain at the firm, responsible for much of the over-risky leverage, and not so much Dick Fuld. (Incidentally all the e-mailers and callers have agreed that their wives loathed being “married to Lehman” as the book points out in one chapter.)

What my e-mailer of today however points out is something that both Rep. Bacchus and Sen. Dodd may find useful as they follow up on Valukas’s report.

He wrote, “like many former colleagues, I’m astonished at how much we didn’t know about the workings of the inner circle.”

Note the last three words. “The Inner Circle.” This was not the whole Lehman’s executive committee. This was Fuld, Gregory, perhaps in reverse order, and then Gregory’s pet of the month, at one point Erin Callan, at another Mark Walsh. But it was a tiny unit, cut off from the rest of Lehman.

He follows up.

So, here we have Lehman:

“An inner circle” at the top cut off from the rest. It fires people for telling the truth, and fails to promote the most competent executive until too late…. This culture didn’t spring up in its last few months…it festered for years. Whatever the SEC and FED missed in the bank’s final six months, the cabal at the top was already set in its ways and adept at hiding what it was really doing from not just the SEC, Fed and market — but its own senior management. That really is a horrifying culture, and one I am delighted to have exposed. V

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